Fortis Benefits Ins. Co. v. Johnson

• Decision Date: 17 June 1997
• Docket Number: No. CV-N-95-00689-DWH.,CV-N-95-00689-DWH.
• Citation: 966 F.Supp. 987
• Parties: FORTIS BENEFITS INSURANCE COMPANY, Plaintiff, v. Allison JOHNSON, Geraldine Johnson, Defendants.
• Court: U.S. District Court — District of Nevada

966 F.Supp. 987

FORTIS BENEFITS INSURANCE COMPANY, Plaintiff, v. Allison JOHNSON, Geraldine Johnson, Defendants.

No. CV-N-95-00689-DWH.

United States District Court, D. Nevada.

June 17, 1997.

Robert J. Arneson, Bongiovi & Silvestri, Chtd., Las Vegas, NV, for Plaintiff.

Sandra G. Lawrence, Dyer, Lawrence & Cooney, Carson City, NV, for Allison Johnson.

Suellen Fulstone, Woodburn & Wedge, Reno, NV, for Geraldine Johnson.

ORDER

HAGEN, District Judge.

Before the court are interpleader defendants' cross-motions for summary judgment (# # 20, 22). For the reasons set forth below, the motion of Geraldine Johnson is granted, and judgment is granted in her favor. Allison Johnson's motion is denied.

At issue is the proper beneficiary to the proceeds of a fifty thousand dollar¹ life insurance policy. The insured, Michael Johnson, became an employee of Elko County in 1989. Life insurance was an optional fringe benefit of that employment, and Michael Johnson signed up for that insurance. The insurance policy was issued by North American Life and Casualty (NALAC) and administered by Western Insurance Specialties. Johnson initially designated Allison Faires, his then girlfriend, as the beneficiary on the policy, identifying her on that policy as his wife, Allison Johnson. The policy stated as follows, "[a] Beneficiary designation and any change in designation must be filed in writing with the Administrator on a properly completed form and will become effective only when appeared and recorded by the Administrator." On July 10, 1990, Western received a signed, handwritten letter, dated June 27, 1990, from Michael Johnson stating, in relevant part, "[p]lease change the beneficiary on my insurance policy to Geraldine Johnson ... from Allison M. Johnson." There is evidence that approximately seven weeks² after its receipt of this letter Western sent a signed change of beneficiary form to Michael Johnson; however, because Western may have sent it to Johnson's previous address, it is unclear whether Johnson ever received the form. The portion of the form entitled "For Insurance Company's Use Only — Acknowledgment of Change" was signed by the Vice President and Secretary of ALAC; however, the box labeled "date recorded" was left blank.

The parties dispute whether Michael Johnson's attempt at changing the designated beneficiary was effective, and agree that the issue is one of law which is appropriate for determination on cross-motions for summary judgment. Geraldine Johnson contends no genuine issue of material fact exists as to the insured's intent to make her the beneficiary; she further argues that where, as here, there has been substantial compliance with requirements for change of beneficiary, technical defects in the change of beneficiary notice should not defeat the intent of the insured. Allison Johnson contends that Nevada courts have rejected the doctrine of substantial compliance; she further argues that even if the doctrine were recognize, the insured's actions do not constitute substantial compliance.

A federal court, sitting in diversity, construing an insurance policy, must apply the law of the state³ in construing an insurance policy. The court must construe the policy as the state court would if presented with the question. However, if there is no state law directly on point, the federal court is free to resort to the law of other states⁴ for guidance. See Russ & Segalla, 4 Couch on Insurance 3d § 24.49; Reingold v. New York Life Insurance Company, 85 F.2d 776 (9th Cir.1936). In the absence of state law specifically addressing the, question, the Nevada Supreme Court has looked to Couch on Insurance as an authoritative treatment of issues arising under insurance contracts. See, e.g., Redd v. Brooke, 96 Nev. 9, 604 P.2d 360 (1980). The court's review of the applicable portions of the Couch treatise reveals that the intent of the insured with regard to the designation of beneficiary is generally the controlling element in disputed cases. Russ and Segalla, 2 Couch on Insurance, § 28.7.

No Nevada decision addresses the issue whether substantial compliance with an insurance company's requirements for change of beneficiary to a life insurance policy is sufficient. However, it is clear that the doctrine of substantial compliance is recognized in Nevada in a wide range of contexts. See, e.g., Derouen v. City of Reno, 87 Nev. 606, 491 P.2d 989 (1971) (substantial compliance with statute governing tort claims against a city sufficient to allow plaintiff to proceed); Las Vegas Plywood and Lumber, Inc. v. D & D Enterprises, 98 Nev. 378, 649 P.2d 1367 (1982) (substantial compliance with notice provision of mechanic's lien statute sufficient to perfect the liens); Harris v. State, 104 Nev. 246, 756 P.2d 556 (1988)(substantial compliance with notice provision of bail bond statute sufficed for court's forfeiture order); Dunes Hotel, Inc. v. Schmutzer, 78 Nev. 208, 370 P.2d 685 (1962) (substantial compliance with terms of landscaping contract entitled landscaper to his fee); Sharp v. Twin Lakes Corporation, 71 Nev. 162, 283 P.2d 611 (1955) (substantial compliance with lease provision obligating lessee to improve premises building contract) See also John D. Calamari & Joseph M. Perillo, The Law of Contracts §§ 11-15 at 454 (3d ed. 1987) ("If a party has substantially performed, it follows that ny breach he may have committed is immaterial.") Furthermore, it is clear that Nevada courts apply the doctrine in the insurance context. See, e.g., Walker v. American Bankers Insurance Group, 108 Nev. 533, 836 P.2d 59 (1992) (substantial compliance with proof of loss provision of homeowner's insurance policy sufficient for coverage). In light of the cited Nevada cases applying the substantial compliance doctrine, the court concludes a Nevada court would apply the doctrine to a contractual change of beneficiary clause in a life insurance policy in an appropriate case.

Allison Johnson argues that even if the doctrine of substantial compliance is applicable, that doctrine would require that the insured do everything in his power to effect the intended change. This is the law in some jurisdictions; however, an examination of the caselaw shows that this is not the approach of the Nevada courts. In the proof of loss context, the test for determining whether the insured has may recover despite failure to strictly comply with the policy's proof of loss requirement is whether the proof submitted is sufficient to fulfill the purposes of the proof of loss requirements. Walker, 108 Nev. 533, 836 P.2d 59 (1992). Similarly, a covenant by a lessee to make improvements upon the leased premises is to be given in reasonable interpretation in light of the purposes to be served and the results sought to be accomplished. Sharp, 71 Nev. 162, 283 P.2d 611 (1955). These cases suggest that Nevada courts will find substantial compliance with contract terms where one party makes a substantial effort to comply with policy requirements, the party seeking to enforce the provision has notice of the other party's efforts to comply and has obtained substantially the intended benefit of the contractual provision.

Furthermore, in this case, Allison Johnson is the party seeking to enforce the provision. However, because conditions on the endorsement of, or consent to, a change of beneficiary are ministerial and meant for the benefit of the insurer, only the insurer may object if they are not complied with. Russ and Segalla, 4 Couch on Insurance 3d § 60:57 n. 6 and accompanying text; § 60:59 n. 26 and accompanying text. The filing of this interpleader action is a disclaimer of interest in enforcing the contract terms; the insurer has waived⁵ the defense of failure to strictly comply with the terms of the contract. "The insurer waives⁶ precise compliance with the terms of a ... change of beneficiary provision once it institutes an interpleader action and submits the insurance policy proceeds to the court, thereby withdrawing itself from the action." See Provident Mutual Life Ins. Co. Of Philadelphia v. Vergara, 1995 WL 571874 (S.D.N.Y.1995) (internal citations omitted); Russ & Segalla, 4 Couch on Insurance 3d, § 60:61. In this case, the contract provided that any change of beneficiary "must be filed in writing with the administrator on a properly completed form and will become effective only when approved and recorded by the administrator." It is undisputed that the insurance company, through its agent, Western, had actual notice of the insured's efforts to change his beneficiary designation. It is unknown whether the form mailed by Western was sent to the insured's previous address; therefore, it has not been shown to have been "duly directed", a precondition to the presumption of delivery within the meaning of N.R.S. 47.250(13). Furthermore, the portion of the change of beneficiary form mailed by Western on August 30, 1990 labeled "Acknowledgement of Change" was signed by the Vice President and secretary of the insurer, indicating that the insurer acknowledged the change...