Mims v. Western-Southern Agency, Inc., 2006-CA-000657-MR.

• Decision Date: 06 April 2007
• Docket Number: No. 2006-CA-000657-MR.,2006-CA-000657-MR.
• Citation: 226 S.W.3d 833
• Parties: Anna M. MIMS, Appellant, v. WESTERN-SOUTHERN AGENCY, INC., d/b/a Western-Southern Life Insurance Company, Appellee.
• Court: Kentucky Court of Appeals

226 S.W.3d 833

Anna M. MIMS, Appellant, v. WESTERN-SOUTHERN AGENCY, INC., d/b/a Western-Southern Life Insurance Company, Appellee.

No. 2006-CA-000657-MR.

Court of Appeals of Kentucky.

April 6, 2007.

David S. Sprawls, Melissa L. Rodden, Louisville, KY, for Appellant.

Stephen H. Miller Louisville, KY, for Appellee.

Before TAYLOR and WINE, Judges; PAISLEY,¹ Senior Judge.

OPINION

PAISLEY, Senior Judge.

Anna M. Mims appeals from an order of the Jefferson Circuit Court which granted the motion to dismiss of the appellee, Western-Southern Agency, Inc., d/b/a Western-Southern Life. Mims had filed suit against Western-Southern claiming that the company and its agent had negligently failed to effectuate her late father's intent to make her the sole contingent beneficiary of his life insurance policy. Because Mims has stated a cognizable claim for recovery of proceeds under the doctrine of substantial compliance, we do not find it necessary to consider whether Kentucky law permits a third party beneficiary to pursue a negligence claim against an insurer. We therefore vacate and remand.

In 1984, Mims' parents, James and Mary Hayes, took out individual $40,000.00 life insurance policies issued by Western-Southern. They each named the other as the primary beneficiary, and their eight children as contingent beneficiaries who would share the proceeds equally amongst themselves if the primary beneficiary was deceased. Several years later, on December 27, 2002, James and Mary met with an agent of Western-Southern in order to change the contingent beneficiary of James's policy to their daughter Anna Mims, in recognition of the fact that she was assisting James with his daily living. Under the section entitled "Naming and Changing Beneficiaries," James's policy set forth the following procedure:

You may name a beneficiary and change any named beneficiary while the insured is living. You do this by written request satisfactory to us. When the request is received and approved by us at our Home Office, it will take effect as of the date you signed it. It will not apply to any payment we make or other action we take before the request is approved.

A beneficiary designation change form was correctly filled out with James's name, address and policy number. The form was signed by Mary, however, rather than by James. The Western-Southern agent forwarded the form to the firm's head office, where it was stamped immediately above the signature with the receipt date of December 30, 2002. Western-Southern failed to detect that the beneficiary designation change form had not been properly executed by James. Mary died less than a year later, on November 5, 2003. James died on April 18, 2004. Initially, Western-Southern treated the 2002 beneficiary designation change form as valid. The company contacted Mims to inform her that as the sole beneficiary of the policy, she would receive the entire death benefit of $40,000.00 (less $6,360.00 for funeral expenses). She was sent a statement showing that an account had been opened in her name by Western-Southern which contained $33,640.00 plus $11.98 in earned interest.

Shortly thereafter, however, some other family members alerted Western-Southern that Mary, not James, had signed the contingent beneficiary change form. Western-Southern immediately removed the funds from Mims's account. The company informed her that it would not honor the December 27, 2002, beneficiary designation change form. Mims ultimately received only one-eighth of the net proceeds of the policy ($4,206.50) under the terms of the original beneficiary designation.

On May 12, 2005, Mims filed suit against Western-Southern, alleging that the negligence of the company in failing to ensure that James executed the form properly had led to her loss of the entire proceeds (less the funeral expenses) of the policy.

Western-Southern filed a motion to dismiss for failure to state a claim upon which relief could be granted. In support of its motion, Western-Southern argued that the only duty it owed to Mims was to pay her in accordance with the terms of her father's life insurance policy. Western-Southern acknowledged that, under Kentucky law, strict compliance with the policy provisions is not necessary in order to effect a change of beneficiary. Substantial compliance has been deemed sufficient:

This jurisdiction [Kentucky] in a long series of cases has adhered to the view that a substantial compliance with the formalities or terms of the provisions in the policy as to change of beneficiary is sufficient. . . . [T]he substantial compliance deemed sufficient has been when the insured had done all he could do under the circumstances; all he believed necessary to effect the change or what the ordinary layman would believe was all that was necessary to accomplish the change.

Hill v. Union Central Life Ins. Co., 513 S.W.2d 808, 808-809 (Ky.1974) (citations and quotation marks omitted). Western-Southern argued that there was absolutely no evidence that James had intended to change beneficiaries, or that he had attempted to apprise the insurer of his intent. Since the change of beneficiary form was invalid because it was not properly executed, Western-Southern argued that it was fully discharged from all claims under the contract, and from the requirements of Kentucky Revised Statutes (KRS) 304.14-260, when it paid the policy proceeds to the eight original contingent beneficiaries.

In granting the motion to dismiss, the circuit court agreed with Western-Southern that "[t]here exists no evidence that James O. Hayes intended to change beneficiaries." The court stated that "Mary Hayes had no authority to sign on her husband's behalf, did not own the policy and had no recognized legal authority to sign in his stead. Plaintiff cannot sustain her claim in the absence of the above." The court concluded that "[n]o evidence cannot rise to the minimal level of substantial compliance with respect to a change in beneficiary under the terms of this policy."

It is well settled in this jurisdiction when considering a motion to dismiss under this rule [Kentucky Rules of Civil Procedure (CR)12.02] that the pleadings should be liberally construed in a light most favorable to the plaintiff and all allegations taken in the complaint to be true. Gall v. Scroggy, 725...