Equitable Life Assur. Soc. of the U.S. v. Jones, 81-1607

• Decision Date: 27 May 1982
• Docket Number: No. 81-1607,81-1607
• Citation: 679 F.2d 356
• Parties: The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Plaintiff, v. Mary E. JONES, Appellee, and Melva Lee Jones Homens, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 356

679 F.2d 356

The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Plaintiff, v. Mary E. JONES, Appellee and Melva Lee Jones Homens, Appellant.

No. 81-1607.

United States Court of Appeals Fourth Circuit.

Argued Dec. 7, 1981.

Decided May 27, 1982.

A. Ronald Rubin, Baltimore, Md., for appellant.

Alexander Stark, Baltimore, Md., for appellee.

Before WINTER, Chief Judge, and PHILLIPS and MURNAGHAN, Circuit Judges.

HARRISON L. WINTER, Chief Judge:

In an action of interpleader to determine which of decedent's two wives was entitled to the proceeds of his life insurance policy, the district court granted summary judgment to the second wife. It was the district court's view that the claim of the first wife, if any, was solely against the estate of the decedent.

We reverse and remand for further proceedings.

I.

The facts in this case are undisputed. When Alfred McClemen Jones died October 7, 1980, there was outstanding on his life a group policy of life insurance in the amount of $16,500, procured by his employer and issued by The Equitable Life Assurance Society of the United States (Equitable), a New York corporation. The policy reserved to the insured the power to change the beneficiary.

The decedent had originally designated his first wife, Melva Lee Jones (now Homens), a citizen of Maryland, as the beneficiary. The decedent and Melva were divorced on March 10, 1972, but as part of a separation agreement between them, executed on June 14, 1968, and made part of the subsequent decree of divorce, the decedent agreed, in consideration of the "nominal amount of alimony" claimed by Melva, to keep the policy in force and to retain Melva as the primary beneficiary. ¹ This promise was unconditional, but neither Equitable nor the decedent's employer was ever given notice of the undertaking.

On June 7, 1975, the decedent married Mary E. Jones, a citizen of Maryland, and thereafter he designated Mary as the beneficiary of his life insurance policy. When the insured died, Melva and Mary each asserted that she was entitled to the full proceeds of the policy. Equitable deposited the proceeds of the policy into court and impleaded both claimants. Mary answered asserting that she had been properly designated the primary beneficiary; Melva's answer plead the legal effect of the decedent's contractual undertaking to retain the policy and not to change the beneficiary, all as incorporated in the divorce decree.

The district court held that the separation agreement had no effect on the decedent's power to change the beneficiary of his life insurance policy. Moreover, there was no question but that the decedent had taken all proper procedural steps to change the beneficiary of the policy from Melva to Mary. Accordingly, the district court gave judgment for Mary, holding that Equitable is liable to Mary and only to Mary for the full amount of the life insurance proceeds. The district court specifically refrained from ruling on the continued validity of the separation agreement after Melva's remarriage, or the legal effect of the word "irrevocably." These issues, in the view of the district court, were irrelevant to the case at bar, and raised state-law questions within the special competence of state domestic relations courts which could be litigated in a claim by Melva against the estate of the decedent for breach of the separation agreement.

II.

When Equitable instituted the interpleader action, it became the duty of the district court to determine which of the two claimants was entitled to the fund deposited into the court. ² This, the district court undertook to decide, but we are of the opinion that it erred, as a matter of law, in deciding that Mary, rather than Melva, is entitled to the insurance proceeds.

By reason of the citizenship of the claimants and the situs of the transactions, Maryland law governs the respective rights of the claimants to the fund. 3A Moore's Federal Practice P 22.14(5). It is true, as the district court ruled, that under Maryland law the acts of the decedent would ordinarily effect a change of beneficiary of the policy. But the controlling authority in this case, Borotka v. Boulay, 268 Md. 244, 299 A.2d 803 (1973), creates an exception to this rule. That case, on facts indistinguishable from those presented here, considered the effect of a provision in a separation agreement, incorporated in a divorce decree, binding a husband to maintain his former wife as the beneficiary of a life insurance policy, on his subsequent designation of a new beneficiary in violation of his agreement.

In Borotka, as in this case, the decedent purported to change his life insurance beneficiary, designating certain trustees as the new beneficiaries, although a prior separation agreement, incorporated into a divorce decree, obligated the decedent to retain his previous wife as beneficiary. After the decedent's death but before payment had been made on the policies, the wife sued the new beneficiaries, the trustees, and the insurance companies.

The court held that the separation agreement was valid and enforceable, and created an equitable interest in the proceeds of the policy. 299 A.2d at 808-809. Nonetheless, if the second beneficiary had, without notice of the prior interest, given value for the change of beneficiary, the second beneficiary would have a superior equity and would be entitled to the life insurance proceeds. See 299 A.2d at 809. But since the trustees had not given value for their designation as beneficiaries, the attempted change of beneficiary was ineffective. Id. Finally, ruling that the interest created by the separation agreement was one "for which a court of equity will grant specific enforcement," the court ordered the insurance companies to pay the proceeds to the wife. Id. at 809-810.

Thus, without deciding the question, the Maryland court in Borotka indicated that the change of beneficiary in the instant case would be effective, despite the existence of the separation agreement, if, but only if, Mary, the second beneficiary, had given value for the change without notice of Melva's prior interest in the proceeds. ³ It follows that, under Borotka, Melva is entitled to the proceeds of the policy unless Mary can establish a superior equity by credible proof that she gave good consideration, without knowledge of Melva's designation and the provisions of the separation agreement and the decree of divorce, for her designation as beneficiary.

We do not think that this record is sufficiently complete to make a final disposition of this case without remand. Under Maryland law, marriage may be a consideration for a contract. Braecklein v. McNamara, 147 Md. 17, 127 A. 497 (1925). But Mary has not pleaded her marriage as consideration for the change of beneficiary. Indeed she suggests otherwise by her admission that she had no notice of a prior beneficiary or knowledge of when she was designated as a beneficiary, so that it could be inferred that the change of beneficiary was the decedent's unilateral act rather than as a result of any agreement with Mary. At the same time, Mary asserts in her brief to us that the change of beneficiary "was supported by valuable consideration consisting of" her marriage to decedent. While it is not unusual for advocacy to exceed what a record discloses, we do not think that we can say that the contrary inferences show Mary so clearly not to have a superior equity despite her contention that we should direct judgment for Melva without more. Thus we conclude that the judgment of the district court must be reversed and the case remanded for further exploration of the circumstances of the change of beneficiary, i.e., whether Mary, without notice of Melva's interest, gave value for her designation, and for entry of a judgment in accordance with the views expressed herein.

REVERSED AND REMANDED.

MURNAGHAN, Circuit Judge, dissenting:

My reluctant dissent is generated by my disagreement as to the existence of a controversy between diverse parties which merits our intervention. The only matter open to question truly presented at any time in the litigation was that arising from the conflict of the claims of Melva (wife No. 1) and Mary (wife No. 2), both of whom were non-diverse Maryland citizens.

Judge Winter, outlining the rationale underlying an interpleader action, states:

The appropriate resolution of the interpleader action is to absolve the stakeholder from the threat of multiple liability by determining which of the claimants is entitled to the stake.

At 358 n.2. He quotes an English authority, Evans v. Wright, C.P. 1865, 13 W.R. 468, for the proposition that the middleman or innocent bystander to a dispute should not "be obliged to be at the expense and risk of defending an action." (Emphasis supplied.)

The difficulty in the instant case stems from the fact that here the insurance company was at no risk and under no threat of multiple liability. ¹ The insurance contract unambiguously directed payment of the proceeds following the death of the insured to Mary, the second wife. It is settled that an insurance company is obligated to pay the policy proceeds only to the named beneficiary. See generally 2 Appleman, Insurance Law and Practice § 771 at 150-51 (1976) ("Where the policy is made payable to a named beneficiary, the insurer cannot discharge its liability by payment to another person, and the beneficiary may maintain an action directly for the benefits thereof upon the death of the insured"). Cf. Little v. First Federated Life Insurance Co., 267 Md. 1, 6, 296 A.2d 372, 375 (1972) (" 'Where (an insurance) contract is plain as to its meaning, there is no room for construction and it must be presumed that the parties meant what they expressed' and expressed what they meant"), quoting Kermisch v. Savings Bank of Baltimore, 266 Md. 557, 559-60, 295 A.2d 776, 778 (1972). Melva, entirely deprived of any possibility of recovery from the...