McCarthy v. Aetna Life Insurance Company

• Decision Date: 14 August 1997
• Citation: 231 A.D.2d 211,661 N.Y.S.2d 625
• Parties: , 1997 N.Y. Slip Op. 7099 Christine B. McCARTHY, formerly known as Christine Kapcar, Plaintiff-Respondent, v. AETNA LIFE INSURANCE COMPANY, Defendant/Interpleading Plaintiff, v. Emil S. KAPCAR, Interpleading Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 625

661 N.Y.S.2d 625

231 A.D.2d 211, 1997 N.Y. Slip Op. 7099

Christine B. McCARTHY, formerly known as Christine Kapcar, Plaintiff-Respondent, v. AETNA LIFE INSURANCE COMPANY, Defendant/Interpleading Plaintiff, v. Emil S. KAPCAR, Interpleading Defendant-Appellant.

Supreme Court, Appellate Division First Department.

Aug. 14, 1997.

Michael M. Eisenberg, of counsel (Richard C. Reiner, attorney), for plaintiff-respondent.

David L. Pennington, of counsel (Victor R. Moritz, on the brief, Harvey, Pennington, Herting & Renneisen, L.L.C., attorneys), for interpleading defendant-appellant.

Before SULLIVAN, J.P., and WALLACH, RUBIN, TOM and ANDRIAS, JJ.

TOM, Justice.

The issue on appeal is whether, under the narrow circumstances of this case, the insured may change the designation of beneficiary on a life insurance policy, nunc pro tunc, by means of a testamentary disposition when the insurance company, by paying the proceeds of the policy to the court, has waived technical compliance with its change of beneficiary requirements.

The relevant facts are essentially undisputed. This is a tragic case in which the insured, while still a young man, and shortly after his 1972 marriage to plaintiff, was diagnosed in 1973 as suffering from multiple sclerosis. During his employment the insured had been provided with life insurance coverage issued by defendant Aetna Life Insurance Company with a 1973 effective date. On the enrollment card, he designated his then-wife, plaintiff, to be the beneficiary. The insured retained the power to change the designation of beneficiary, but no change of beneficiary was ever filed with the carrier.

As a result of his illness, the insured soon developed severe tremors and underwent an operation on his brain to alleviate this condition. In 1974, the insured started to lose his sight, and was certified to be medically blind shortly thereafter. His marriage, which had been entered into in the State of Virginia, deteriorated along with his physical health, and he had to move into his father's Pennsylvania home in 1977. Although the insured's marital separation was not formalized into a divorce decree until 1978, the father, after the son moved in with him, assumed exclusive responsibility for the care of his son. During the next seven years, the father cared for and attended to the needs of his bedridden son, who was a quadriplegic at the time of death.

The parties' separation agreement dated February 27, 1978, governed by Virginia law, was incorporated into the divorce decree. It provided for a complete property settlement, which has relevant features. Not only did the insured specifically not make any provision for plaintiff that was to survive the divorce, but plaintiff agreed to pay the insured alimony for a four year period. It appears from the record that at some point the insured was required to commence litigation to enforce compliance with this provision. The insured agreed to assume responsibility for all of his medical costs, and each party relinquished all rights, title and interests against the other party. The intent of the insured to deprive his ex-wife of any financial benefits was manifested more clearly in the 1977 Last Will, which was holographically prepared, apparently without the advice of counsel. This Will specifically revoked a prior Will bequeathing the estate to plaintiff, and now bequeathed to his father all of his assets, specifically including all insurance benefits. The Will was probated in the State of Pennsylvania. Its provisions are not challenged, excepting the effectiveness of disposition of the insurance policy, and we give the decree of the Pennsylvania court full force and effect insofar as such is consistent with the relevant State insurance law.

Upon the death of the insured in 1984, plaintiff (since remarried) as the beneficiary of record, and the insured's father, Emil Kapcar, each made a claim upon Aetna for the proceeds of the policy. Aetna paid the money into the court and plaintiff commenced the instant action against Aetna who then interpleaded Emil Kapcar.

The Civil Court held that the plaintiff was entitled to the policy proceeds. The Appellate Term (Parness, J., dissenting), affirmed the decision of the Civil Court, essentially for the reasons stated by the Civil Court, on grounds including, inter alia, that plaintiff was the beneficiary designated in the policy application by decedent prior to his death, and that the insured had not taken affirmative steps to do all that he reasonably could have done to effect a change in the designated beneficiary of the policy prior to his death. Interpleaded defendant Kapcar appeals, by leave of the Appellate Term, the decision and order of the Appellate Term, and we now reverse.

In the group life insurance policy issued by Aetna, the terms explicitly provide that:

This policy shall be construed in accordance with the laws of Delaware, where it is delivered....

We would give effect to the choice of law provision in the insurance contract itself to determine a material term going to the heart of that contract, to wit, the enforceability of the technical procedures for changing the designation of beneficiary. By arguing for the applicability of Pennsylvania law to govern the insurance law issue, plaintiff and the dissent misconstrue the limited applicability of Pennsylvania's probate law regarding a testamentary instrument executed in that State for a Pennsylvania resident. Pennsylvania insurance law would not operate to govern interpretation of an insurance contract, such as the one before us, which has no nexus with that State, rendering irrelevant plaintiff's reliance on Carruthers v. $21,000, 290 Pa.Super. 54, 434 A.2d 125. We respectfully part issue with the dissent on this point. Further, the insurance policy unequivocally provides that the laws of Delaware shall govern.

Delaware case law, albeit in a different factual context, has allowed for a challenge by a claimant to the payment of life insurance proceeds under contested circumstances in which the designated beneficiary could not rely entirely on her status as the beneficiary of record (Carpenter v. Greene, 396 A.2d 150). The Delaware Supreme Court in Carpenter held that the decedent's intent was a controlling factor, under the circumstances of that case, in the determination of the rightful beneficiary of decedent's life insurance policy. The dissent acknowledges that in Carpenter the focal point was the decedent's intention to name another beneficiary of the policy proceeds. By analogy, plaintiff herein would not be entitled as a matter of law to the proceeds of this policy under circumstances where the manifest intentions of the insured, rather than the fact of a prior designation of beneficiary, became the analytical focus by virtue of the carrier's waiver of strict compliance with policy terms governing disposition of the proceeds.

Even based on the law of New York, under the narrow circumstances of this case, we could reach the same conclusion without diluting the sound reasoning otherwise requiring strict adherence to policy procedures for changing beneficiaries (see, EPTL 13-3.2). New York has judicially adopted (see, Kane v. Union Mutual Life Insurance Co., 84 A.D.2d 148, 445 N.Y.S.2d 549, appeal dismissed 57 N.Y.2d 956; Aetna Life Insurance Co. v. Sterling, 15 A.D.2d 334, 224 N.Y.S.2d 146, affd. 11 N.Y.2d 959, 229 N.Y.S.2d 9, 183 N.E.2d 325; Considine v. Considine, 255 App.Div. 876, 7 N.Y.S.2d 834) an equitable principle recognized by other States (see, Franklin Life Insurance Co. v. Mast, 9th Cir., 435 F.2d 1038; Sears v. Austin, 292 F.2d 690, 693, cert. denied 368 U.S. 929, 82 S.Ct. 365, 7 L.Ed.2d 192; Doss v. Kalas, 94 Ariz. 247, 383 P.2d 169) when the insured retains the right to change beneficiaries (cf., Kornacki v. Mutual Life Insurance Co. of New York, 195 A.D.2d 847, 600 N.Y.S.2d 788 [when insured tried to change designation of beneficiary, he lacked the power to do so; his uncle was the "rights holder" so empowered] ), allowing for noncompliance with the policy requirements for changing designations of beneficiaries. The policy in this case provides that a change in beneficiary must be made in writing and that the form is to be filed with the carrier. The insurance policy's procedure for doing so is designed to protect the interest of the carrier from multiple inconsistent claims, but strict compliance with such may be waived by the carrier (Kane v. Union Mutual Life Insurance Co., supra). By not contesting the obligation to pay a beneficiary, manifested by surrendering the proceeds for court-ordered disbursement, so that only the rights of the respective claimants are before the court, the carrier may be deemed to have abandoned its insistence on technical compliance with these procedures (Kane v. Union Mutual Life Insurance Co., supra, at 154, 445 N.Y.S.2d 549; Aetna Life Insurance Co. v. Sterling, supra, at 335, 224 N.Y.S.2d 146; cf., Cook v. Aetna Life Insurance Co., 166 A.D.2d 895, 560 N.Y.S.2d 556). While the dissent contends that we are making a "new contract for the parties", in this case the precise point is that, when one party waives the method of amending a term of the contract, we may inquire into whether the other party, now deceased, took steps to amend the effect of that term. Then, the intent of the insured, if sufficiently evidenced, may prevail over the technical designation in the policy. The point is critical to this appeal, and on this basis we respectfully disagree with the dissent's characterization that "the result in this case should be determined by the provisions in the insurance contract ...". Rather, the result, under these narrow circumstances, should flow from the persuasiveness of the evidence that the insured intended to deprive his wife of the benefits of the policy.

A will, duly admitted to probate, clearly manifesting the insured's intent, especially when supported by...