State Farm Life Ins. Co. v. Martinez

• Decision Date: 17 August 2005
• Docket Number: No. 10-03-00365-CV.,10-03-00365-CV.
• Citation: 174 S.W.3d 772
• Parties: STATE FARM LIFE INSURANCE COMPANY and Lisa Martinez Paul, Appellants, v. Toni Wasson MARTINEZ, Appellee.
• Court: Texas Supreme Court

174 S.W.3d 772

STATE FARM LIFE INSURANCE COMPANY and Lisa Martinez Paul, Appellants, v. Toni Wasson MARTINEZ, Appellee.

No. 10-03-00365-CV.

Court of Appeals of Texas, Waco.

August 17, 2005.

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Eva C. Ramos, Skelton & Woody, Austin, Chris Kling and Stuart Smith, Naman, Howell, Smith & Lee, PC, College Station, for appellants.

Billy M. Payne, Payne, Watson, Miller & Malechek PC, Bryan, for appellee.

Larry A. Catlin, Youngkin, Catlin, Bryan Stacy & Dillard, Bryan, for other.

Before Chief Justice GRAY, Justice VANCE, and Justice REYNA.

OPINION

BILL VANCE, Justice.

This appeal involves a $500,000 life insurance policy issued by Appellant State Farm Life Insurance Company (State Farm) on the life of Jose Eduardo Martinez (Ed), who owned the policy. After Ed's death, his widow, Appellee Toni Wasson Martinez (Toni), and his daughter, Appellant Lisa Paul Martinez (Lisa), made claims for the life insurance proceeds. Toni filed suit against State Farm, and two days later State Farm filed a separate interpleader suit against Toni, Lisa, and Linda K. Martinez (Linda), Ed's ex-wife.

The two suits were consolidated, and Toni and Lisa filed motions for partial summary judgment, each contending that she was the proper beneficiary. The trial court granted Toni's motion and denied Lisa's. Toni's claim against State Farm for statutory penalties, attorney's fees, and interest proceeded to a bench trial, and the trial court entered a final judgment in Toni's favor based on findings of fact and conclusions of law.

Lisa and State Farm appeal the final judgment. Lisa says the trial court erred in its summary-judgment ruling; State Farm says the award to Toni of penalties, attorney's fees, and interest was error.

We will affirm the trial court's judgment.

Factual Background

Ed and Linda married on June 15, 1981. In November of 1989, Ed obtained the $500,000 State Farm life insurance policy (No. LF-1041-9239) and named Linda as the beneficiary. Ed and Linda divorced on September 15, 1994 and entered into an Agreement Incident to Divorce (AID). The AID provides that Ed would make monthly contractual alimony payments of $5,000 to Linda, beginning on September 15, 1994 and continuing until August 15, 2004, unless Linda died or remarried before that date. The AID provides that, if Ed died before fulfilling his contractual alimony obligation, the AID is binding on his estate, which would then be responsible for the alimony payments to Linda.

The AID also provides that, as long as alimony is payable, Ed will name Linda as irrevocable beneficiary to a portion of the proceeds on the State Farm policy and on two other policies (not at issue in this case) in the respective amounts of $175,000 (State Farm) and $124,882.03 (Lincoln National). Ed was required to keep the three life insurance policies in full force and effect in a face amount sufficient to pay the sum of the then-remaining alimony payments. The AID further provides:

It is specifically agreed by the parties that so long as [Ed] maintains [Linda] as the beneficiary in an amount sufficient to pay her for the amount of alimony payments outstanding, that he may name as a beneficiary for the remainder of the above-described life insurance policies whomever he may choose. Further, if at some later date, [Ed] should determine to drop one or more of the policies above-described, he will be free to do so if the remaining policy or policies are sufficient to pay to [Linda] the amount of alimony payments outstanding.

The State Farm policy provides:

Change of Beneficiary Designation. You may make a change while the Insured is alive by sending us a request. The change will take effect the date the request is signed, but the change will not affect any action we have taken before we receive the request. We have the right to request your policy to make the change on it.

The policy defines "request" as follows:

Request. A written request signed by the person making the request. Such request must be sent to us and be in a form acceptable to us.

On September 28, 1994, Ed signed a State Farm "Change of Beneficiary" form that named as primary beneficiary¹ "Linda Martinez, 41, ex-wife, in accordance with divorce decree dated 09-15-94," and as successor beneficiary "the estate of J.E. Martinez." State Farm recorded this change.

Ed then changed the successor beneficiary to Lisa on May 16, 1996 by signing another State Farm "Change of Beneficiary" form, which continued to name as primary beneficiary "Linda Martinez, 41, ex-wife, in accordance with divorce decree dated 09-15-94." This change was also recorded by State Farm. Also in May of 1996, with Linda's written consent, Ed changed the beneficiary of the $175,000 State Farm policy to his estate.²

On June 30, 1996, Ed and Toni married. On August 1, 2002, Ed signed a State Farm "Change of Beneficiary" form that named Toni as primary beneficiary and did not name a successor beneficiary. In an August 16, 2002 letter, State Farm's Barbara Keck wrote Warren Barker, Ed's State Farm agent, stating:

We received a request to change the beneficiary on the above mentioned life insurance policy. We are unable to process this request since it is prohibited by the insured's divorce decree dated 9/15/94.

We currently show the primary beneficiary as "Linda Martinez in accordance with Divorce Decree dated 9/15/94". Therefore, since he is asking to remove the former spouse and name his current spouse as primary, we need Court documentation stating that he has the right to remove the former spouse. Since we cannot process this change, we are returning the original request to you.

The beneficiary designation for this policy remains unchanged.

The record does not reflect that Ed received this letter or any similar communications. On August 25, 2002, Ed died. At the time of his death, Ed was obligated to pay contractual alimony to Linda for twenty-four more months ($5,000 per month), as long as she was living and had not remarried, a maximum of $120,000.

The underlying dispute over the life insurance proceeds of $500,000 began with Lisa's filing an application for the benefits on September 2, 2002 and Linda's filing on September 5, 2002. Toni filed her application on September 10, 2002, and State Farm acknowledged its receipt that day.

On November 20, 2002, Toni filed suit against State Farm, claiming that she was the rightful beneficiary and seeking statutory penalties, attorney's fees, and prejudgment interest. State Farm filed its interpleader action on November 22, 2002, naming Toni, Linda, and Lisa as defendants. The two suits were consolidated. Lisa and Toni filed competing motions for summary judgment, each contending to be the rightful beneficiary of the policy. Linda disclaimed any interest in the policy proceeds, subject to their security for her contractual alimony rights.

The trial court entered an order granting a partial summary judgment on Toni's motion and finding that Toni was the beneficiary, subject to a constructive trust on the portion of the policy proceeds equal to the amount of unpaid contractual alimony due and payable to Linda on a monthly basis. The order provided that as each monthly $5,000 payment is made to Linda from Ed's estate, in accordance with the AID, $5,000 would be released from the trust and paid to Toni. A separate order was entered denying Lisa's motion for summary judgment, stating that she was not the State Farm policy beneficiary.

After a bench trial on Toni's claims against State Farm, the trial court signed findings of fact and conclusions of law and entered a final judgment, finding that Toni was the State Farm policy beneficiary subject to the constructive trust and awarding her the following: 6% prejudgment interest in the amount of $25,506.73, an 18% statutory penalty of $76,520.19 under Article 21.55 of the Insurance Code, attorney's fees in the amount of $37,089.92, and additional appellate attorney's fees in the respective amounts of $10,000, $5,000, and $5,000 in the event State Farm is unsuccessful in the court of appeals, on petition for review to the Texas Supreme Court, and upon oral argument to the Texas Supreme Court.

Who is the Beneficiary?

In her three issues, Lisa complains that the trial court erred in granting the partial summary judgment and entering final judgment that Toni is the beneficiary. Lisa asserts that she is the beneficiary as a matter of law. Lisa argues that because Ed's purported change of beneficiary to Toni did not comply with the AID and because State Farm rejected Ed's request, she is the last correctly named beneficiary.

We review the decision to grant a summary judgment de novo. Rucker v. Bank One, 36 S.W.3d 649, 652-53 (Tex.App.-Waco 2000, pet. denied). The well established standards for reviewing a summary judgment are:

(1) The movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law.

(2) In deciding whether there is a disputed material fact issue precluding summary judgment, evidence favorable to the nonmovant will be taken as true.

(3) Every reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in her favor.

Nixon v. Mr. Prop. Management Co., 690 S.W.2d 546, 548-49 (Tex.1985). When both sides move for summary judgment and the trial court grants one motion and denies the other, we review the summary judgment evidence presented by both sides and determine all questions presented. Comm'rs Court v. Agan, 940 S.W.2d 77, 81 (Tex.1997).

By its own terms and under Texas law, the insurance policy was a contract between Ed and State Farm. Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 692 (Tex.1994). An insurer's right to question the validity of the policy owner's change in beneficiary is determined by the policy's provisions, and the...