BIGLEY v. PACIFIC STANDARD LIFE INS. CO., 229 Conn. 459 (1994)

642 A.2d 4

(14671)Supreme Court of Connecticut

BORDEN, BERDON, NORCOTT, KATZ and PALMER, Js.

The plaintiff, executor of the estate of W and beneficiary of a life insurance annuity policy purchased by W from the defendant insurer, sought damages for breach of an insurance contract for the wrongful payment of the policy proceeds to a person who had been fraudulently substituted as the beneficiary. The trial court found that following the death of W, J, her insurance agent, had fraudulently induced the defendant to pay the policy proceeds to himself rather than to the plaintiff. That court concluded that the defendant’s good faith payment of the policy proceeds to J without knowledge of the fraud or notice of any competing claim relieved the defendant of its obligation to the plaintiff under the policy. On the plaintiff’s appeal, held that the payment of policy proceeds to a person fraudulently substituted as beneficiary does not relieve an insurer of its contractual obligation to pay the beneficiary actually designated by the policyholder; because J rather than W, the owner of the policy, had signed the change of beneficiary form and submitted it to the defendant after W’s death, the request did not comply with the terms of the insurance policy, which required change requests to be submitted by the owner of the policy, and therefore did not effect a change of beneficiary.

Argued December 3, 1993

Decision released May 31, 1994

Action in two counts to recover damages for, inter alia, breach of an insurance contract, and for other relief, brought to the Superior Court in the judicial district of Fairfield, where the court, Ballen, J., denied the defendant’s motion to stay the proceedings; thereafter, the case was referred to Hon. Milton H. Belinkie,

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state trial referee, who dismissed the first count of the complaint and, subsequently, exercising the powers of the Superior Court, rendered judgment for the defendant on the second count, and the plaintiff appealed and the defendant cross appealed. Reversed; further proceedings.

Peter C. Harvey, for the appellant-appellee (plaintiff).

Alice Ann Carey, for the appellee-appellant (defendant).

PALMER, J.

This case requires us to decide whether the beneficiary of a life insurance annuity policy or the insurance company that issued the policy bears the loss resulting from the insurer’s payment of the policy proceeds to a person fraudulently substituted as the beneficiary. The trial court held that the defendant, Pacific Standard Life Insurance Company, was not liable to the plaintiff, John F. Bigley,[1] executor of the estate of Norma C. White and the beneficiary of a life insurance annuity policy purchased by White from the defendant, because the defendant had paid the policy proceeds in good faith to a fraudulently substituted beneficiary. We reverse the judgment of the trial court.[2]

The relevant facts are undisputed. In May, 1987, White purchased a life insurance annuity policy from the defendant and named the plaintiff as beneficiary in his capacity as trustee of her estate. Michael Jurinske, an insurance agent and White’s grandson, had sold the policy to White and had witnessed White’s execution

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of the policy application. On January 15, 1988, White died in an automobile accident. At the time of her death, the value of the policy was $225,343.18.

On January 21, 1988, the defendant received a written request to change the beneficiary of White’s policy. The change of beneficiary form, dated January 8, 1988, bore the purported signature of White and sought a change in the beneficiary of the policy from the plaintiff to Jurinske, as trustee for two of White’s great-grandchildren. The form also bore Jurinske’s signature as a witness to White’s purported execution of the form. The defendant approved the request, and on January 25, 1988, mailed a notification letter to White’s home acknowledging the change of beneficiary. On March 22, 1988, the defendant, having received a copy of White’s death certificate from Jurinske and no other claim to the proceeds of the policy, forwarded a check to Jurinske in the amount of the policy.[3]

The plaintiff brought this action, alleging that the defendant had negligently approved the forged change of beneficiary form, and that the defendant had breached the terms of the policy by failing to pay the proceeds to the plaintiff. The defendant denied the allegations and asserted four special defenses, namely that: (1) the action should be stayed in light of an order of the Superior Court for the state of California enjoining all actions against the defendant;[4] (2) the defendant had been discharged from liability by virtue of its payment of the policy proceeds in accordance with the

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terms of the change of beneficiary form; (3) General Statutes 38a-453 (c)[5] bars the claims of the plaintiff; and (4) the plaintiff’s claims are barred by his failure to question or challenge the fraudulent change of beneficiary request in a timely manner.

A trial to the court ensued. The court found that Jurinske had fraudulently induced the defendant to pay the policy proceeds to him, rather than to the plaintiff, by forging White’s signature on the change of beneficiary form. The court concluded that the defendant’s good faith payment of the policy proceeds to Jurinske without knowledge of the fraud or notice of any competing claim relieved the defendant of its obligation to the plaintiff under the policy.[6] We disagree.

An insurer who is contractually obligated to remit the proceeds of a life insurance policy upon the death of the insured is discharged from liability under the policy if, in good faith, it pays the proceeds to the beneficiary designated by the policyholder. Weed v. Equitable Life Assurance Society of the United States, 288 F.2d 463

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(5th Cir.), cert. denied, 368 U.S. 821, 82 S.Ct. 40, 7 L.Ed.2d 27 (1961); Harper v. Prudential Ins. Co. of America, 233 Kan. 358, 662 P.2d 1264 (1983); Avondale v. Sovereign Camp, Woodmen of the World, 134 Neb. 717, 279 N.W. 355 (1938); 4 G. Couch, Insurance (2d Ed. Rev. 1984) 27:176; see Iverson v. Scholl, Inc., 136 Ill. App.3d 962, 483 N.E.2d 893 (1985); Bickers v. Shenandoah Valley National Bank, 197 Va. 145, 88 S.E.2d 889 (1955), reh. denied, 197 Va. 732, 90 S.E.2d 865 (1956). This general rule relieves the insurer from liability under the policy in circumstances where, for example, the insurer had paid the beneficiary designated by the policyholder without knowledge that: (1) the policyholder was incompetent or insane at the time the beneficiary was designated; Weed v. Equitable Life Assurance Society of the United States, supra, 463; New York Life Ins. Co. v. Federal National Bank, 151 F.2d 537 (10th Cir. 1945); State Life Ins. Co. v. Coffrini, 285 F. 560 (3d Cir. 1922); Metropolitan Life Ins. Co. v. Bramlett, 224 Ala. 473, 140 So. 752 (1932); (2) the beneficiary was criminally responsible for the death of the policyholder; In re Estate of Thompson, 99 Ill. App.3d 303, 426 N.E.2d 1 (1981); Harper v. Prudential Ins. Co. of America, supra, 358; or (3) the beneficiary had exerted undue influence over the policyholder in order to secure the designation as beneficiary. Bosworth v. Wolfe, 146 Wash. 615, 264 P. 413
(1928). Unless the insurer has reason to believe that the beneficiary named by the policyholder is not entitled to receive the policy proceeds, payment to the policyholder’s designated beneficiary discharges the insurer from liability under the policy.

Payment of the policy proceeds to a person fraudulently substituted as beneficiary, however, does not relieve the insurer of its contractual obligation to pay the beneficiary actually designated by the policyholder. Western Southern Life Ins. Co. v. Whiston, 30 Ill. App.3d 844,

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333 N.E.2d 72 (1975); Stavros v. Western Southern Life Ins. Co., 486 S.W.2d 712 (Ky.App. 1972); Union Labor Life Ins. Co. v. Parmely, 270 Md. 146, 311 A.2d 24 (1973); G. Couch, supra, 27:177; cf. McNabb v. Kentucky Central Life Ins. Co., 631 S.W.2d 253
(Tex.App. 1982). The life insurance annuity policy purchased by White expressly required the defendant to pay the policy proceeds to the beneficiary designated by White. Payment of the proceeds to Jurinske did not discharge the defendant from its contractual obligation to pay the plaintiff because Jurinske was not the beneficiary named by the policyholder.

This conclusion is consistent with the general rule that a change of beneficiary of an insurance policy can be effected only by following the procedure prescribed by the policy. Aetna Life Ins. Co. v. Hartford National Bank Trust Co., 146 Conn. 537, 541, 153 A.2d 448
(1959); O’Connell v. Brady, 136 Conn. 475, 480, 72 A.2d 493 (1950). The life insurance policy purchased by White sets forth only one method by which a change of beneficiary may be effected: “[T]he owner [of the policy] may change the Beneficiary during the lifetime of the Insured by filing a satisfactory written request with us at our Executive office. . . .” (Emphasis added.) Because Jurinske, rather than the owner of the policy, signed the change of beneficiary form and submitted it to the defendant after the death of the insured, the request did not comply with the terms of the contract and, therefore, did not effect a change of beneficiary.[7]

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The trial court did not reach the defendant’s special defense that the plaintiff’s claims are barred by his failure to question or challenge the fraudulent change of beneficiary request in a timely manner.[8] The defendant will have the opportunity to prove that claim on retrial.[9]

The judgment of the trial court is reversed, and the case is remanded for a new trial.

In this opinion the other justices concurred.