Fortis Benefits Ins. Co. v. Pinkley

• Decision Date: 29 July 2005
• Docket Number: 1040125.
• Citation: Fortis Benefits Ins. Co. v. Pinkley, 926 So.2d 981 (Ala. 2005)
• Parties: FORTIS BENEFITS INSURANCE COMPANY and Fortis Insurance Company v. Bertha Bernice PINKLEY, individually and as executrix for the estate of Jay Donald Pinkley, deceased.
• Court: Alabama Supreme Court

Page 981

926 So.2d 981

FORTIS BENEFITS INSURANCE COMPANY and Fortis Insurance Company v. Bertha Bernice PINKLEY, individually and as executrix for the estate of Jay Donald Pinkley, deceased.

1040125.

Supreme Court of Alabama.

July 29, 2005.

Rehearing Denied October 21, 2005.

Russell Myles and Karen Tucker Luce of McDowell, Knight, Roedder & Sledge, L.L.C., Mobile, for appellants.

Banks C. Ladd, Mobile, for appellee.

WOODALL, Justice.

Fortis Benefits Insurance Company and Fortis Insurance Company (hereinafter collectively referred to as "Fortis") appeal by permission, pursuant to Rule 5, Ala. R.App. P., from the denial of their motion for a summary judgment in an action commenced by Bertha Bernice Pinkley, individually and as executrix of the estate of her deceased husband, Jay Donald Pinkley, to recover life-insurance benefits. We reverse and remand.

For the purpose of this appeal, we treat the following facts as undisputed. In 1991, Jay Pinkley purchased a $100,000 life-insurance policy, the obligations of which were subsequently assumed by Fortis. The policy application listed Bertha Pinkley as the primary beneficiary, and Paul Sanford, Bertha's son and Jay's stepson, as the contingent beneficiary. The policy provided, in pertinent part:

"CHANGE OF BENEFICIARY: The beneficiary designation contained in the application will remain in effect until changed. The Owner may change the beneficiary at any time during your lifetime. A satisfactory written notice must be filed at the Home Office. The change will take effect only upon being recorded by [Fortis]."

(Emphasis added.)

In January 2000, someone identifying himself as Jay D. Pinkley telephoned Fortis's office. During that telephone call, which Fortis recorded, the caller requested a change-of-beneficiary application form ("the request form"). The caller provided a Fortis representative with the policy number and Jay D. Pinkley's Social Security number. Fortis sent a request form to Pinkley's address as reflected in its records, and, in February 2000, received the completed request form designating Dianne Sanford, the wife of Paul Sanford, as the primary beneficiary. The request form designated "Bernice Pinkley" as the contingent beneficiary. The name "Jay D. Pinkley" was handwritten on the line immediately above the words "Policyowner's signature." The request form contained the Social Security numbers of both Pinkleys and purported to be witnessed by Paul Sanford. The telephone number given on the request form matched the telephone number on Jay Pinkley's policy-application form. On February 28, 2000, Fortis stamped the request form with acknowledgment of receipt and agreement to the requested change. Fortis then mailed a copy of the stamped request form to Jay Pinkley's address of record. Fortis received no objection to the change from Jay Pinkley.

Jay Pinkley died on April 26, 2001. On or about May 15, 2001, Dianne Sanford filed a claim for the policy benefits. Fortis paid her the proceeds of the policy on May 22, 2001.

In March 2003, Bertha Pinkley, through her attorney, also filed a claim for the benefits of Jay Pinkley's life-insurance policy, alleging that Jay Pinkley's signature on the request form was forged.¹ Fortis denied Pinkley's claim, saying that it had discharged its contractual obligations by paying the policy benefits to Dianne Sanford in reliance on the request form.

On March 25, 2003, Pinkley sued Fortis, alleging various theories arising out of its refusal to pay her the proceeds of the policy on Jay Pinkley's life, including (1) negligence, (2) wantonness, (3) breach of contract, and (4) bad-faith failure to pay a claim. Fortis and Pinkley filed cross-motions for a summary judgment. In an order denying both motions, the trial judge certified a controlling question of law, thereby laying the predicate for a permissive appeal from an interlocutory order, pursuant to Rule 5. The order stated, in pertinent part:

"[T]he court finds and hereby CERTIFIES that this order involves a controlling question of law as to which there is substantial ground for difference of opinion, that an immediate appeal from this order would materially advance the ultimate termination of this litigation, and that an appeal would avoid protracted and expensive litigation.

"In this case, [Pinkley] has sued Fortis because she claims Fortis improperly paid the death benefits of her late husband's life insurance policy to [Pinkley's] daughter-in-law, who, according to Fortis' records, was the beneficiary of record at the time of the decedent's death. [Pinkley], however, claims that she was the proper beneficiary and that the change of beneficiary form that substituted her daughter-in-law as the beneficiary was forged. It is undisputed that the benefits were paid to the daughter-in-law without any notice of a competing claim by [Pinkley]. The controlling question of law presented in this matter is whether [Ala.Code 1975, § ] 27-14-24, bars [Pinkley's] claims. Section 27-14-24 provides ... as follows:

"`Whenever the proceeds of, or payments under, a life or disability insurance policy or annuity contract, heretofore or hereafter issued, become payable in accordance with the terms of such policy or contract, or the exercise of any right or privilege thereunder, and the insurer makes payment thereof in accordance with the terms of the policy or contract or in accordance with any written assignment thereof, the person then designated in the policy or contract, or by such assignment, as being entitled thereto shall be entitled to receive such proceeds or payments and to give full acquittance therefor; and such payments shall fully discharge the insurer from all claims under the policy or contract, unless, before payment is made, the insurer has received at its home office written notice by, or on behalf of, some other person that such other person claims to be entitled to such payment or some interest in the policy or contract.'"

This Court granted Fortis's petition for permission to appeal to consider a question of first impression in Alabama: whether § 27-14-24 protects an insurer from double liability if in good faith it pays life-insurance benefits to an individual claiming the benefits on the basis of a forged change-of-beneficiary request form. Stated more narrowly, the question is whether a life insurer that receives a change-of-beneficiary request form, regular on its face and executed by a person purporting to be the owner of the policy, has a duty to investigate the authenticity of the signature before paying death benefits under the policy to the person designated on the form as the primary beneficiary. We answer that question in the negative.

"`It is the general rule that when the insurer makes payment of the proceeds of insurance to the person who by the policy is the proper recipient, such payment is a discharge of the liability of the insurer.'" Alfa Life Ins. Corp. v. Culverhouse, 729 So.2d 325, 327 (Ala.1999) (quoting Miller v. Paul Revere Life Ins. Co., 81 Wash.2d 302, 305, 501 P.2d 1063, 1065 (1972)) (emphasis added). In accord with this general rule, "the insurer is not under any duty to determine whether the change of beneficiary was procured or induced by improper means where it has no reason to believe or know that such was the case." 5 George J. Couch et al., Couch on Insurance § 28:97 (Rev.2d ed.1984). Similarly, it is also said:

"Where an insurer, acting in good faith without any actual knowledge of the insured's mental incompetency, has recognized an apparently duly executed change of beneficiary and has paid the proceeds of the insurance to the substituted beneficiary, it is not liable to the original beneficiary when sued by him or her even though it is established that the insured was in fact incompetent and lacked the capacity to make the change of beneficiary. That is, the insurer is not under any duty to investigate the mental competency of the insured to change the beneficiary unless it knows of circumstances reasonably suggesting the probability of his or her mental incompetency.

"Similarly, an insurer is not required to investigate to determine whether a change of beneficiary had been procured by undue influence in the absence of knowledge of facts which would indicate that the change might have been so procured."

4 Lee R. Russ and Thomas F. Segalla, Couch on Insurance 3d § 60:77 (1997) (emphasis added). See also Demerath v. Knights of Columbus, 268 Neb. 132, 137, 680 N.W.2d 200, 204 (2004) (insurer did not "have any contractual or fiduciary duty to make inquiry as to the propriety of the change in beneficiary forms submitted to it").

Section 27-14-24 is consistent with this general rule and is one of a number of "facility of payment" statutes in force in various states. See, e.g., Cal. Ins.Code, § 10172 (West 1993); Conn. Gen.Stat., § 38a-453(c)(2005); Fla. Stat. Ann., § 222.13 (West 1998); Michie's Ky.Rev. Stat. Ann., § 304.14-260 (Lexis Nexis 2001); La.Rev.Stat. Ann., § 22:643 (West 2004); Michie's Md.Code Ann., Ins. § 12-208 (Lexis Nexis 2003); Tex. Ins.Code Ann., § 1103.103 (Vernon 2004); Wash. Rev.Code Ann., § 48.18.370 (2004); Michie's W. Va.Code, § 33-6-22 (Lexis Nexis 2003).

Such statutes are aptly described as "narrowly drawn" facility-of-payment clauses that frequently appeared in certain types of insurance contracts. 15 William S. McKenzie & H. Alston Johnson III, Louisiana Civil Law Treatise: Insurance Law & Practice § 256 (2d ed.1996). Facility-of-payment clauses typically appeared in "the so-called `industrial' life insurance" or "burial policy." Id. "It was generally held that the clause was for the protection of the insurer, affording it protection against later claims from others who might arguably have a superior right to the proceeds." Id. It was sometimes said that "payment of the policy proceeds to a person entitled thereunder absolutely discharg[ed] the insurer of all liability." 2A John...