Phoenix Mut. Life Ins. Co. v. Adams, Civ. A. No. 0:91-3765-19.

• Decision Date: 26 July 1993
• Docket Number: Civ. A. No. 0:91-3765-19.
• Citation: 828 F. Supp. 379
• Court: U.S. District Court — District of South Carolina
• Parties: PHOENIX MUTUAL LIFE INSURANCE COMPANY, Plaintiff, v. William Jackson ADAMS, IV and Rosita L. Adams, Defendants.

828 F. Supp. 379

PHOENIX MUTUAL LIFE INSURANCE COMPANY, Plaintiff, v. William Jackson ADAMS, IV and Rosita L. Adams, Defendants.

Civ. A. No. 0:91-3765-19.

United States District Court, D. South Carolina, Rock Hill Division.

July 26, 1993.

COPYRIGHT MATERIAL OMITTED

D. Clay Robinson, of Robinson, McFadden & Moore, P.C., Columbia, SC, for plaintiff.

J. Mark Hayes, II, of Harrison and Hayes, Spartanburg, SC, for defendant William Jackson Adams, IV.

Wilmot B. Irvin, and Blaney A. Coskrey, III, of Glenn, Irvin, Murphy, Gray & Stepp, Columbia, SC, for defendant Rosita L. Adams.

MEMORANDUM OPINION AND ORDER

SHEDD, District Judge.

Following the death of William Jackson Adams III ("Bill"), both his son, William Jackson Adams IV ("Jack"), and his wife, Rosita Adams ("Rosita"), claimed the proceeds of a policy insuring Bill's life. The insurer, Phoenix Mutual Life Insurance Company ("Phoenix"), filed this action, deposited the proceeds of the policy with the Court, and, pursuant to Rule 22 of the Federal Rules of Civil Procedure, asked the Court to determine the proper beneficiary of the policy. Phoenix was subsequently dismissed from this action.

The Court decided this matter on the basis of the "Trial Record" that was jointly filed by the parties on June 18, 1993.¹ After thoroughly reviewing the Trial Record and carefully considering the applicable legal principles, the Court concludes that Defendant Rosita L. Adams is entitled to judgment in her favor in this action.

I. FINDINGS OF FACT

Based on the admissible evidence contained in the "Trial Record," the Court makes the following findings of fact² pursuant to Rule 52(a) of the Federal Rules of Civil Procedure:

1. Prior to his death, Bill had purchased two life insurance policies: one from an organization known as Mensa ("the Mensa policy") and one from Phoenix Mutual Life Insurance Company.

2. In the fall of 1989, Bill showed Jack an insurance policy having a face value of $50,000 and told Jack that he had named Jack as the policy's beneficiary.

3. The Mensa policy had a face value of $50,000.

4. The Mensa policy named Jack as beneficiary.

5. Bill's employer, Texfi Industries Inc. ("Texfi"), provided life insurance to participating employees through a Group Insurance Policy issued by Phoenix.

6. As a participating employee, Bill obtained both a medical insurance policy and a life insurance policy from Phoenix.

7. At the time Bill purchased the Phoenix life insurance policy, he designated his son, Jack, as the policy's beneficiary pursuant to the procedures set forth in the policy.

8. The Phoenix life insurance policy contains the following language regarding Bill's right to change the policy's beneficiary:

You may change the beneficiary by written notice to us signed by you. You may file it at any one of the following:

1. The Insurance Company's Home Office

2. The office of the Policyholder

3. The home office of your Employer.

Whether or not you are living on the date the notice is received, the change will take effect as of the date it was signed by you. However, the change will be without prejudice to us on account of any payments made by us before we received the notice.

9. After he purchased the Phoenix life insurance policy, Bill married Rosita.

10. Shortly after their honeymoon, Rosita overheard Bill talking on the telephone with an unidentified person.

11. During that conversation, Bill stated that he had just gotten married and that he wanted to change the beneficiary of his life insurance policy to Rosita.

12. A few days after this telephone conversation, Bill travelled to Texfi's home office in Rocky Mount, North Carolina, where he met with a clerk in Texfi's personnel department.

13. Bill told the clerk that he wanted to add his stepdaughter to his medical coverage and change the beneficiary of the Phoenix life insurance policy from Jack to Rosita.

14. Pursuant to the clerk's instructions, Bill signed a Dual Purpose Form, which was the only form used by Texfi at that time to effectuate a change of beneficiary.³

15. After Bill signed the form, the clerk signed it as well.

16. Neither Bill nor the clerk, however, filled in the blank line next to the "Change Beneficiary To" designation on the form.

17. At the time Bill signed it, the Dual Purpose Form did not indicate whether Bill intended to change his medical insurance policy, his life insurance policy, or both.

18. As soon as Bill signed the form, the clerk added his stepdaughter to his medical insurance coverage.

19. Because the clerk did not have access to Bill's salary information, however, she could not change the beneficiary of the life insurance policy at that time.

20. Instead, she told Bill that Texfi's Corporate Finance Department would have to record the change of beneficiary.

21. She then sent the Dual Purpose Form to Jerry Holcombe in Texfi's Corporate Finance Department.

22. When Holcombe received the form, he indicated on the form that Bill had changed his medical insurance from single coverage to family coverage.

23. Holcombe, however, did not complete the "Change Beneficiary To" line on the form at that time.

24. Two weeks later, Bill phoned Holcombe to reiterate his desire to change the beneficiary of his life insurance policy from Jack to Rosita.

25. During his telephone conversation with Bill, Holcombe wrote the following note to himself: "3-6-90 Bill Adams — Change beneficiary on life insurance to Roseta sic Adams (new wife)."

26. Holcombe, however, did not complete the "Change Beneficiary To" line on the Dual Purpose form at that time.

27. On September 25, 1990, Bill died when the plane he was piloting in the course of his employment with Texfi crashed.

28. Bill's will directed that his debts and funeral expenses be paid and devised the residue of his estate to Rosita.

29. Upon Bill's death, Rosita gave Jack the Mensa policy, which named him as beneficiary.

30. An attorney representing Jack examined the Mensa policy and determined that due to the circumstances surrounding Bill's death, an exclusion in the policy prevented Jack from obtaining the proceeds of the policy.

31. At some point after Bill's death, someone at Texfi finally wrote Rosita's name on the "Change Beneficiary To" line of the Dual Purpose Form that Bill had signed.

32. Texfi indicated to Phoenix that Rosita was the beneficiary of Bill's life insurance policy, but Phoenix discovered that Bill had never indicated in writing his intention to name Rosita as the new beneficiary.

33. Phoenix informed Jack of this fact, and this interpleader action followed.

34. The Phoenix policy is the policy at issue in this action.

35. As administrator of the ERISA plan, Texfi was responsible for maintaining records regarding an insured's attempts to change beneficiaries.

36. For the purposes of diversity of citizenship, Phoenix is a citizen of Connecticut.

37. Jack is a citizen of South Carolina.

38. Rosita is a citizen of South Carolina.

II. CONCLUSIONS OF LAW

In light of the foregoing findings of fact, the Court makes the following conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure:

1. The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 (federal question jurisdiction), 28 U.S.C. § 1332 (diversity jurisdiction), and 28 U.S.C. § 1367 (supplemental jurisdiction).

2. Venue is properly laid in this division pursuant to 28 U.S.C. § 1391.

A.

3. Rosita argues that, pursuant to the common law doctrine of substantial compliance, Bill changed the beneficiary of his life insurance policy. While Jack also argues that the doctrine of substantial compliance governs this dispute, he contends that Bill did not substantially comply with the policy's change of beneficiary provisions. Although both parties argue that South Carolina's common law doctrine of substantial compliance governs this dispute, the Court raised the issue of which law governs this action — South Carolina law or federal common law.⁴ The Court has determined that federal law is controlling because the various formulations of the doctrine of substantial compliance adopted by the states are pre-empted by ERISA.

4. The Supreme Court explained the test for determining whether state law is pre-empted by ERISA in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987). Generally, if a state law relates to an employee benefit plan, the law is pre-empted by ERISA.⁵Id., 481 U.S. at 45, 107 S.Ct. at 1552. Because ERISA's pre-emption provisions "are deliberately expansive and designed to `establish pension plan regulation as exclusively a federal concern,'" Id., at 45-46, 107 S.Ct. at 1552 (citing Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981)), the phrase "relates to" is given "its broad common-sense meaning, such that a state law `relates to' a benefit plan `in the normal sense of the phrase, if it has a connection with or reference to such a plan.'" Pilot Life, 481 U.S. at 47, 107 S.Ct. at 1553. ERISA, therefore, pre-empts state law claims based on the maladministration of employee benefit plans even if the state law under which the claims arise bears no inherent connection to ERISA plans. Powell v. Chesapeake & Potomac Telephone Co., 780 F.2d 419 (4th Cir.1985), cert. denied, 476 U.S. 1170, 106 S.Ct. 2892, 90 L.Ed.2d 980 (1986) (holding that claims of intentional infliction of emotional distress, breach of implied covenant of good faith, breach of contract, and violation of state's Unfair Trade Practices Act were pre-empted by ERISA).

5. Pursuant to ERISA's "savings clause," however, a state law that relates to an employee benefits plan is saved from pre-emption if the law regulates the business of insurance. Pilot Life, 481 U.S. at 45, 107 S.Ct. at 1551-52. The Supreme Court has adopted the following criteria to determine whether a law regulates the "business of insurance": (1) "whether the...