Lincoln Life and Annuity Co. v. Caswell

Decision Date11 April 2006
Docket Number6901.
Citation31 A.D.3d 1,813 N.Y.S.2d 385,2006 NY Slip Op 02658
PartiesLINCOLN LIFE AND ANNUITY COMPANY OF NEW YORK, as Administrator of AETNA LIFE INSURANCE AND ANNUITY COMPANY, Respondent, v. BENJAMIN CASWELL, Appellant, and REGINA W. HUBBARD et al., Respondents.
CourtNew York Supreme Court — Appellate Division

Joseph H. Gruner, New York City (Ronald Cohen of counsel), for appellant.

L'Abbate, Balkan, Colavita & Contini, L.L.P., Garden City (Robert A. Maloney and Monte E. Sokol of counsel), for Lincoln Life and another, respondent.

Eliot Spitzer, Attorney General, New York City (Jean Lin, Michael S. Belohlavek and Mark Jensen of counsel), for Eliot Spitzer and others, respondents.

OPINION OF THE COURT

FRIEDMAN, J.

In McCarthy v Aetna Life Ins. Co. (92 NY2d 436 [1998]), the Court of Appeals held that, where a life insurance policy sets forth a procedure for changing beneficiaries and does not authorize making such a change by will, a general testamentary statement in the insured's will does not override a prior designation of the policy beneficiary that was made in the manner provided by the policy. This appeal requires us to decide which instrument controls — the will or the prior beneficiary designation made in accordance with the terms of the policy — where, unlike McCarthy, the will specifically identifies the policy in question and purports to require a disposition of its proceeds inconsistent with the beneficiary designation under the policy. We hold that, under these circumstances, the purported testamentary disposition of the policy proceeds does not constitute "substantial compliance" with the policy and, therefore, cannot be given effect over the policy's beneficiary designation. As in McCarthy, this result is not affected by the insurance company's waiver of "strict compliance" with the policy terms by its commencement of an interpleader action to adjudicate among the conflicting claims to the policy proceeds.

There is no dispute as to the material facts. In April 1985, Aetna Life Insurance and Annuity Company (Aetna) issued policy No. U1179854, a life insurance policy in the face amount of $200,000 (the `854 policy), to Martha L. Hubbard (hereinafter, the insured). The `854 policy provides that, to change the beneficiary, "[a] signed request must be sent to Aetna. When Aetna gives its written acceptance, the change will take effect as of the date the request was signed."

On two occasions, the insured changed the beneficiary designation in the manner provided by the `854 policy. Her last such change was made by a signed request dated October 9, 1987. That request, made on a printed form Aetna provided for the purpose, designated the insured's son, Robert W. Hubbard, Jr., as primary beneficiary, and defendant Bennie Caswell, Jr. (sued herein as Benjamin Caswell), as contingent beneficiary. Aetna's acceptance of that request is dated October 27, 1987. Since Robert W. Hubbard, Jr. predeceased the insured, giving effect to the October 1987 beneficiary designation would make Caswell the sole beneficiary of the `854 policy.

More than 15 years after she filed the October 1987 beneficiary designation with Aetna, the insured executed a last will and testament, dated June 16, 2003. This will specifically refers to the `854 policy by number, and purports to "devise and bequeath" portions of the proceeds of that policy to various individuals and charities. It appears that the will purports to leave Caswell only $25,000 of the proceeds of the `854 policy. There is no indication that the insured ever took any steps to have the legatees of the `854 policy under the will designated as beneficiaries of the policy in the manner provided by the policy itself.

The insured died on May 17, 2004, and her will of June 2003 has been filed in probate proceedings in Surrogate's Court. In June 2004, Caswell and the nominated executors of the insured's estate, by their respective attorneys, sent letters to the insurance company asserting conflicting claims to the proceeds of the `854 policy. Thereafter, plaintiff Lincoln Life and Annuity Company of New York, as Aetna's administrator, in accordance with CPLR 1006, commenced this interpleader action in the Supreme Court, Bronx County, seeking to be discharged of its obligations under the policy while allowing the competing claims to the proceeds to be resolved among the interested parties. The defendants named in the amended interpleader complaint are Caswell, the preliminary executors of the insured's estate, the various individual and charitable legatees of the `854 policy under the will, and the Attorney General, as statutory representative of the charitable legatees. Plaintiff admits that the `854 policy's death benefit is now due and owing, but takes no position on the question of whether such payment should be made to Caswell alone, pursuant to the October 1987 beneficiary designation, or, alternatively, to the executors of the insured's estate for disposition in accordance with the June 2003 will.

Although Caswell's answer is not set forth in the record, it appears that he asserted a counterclaim seeking an order directing plaintiff to pay over the proceeds of the `854 policy to him. In January 2005, Caswell moved for summary judgment on his counterclaim. Plaintiff cross-moved for an order, pursuant to CPLR 1006 (f), permitting it to pay the proceeds of the policy into court, discharging it from any further liability under the policy, and awarding it costs, disbursements and reasonable attorneys' fees.

By order entered on or about March 7, 2005, the motion court denied Caswell's summary judgment motion, based on the court's view that the dispositive consideration was the insured's intent, as to which, the court opined, there exists a triable issue of fact. The same order granted plaintiff's cross motion insofar as it sought permission to pay the policy proceeds into court and a discharge upon so doing. The branch of plaintiff's cross motion seeking an award of costs, disbursements and reasonable attorneys' fees was granted to the extent of setting the matter down for a framed issue hearing. On Caswell's appeal, we now modify to grant Caswell's summary judgment motion to the extent of declaring him the sole beneficiary of the `854 policy, and otherwise affirm.

As the Court of Appeals stated in McCarthy v Aetna Life Ins. Co. (92 NY2d 436 [1998], supra), the general rule is that "the method prescribed by the insurance contract must be followed in order to effect a change of beneficiary" (id. at 440 [citations omitted]). As a corollary of this rule, it has long been recognized that, unless an insurance policy permits the beneficiary to be designated or changed by will, even a specific testamentary bequest of the policy proceeds generally will not override a prior beneficiary designation made in accordance with the terms of the policy (see Fink v Fink, 171 NY 616, 625 [1902]; Matter of Jaccoma, 142 AD2d 875, 876-877 [1988], lv denied 73 NY2d 703 [1988]; Pruchnowski v Prudential Ins. Co. of Am., 242 App Div 899 [1934], affd 270 NY 530 [1936]; Matter of Ziolkowski, 47 Misc 2d 752, 753-754 [Sur Ct, Erie County 1965]; Ralph v Equitable Life Assur. Soc. of U.S., 46 NYS2d 957, 959 [Sup Ct, Kings County 1944]).

Over the years, there has been some relaxation of the requirement of strict compliance with the procedures specified by an insurance policy for designating or changing beneficiaries. At first, it was held that "exact compliance with the provisions of the policy [would be excused] where the attempt at such compliance has been substantial and its full success prevented by some cause not within the control of the person attempting to make the change" (Schoenholz v New York Life Ins. Co., 234 NY 24, 29-30 [1922] [citations omitted]).1 As the law has evolved, the courts, recognizing that a primary purpose of specifying a procedure for changing beneficiaries is to protect the insurer from double liability, have come to hold that exact compliance with the contractual procedure will be deemed waived where the insurer, faced with conflicting colorable claims to the same policy proceeds, pays the proceeds into court in an interpleader action so that the opposing claimants may litigate the matter between themselves (see McCarthy, 92 NY2d at 442 [noting that "the insurer who has brought the proceeds of the policy into court and requested the court to adjudicate the rights of contesting claimants may no longer insist upon strict compliance"]; Cable v Prudential Ins. Co. of Am., 89 AD2d 636, 636 [1982] ["strict compliance" with the policy's requirements for effecting a change of beneficiaries was "unnecessary" where the insurer had "paid the proceeds of the policy into the court leaving the parties to settle the controversy between themselves"]).

Although an interpleading insurer is deemed, by paying the policy proceeds into court, to waive exact compliance with the policy's procedures for changing beneficiaries, the question is still not purely one of the insured's intent. Rather, "[t]here must be an act or acts designed for the purpose of making the change, though they may fall short of accomplishing it. Mere intent is not enough" (Aetna Life Ins. Co. v Sterling, 15 AD2d 334, 335 [1962], affd 11 NY2d 959 [1962] [designation of beneficiary for new policy did not change beneficiary of old policy that was still in effect when insured died]; see also Cook v Aetna Life Ins. Co., 166 AD2d 895, 896 [1990] [insured's alleged statements of intent to change beneficiary were not a sufficient basis for giving effect to such change]; Cable v Prudential Ins. Co. of Am., 89 AD2d at 636 [change given effect where insured failed only to send the policy to the insurer for endorsement, but otherwise followed the procedure set forth in the policy]; Hunnell v Hunnell, 45 AD2d 521, 523 [1974], affd 37 NY2d 931 [1975] [to same effect as Cook]). Thus,...

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