First Capital Life Ins. v. AAA COMMUNICATIONS, Civ. No. 1:92-cv-1867-JEC.

CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia
Writing for the CourtCARNES
Citation906 F. Supp. 1546
Docket NumberCiv. No. 1:92-cv-1867-JEC.
Decision Date27 October 1995

906 F. Supp. 1546

AAA COMMUNICATIONS, INC. and Patricia Ann Tate, Defendants.

Civ. No. 1:92-cv-1867-JEC.

United States District Court, N.D. Georgia, Atlanta Division.

October 27, 1995.

906 F. Supp. 1547
906 F. Supp. 1548
Anthony James McGinley, Carter & Ansley, Atlanta, GA, Anne Louise Tanner, Webb, Tanner & Powell, Lawrenceville, GA, for Plaintiff

William Watson Lavigno, III, Lavigno & Schlueter, Conyers, GA, Robert Altman, Office of Robert Altman, Atlanta, GA, for Defendants.


CARNES, District Judge.

The above-styled case was tried before the Court on April 18, 1995. Plaintiff First Capital life Insurance Company (hereinafter "First Capital"), filed this interpleader action seeking to have the Court determine the proper beneficiary of $150,000.00 in proceeds under a life insurance policy (hereinafter "the Policy"). Defendant AAA Communications, Inc. (hereinafter "AAA"), purchased the Policy through First Capital on the life of Billy Joel Tate, who died on October 4, 1991. AAA permitted Mr. Tate, during his employment, to designate a beneficiary under the Policy.

Defendant Patricia Ann Tate (hereinafter "Tate") claims ownership of the proceeds on the theory that when AAA purchased the Policy, the rights to ownership immediately vested in her husband, Billy Tate, who named her the beneficiary of the Policy. She claims that the Employee Retirement Income Security Act (hereinafter "ERISA") governs this case, and AAA's act of attempting to change the beneficiary to itself violated the federal statute. AAA claims ownership of the proceeds alleging that it permissibly exercised its rights as the owner of the Policy, effectively changing the beneficiary to itself before Mr. Tate's death.

I. Parties' Claims to Insurance Proceeds

A. Findings of Fact

1. Mr. Tate was an employee of Georgia Construction Company from approximately May 1, 1983 through December 1, 1989.

906 F. Supp. 1549

2. Georgia Construction Company was a proprietorship and business related to defendant AAA in that both were owned by Clarence and Marie Hall.

3. The Halls also owned AAA Paging, a business which they sold in 1987. The proceeds from that sale were channeled into AAA, which was formed in 1988. The Halls wished to use some of the proceeds for investment purposes and contemplated purchasing investment grade insurance for themselves and their two full-time employees, Kathy Ortman and Billy Tate.

4. AAA's President, Clarence Hall, and Secretary/Treasurer, Marie Hall, met with Ted Propes, an insurance specialist and non-qualified plan specialist at Robinson-Humphrey Company, Inc.1 to discuss options for creating some type of benefit plan to institute at AAA.

5. The Halls wanted a relatively simple plan with few administrative obligations. Specifically, they did not want to create a plan that would be subject to ERISA regulation.

6. Accordingly, Propes suggested that AAA buy individual universal life insurance policies for each of the participants in the plan. He further represented that this arrangement would not fall within the ambit of ERISA regulation.

7. AAA took his advice and decided to fund their plan by purchasing life insurance policies from First Capital for Clarence Hall, Marie Hall, and AAA's two full-time employees, Billy Tate and Kathy Ortman.

8. On December 19, 1988, AAA's Board of Directors passed a Consent Resolution (hereinafter "the Resolution")2 in favor of establishing a "Non-Qualified Executive Retirement Plan" (hereinafter "the Plan").3

9. The policies AAA purchased had two components: a life insurance component and a savings component. As to the savings component, the policies would not accumulate any substantial cash value, however, unless held for a number of years.

10. Propes met with Hall and Mr. Tate on December 23, 1988. Hall described the Plan to Mr. Tate, including the vesting requirements set forth in the Resolution. Hall explained that AAA was the owner of the Policy and Mr. Tate understood that, pursuant to the Resolution, he must remain employed for five more years in order to become the owner of the Policy.

11. On the same day, AAA gave Propes the completed insurance application and a premium payment of $5000.00 for Mr. Tate's policy, along with the applications and premium payments for the other three policies.

12. Propes mailed the application and premium payment to First Capital. This payment was the only one made by AAA for the Policy.

13. On March 13, 1989, First Capital issued the life insurance policies. AAA was listed as the owner of each of the policies.

14. Neither the Resolution nor the Policy required fixed premium payments. (See Policy at 5.) The owner could choose the amount and frequency of payments. In order

906 F. Supp. 1550
to maintain the Policy, however, premium payments of approximately $157.00 were due monthly. Accordingly, each month, $157.00 was deducted from AAA's initial $5000.00 contribution. The money in excess of the premium was kept in an "accumulation account" that accrued interest at the rate of roughly four percent per year. (Policy at 4.) In the event that AAA made no further contributions and the funds in the accumulation account were inadequate to pay the premium then due, the Policy would lapse

15. Page three (3) of the Policy, entitled "Specifications" states that AAA arranged a schedule to pay $5000.00 annually into the Policy. AAA never made any payments other than the initial $5000.00 payment.

16. AAA permitted Mr. Tate to designate a beneficiary under the Policy, and he named defendant Patricia Ann Tate, his wife, as the recipient of the proceeds in the event of his death.

17. Mr. Tate was laid off from AAA on December 1, 1989.

18. After Mr. Tate's employment ended, Hall contacted Propes to determine what should be done with the Policy. (Transcript at 120, 182.)

19. One alternative was to offer Mr. Tate the option to purchase the Policy from AAA. Mr. Tate declined this offer.

20. The alternative chosen was to change the designated beneficiary on the Policy to AAA in order to preserve the initial $5000.00 investment. (Transcript at 183.)

21. On January 25, 1990, AAA filled out a change of beneficiary designation form (hereinafter "Designation Form") in Propes' office, thus replacing defendant Tate as the beneficiary.

22. Propes and Philip Catledge, another employee at Robinson-Humphrey, witnessed Hall's signature. (Transcript at 98.)

23. The Designation Form stated that the new designation would become effective only when signed by the First Capital registrar.

24. Propes, as the insurance agent, was responsible for forwarding the completed form to First Capital.

25. Mr. Tate died on October 4, 1991.

26. The Designation Form that AAA had executed on January 25, 1990 remained in Propes' office and was not recorded as received and signed by the registrar at First Capital until October 25, 1991, twenty-one (21) days after Mr. Tate's death.

27. On December 16, 1991, AAA filed a claim for the life insurance benefits on the life of Mr. Tate.

28. First Capital informed the Halls that before any proceeds would be distributed to them, a waiver of interest form must be received from Mrs. Tate.

29. Mrs. Hall wrote Mrs. Tate requesting that she sign a waiver form. Mrs. Tate did not sign the form.

30. The present interpleader action was initiated by First Capital.

B. Conclusions of Law

1. Background

Jurisdiction is vested in this Court pursuant to 28 U.S.C. § 1332 because the parties are of diverse citizenship and the value of the matter in controversy exceeds fifty thousand dollars ($50,000), exclusive of interest and costs.4

AAA claims that it is entitled to the proceeds of the life insurance policy on Mr. Tate's life because it paid for the policy, it was the owner of the policy, and it had the right to change the beneficiary, which it did, naming itself as the beneficiary prior to Mr. Tate's death. Acknowledging that the designation form that changed the beneficiary from Mrs. Tate to AAA was not recorded prior to Mr. Tate's death, AAA argues that it should prevail because it had substantially complied with designation requirements— that is, it had done its part by executing properly the designation form and, through no fault of AAA's, the designation form was not recorded at the time of execution.

906 F. Supp. 1551

Conversely, Tate contends that the Resolution, in combination with the insurance policies purchased by AAA, comprised an employee welfare benefit plan5 and an employee pension benefit plan,6 thus bringing this dispute within the purview of ERISA and preempting state laws "insofar as they ... relate to any employee benefit plan."7 29 U.S.C. § 1144. State law governing the change of a life insurance beneficiary "relates to" an employee benefit plan and is preempted by ERISA.8 Phoenix Mutual Life Ins. Co. v. Adams, 30 F.3d 554 (4th Cir.1994); Brown v. Connecticut General Life Ins. Co., 934 F.2d 1193, 1196 (11th Cir.1991). Tate contends that if ERISA controls, she should prevail.

The issue of whether the Plan constituted an employee welfare benefit plan has been addressed by an order of this Court dated September 12, 1994. In that order, Judge Robert H. Hall granted partial summary judgment to defendant Tate, finding that AAA's Retirement Plan is an employee welfare benefit plan governed by ERISA. This Court need not revisit Judge Hall's determination, as it concludes that the result is the same under state or federal law. The Court will first analyze the issues under state law. Next, for purposes of examining Tate's arguments, the Court will assume, without deciding, that the Plan is either an employee welfare benefit plan or an employee pension benefit plan.

2. Analysis of Parties' Entitlement to Proceeds under State Law

The Court first addresses the issue of ownership of the Policy. If Mr. Tate owned the Policy...

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