Napper v. Schmeh

• Decision Date: 17 April 1989
• Citation: Napper v. Schmeh, 773 P.2d 531 (Colo. 1989)
• Docket Number: 87SC390
• Parties: Gloria NAPPER, Petitioner, v. Betty Jo SCHMEH, formerly known as Betty Jo Napper, Respondent.
• Court: Colorado Supreme Court

Page 531

773 P.2d 531

Gloria NAPPER, Petitioner, v.Betty Jo SCHMEH, formerly known as Betty Jo Napper, Respondent.

No. 87SC390.

Supreme Court of Colorado En Banc.

April 17, 1989.

Shade, Doyle, Klein, Otis & Frey Roger A. Klein Greeley, for petitioner.

Dinner, Hellerich and Lazar, Thomas E. Hellerich, Charles J. Connell, Greeley, for respondent.

ERICKSON, Justice.

The petitioner, Gloria Napper, as surviving spouse of the insured, petitioned for certiorari to review the court of appeals decision in National Western Life Insurance Co. v. Schmeh, 749 P.2d 974(Colo.App.1987), which reversed the trial court and held that life insurance benefits were payable to insured's ex-spouse and not to his estate.Under the circumstances in this case, the life insurance proceeds are part of the decedent's estate and are payable to the petitioner as the sole surviving heir of the insured.Accordingly, we reverse and remand to the court of appeals with directions to reinstate the trial court's judgment.

I.

This case began as an interpleader action by National Western Life Insurance Company to determine whether it should pay the proceeds of a life insurance policy either to the insured's ex-wife or to his estate.In 1963, the decedent, Dr. Robert S. Napper, purchased a $60,000 life insurance policy from the Hamilton Life Insurance Company(Hamilton) which named respondentBetty Jo Schmeh, who was then Napper's wife, as beneficiary.In April 1973, the Nappers were separated.They entered into a separation agreement which stated, in part, that the agreement was a complete settlement of all property rights and claims of one party against the other, and that:

Each of the parties will maintain his or her present life insurance policies, and will retain the present beneficiaries on the said policies until a final decree of dissolution is entered in this matter.Upon entry of final decree of dissolution each of the parties will be sole and only owners of their respective life insurance policies, and each waives any interest in said policies.Each party shall be free to change beneficiaries on said policies.

A final dissolution decree, which incorporated the separation agreement, was entered on September 4, 1973.

On October 15, 1973, Dr. Napper wrote a letter to Hamilton stating: "I am no longer married and want the beneficiary of this policy changed from Betty Jo Napper to Mrs. Harry E. Napper[Dr. Napper's mother]."In response to this letter, Hamilton sent Dr. Napper a letter on October 23, 1973, stating "[i]n order that we may make the change of beneficiary you requested, please complete the enclosed Change of Beneficiary form and return it to us along with the contract itself."¹It is undisputed that neither the form nor the policy was returned to Hamilton and that Hamilton did not in fact change the designated beneficiary from the respondent to Mrs. Harry E. Napper.

In May 1977, Dr. Napper's mother died.In August 1983, Dr. Napper married the petitioner, Gloria Napper.Less than a year after his marriage, Dr. Napper died intestate, leaving Gloria Napper as his sole surviving heir.The IntraWest Bank of Greeley, N.A. was appointed as the personal representative of the estate upon Dr. Napper's death.

Both Betty Jo Schmeh and IntraWest asserted claims against National Western Life Insurance Company, successor in interest to Hamilton National by virtue of a merger, for the $60,000 proceeds from Dr. Napper's policy.Schmeh claimed as the designated beneficiary in the policy.IntraWest claimed that the estate, and consequently Napper, was the beneficiary by virtue of intestate succession.²It argued that the dissolution decree dissolving Dr. Napper's marriage with the respondent, coupled with Dr. Napper's letter to Hamilton, terminated any interest or expectancy the respondent might have had in the insurance policy.National Western filed an interpleader action against the respondent and IntraWest with the Weld County District Court to determine to whom it should pay the policy proceeds.IntraWest irrevocably assigned all right, title, and interest in the claim to Gloria Napper, who was accordingly substituted in place of IntraWest.

Trial was to the court, at the conclusion of which the trial judge, construing together the separation agreement and letter directing Hamilton to change beneficiaries, found that Dr. Napper manifested sufficient intent to substitute beneficiaries and to terminate Schmeh's interest in the policy.The trial court noted that the separation agreement alone would have supported its conclusion had it not been for paragraph 6 of the agreement which stated that "each party shall be free to change beneficiaries."Given the existence of this paragraph, the court stated that a further showing of the intent to change beneficiaries was required, and that showing was made by the letter from Dr. Napper to Hamilton.

The court of appeals reversed.It stated that as a general rule of law a change of beneficiary can be accomplished only in the manner specified in the insurance contract.National Western Life Ins. Co. v. Schmeh, 749 P.2d at 975.The court noted, however, that under the exceptions found in Fox v. Hawkins, 140 Colo. 438, 344 P.2d 973(1959), andFinnerty v. Cook, 118 Colo. 310, 195 P.2d 973(1948), if a party has substantially complied with the contract provisions by doing all that is "within his power" to effectuate the change, the court will hold that there has been an equitable substitution of beneficiary.National Western Life Ins. Co. v. Schmeh, 749 P.2d at 975.The court of appeals stated that since Dr. Napper did not sign and return the form sent from Hamilton, he did not comply in the manner specified in the contract.Napper's failure to submit the insurance contract to the insurance company for endorsement of the change of beneficiaries was cited as evidence that he did not do all that was within his power to substitute beneficiaries.Consequently, the petitioner could not invoke the equitable substitution doctrine.

The court of appeals also stated that the trial court's finding that the separation agreement terminated Schmeh's interest as the named beneficiary in the policy was error.While the court agreed that the provision in the separation agreement that "each waives any interest in said policy," extinguished any ownership interest Schmeh had in the policy, it did not affect "her status as beneficiary under the policy."Id. at 976.Since the separation agreement did not contain a "reservation or disclaimer" of Schmeh's expectancy in the policy, the court of appeals concluded that the agreement did not terminate her interest as a beneficiary.Id.Accordingly, the court of appeals ordered that the policy proceeds be paid to Betty Jo Schmeh as the named beneficiary in the policy.

II.

We granted certiorari on two issues: Whether the respondent waived her interest as a beneficiary by entering into the separation agreement and whether Dr. Napper had substantially complied with the policy terms governing substitution of beneficiaries.

A.

In general, a separation agreement in and of itself does not divest one spouse of his or her rights as a beneficiary under a life insurance policy purchased by the other.SeeIn re Estate of McEndaffer, 192 Colo. 431, 560 P.2d 87(1977);Mullenax v. National Western Reserve Life Ins. Co., 29 Colo.App. 418, 485 P.2d 137(1971);see also4 G. Couch, Cyclopedia of Insurance Law§ 27:112 (2d ed. Supp.1987).³Rather, the agreement must be interpreted to ascertain the intent of the parties as manifested by the written terms of the agreement, and the intent determines whether the spouse takes as a beneficiary.Charles Ilfeld Co. v. Taylor, 156 Colo. 204, 397 P.2d 748(1964);Mullenax, 29 Colo.App. 418, 485 P.2d 137(1971).The issue of what are sufficient indicia of intent to find that a spouse has relinquished his or her expectancy as a beneficiary has been previously addressed in Mullenax, 29 Colo.App. 418, 405 P.2d 137, andMcEndaffer, 192 Colo. 431, 560 P.2d 87(1977).These two cases are useful inasmuch as they illustrate what type of language contained in a separation agreement will support a finding that the parties intended that a spouse waive his or her expectancy as a beneficiary.

Although reaching a different result, Mullenax is not inconsistent with McEndaffer or with our decision in this case.In Mullenax, a husband and wife entered into a separation agreement stating that the wife conveyed to the husband "all of her right, title and interest in and to any and all other property presently standing in the name of the husband...."Mullenax, 29 Colo.App. at 420, 485 P.2d at 138.Among the couple's property at the time of separation was a life insurance policy on the husband's life which named the wife as the primary beneficiary.The husband's father and mother-in-law were designated as secondary beneficiaries in the event the wife predeceased the husband.The trial court held that the secondary beneficiaries were entitled to the policy's proceeds because the wife had released all of her rights to the policy.The court of appeals reversed.

The court of appeals stated that by conveying "all of her 'right, title and interest in and to any and all property' held by the husband," the wife relinquished "any interest in the property to which she might have had a legitimate claim or interest."Id. at 423-24, 485 P.2d at 139.She did not, however, relinquish her claim to the insurance proceeds because at the time of the separation she"had no present interest in this policy, only a mere expectancy."Id. at 424, 485 P.2d at 139.As such, the agreement only divested the wife of the interest she held in the policy, not any expectancies she might have had.The court of appeals also noted that although the wife could have renounced or disclaimed her expectancy, she did not do so in the separation agreement.Id. at 424, 485 P.2d at 139-40.Absent an...