Family fights over nearly nulled life insurance benefits

By Steven A. Morelli

A court decided a family can fight over whether the daughters who refused to pay the premium of their father’s life insurance policy are entitled to the death benefit after their mother rescued the policy from lapsing.

The dispute involved a Lincoln Life & Annuity Co. policy that was paid for by the insured’s former company, George W. Burnett Inc., a trucking company in Buffalo, N.Y. The insured’s wife, Maria R. Bauer, found out the policy had or was about to lapse because the company, then owned by the insured’s son, Lawrence J. Adymy Jr., could no longer afford the premium.

The policy originally named as beneficiaries the wife for 22% of the benefits and the insured’s daughters, Cami Wittmeyer and Cathy Decker, for 38% each. Bauer learned in June 2019 that her husband’s policy was in danger of lapsing unless a payment was made. The company could not afford the payment and the daughters refused to contribute to the amount that would keep the policy active and the future premiums, according to records for the case Lincoln Life & Annuity Co. v. Wittmeyer in New York Supreme Court’s appellate division.

Bauer and her son paid to keep the policy active and took over the premiums. Bauer in her power of attorney capacity changed the beneficiaries to remove the daughters and split the benefits equally between her and her son, according to court records. When the insured died in August 2019, all four submitted claims.

The appellate court agreed with the daughters and the trucking company that Bauer did not have the authority to change the original beneficiary designation.

But it is not as simple as that.

“The 2013 power of attorney executed by decedent appointing the wife as his attorney-in-fact did not grant the wife the authority to change the beneficiaries of decedent's life insurance policy inasmuch as it lacked a statutory gifts rider,” according to the decision.

But the laws around the issue also say the insured’s intentions are paramount, although mere intent is not enough. The insured must have made an affirmative act to make the change.

The appellate court ruled that the previous court should have recognized that Bauer raised a “triable issue of fact” when she claimed that the insured was angry that his daughters refused to contribute toward the amount to keep the policy or future premiums and said that if Bauer and her son kept the policy active, they should be designated the beneficiaries.

“In addition to the evidence of decedent's intent to change the beneficiaries, the wife stated that decedent affirmatively acted to accomplish that intent by signing a memo granting Lincoln Life permission to release information to [agent Lee V.] Stadler, who then advised the wife how to reinstate the Policy,” according to the decision. Bauer also said the insured sent her as his representative to sign for him in the mistaken belief that the power of attorney agreement granted that authority.

Cross claim restored

The court restored a cross claim from the mother and son (the Bauers) that the daughters would be unjustly enriched if they received the policy benefits.

“Significantly, if the Bauer defendants had not made the requisite payments, the policy would not have been in effect at the time of decedent's death, and there would have been no death benefit on which to make a claim,” according to the decision. “Thus, if the second designation is ultimately determined to be void, the Bauer defendants have raised a triable issue of fact whether the daughters would be unjustly enriched at the Bauer defendants' expense.”

That means even if the second designation were voided, the daughters would be unjustly enriched by benefitting from the first designation of a policy that would have lapsed had it not been for the wife and son, according to the Bauers’ claim.

The appellate court ruled that Lincoln would not be in breach of contract if it paid the benefits for either the first or second beneficiary designation if one is ruled valid when the previous court rehears the case.

Previous court's dismissal an issue

Another issue was the previous court’s dismissal of the Bauers’ counterclaim of negligence against Lincoln Financial and Stadler, the agent.

The appeals court restored the Bauers’ counterclaim because “as a general principle, insurance brokers 'have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so.' ” However, "[a]bsent a specific request for coverage not already in a client's policy or the existence of a special relationship with the client, an insurance agent or broker has no continuing duty to advise, guide or direct a client to obtain additional coverage,” according to the decision.

The judges said New York’s top court, the Court of Appeals, listed three exceptional situations when there may be a “special relationship”: When the agent receives compensation apart from the payment of premiums; when there was some interaction regarding a question of coverage and the insured relied on the agent’s expertise; and when there was a course of dealing over a extended period that “would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on.”

The court ruled that the evidence suggested that the insured and wife relied on Stadler’s expertise as an agent of an affiliate of Lincoln Life and also there were dealings over a period of time.

The case now returns to the previous court for the parties to reargue which designation is the valid one.

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].