Some employers provide life insurance as an employee benefit. The beneficiaries of the life insurance do not automatically change upon termination of your employment or divorce, as was illustrated in the December 22, 2014 New Hampshire federal trial court decision of the Prudential Insurance Company of America v. Penny Santy as Administratrix of the Estate of Robert Santy and Debra Menard. In that case, Prudential had competing claims for the pay out on life insurance upon Robert Santy’s death by Penny Santy, the widow and legal representative of the probate estate of Robert Santy, and Debra Menard. Prudential issued life insurance to Robert Santy in which he designated his brother Richard Santy as the primary beneficiary for the death benefits payable and designated Debra Menard, Richard’s then wife, as the contingent beneficiary. Richard and Robert owned a logging business together. Although Richard Santy and Debra Menard were divorced in 2002, Menard remained the contingent beneficiary in that the divorce decree did not specifically state that she was no longer the contingent beneficiary. Robert died on December 9, 2013 and his brother Richard had died before so the contingent beneficiary Debra Menard was to be paid to the death benefits. Penny Santy claimed that Menard should not get the death benefits under an argument that she did not have an insurable interest of Robert’s life and that because Menard had divorced Richard, she was no longer entitled to the death benefits as a contingent beneficiary when she was married to the primary beneficiary, Richard.
The Court agreed with Menard that the death benefits should be paid to Menard, even though she had divorced Richard. The Court first noted that for insurance policies to be valid, the owner of the policy has to have an insurable interest in the life of the insured at the time the policy was taken out with no need to have such an insurable interest at the time the death benefit is paid. Robert was the owner of the policy and obviously had an insurable interest in his own life. Had his brother Richard been the owner of the policy, he too would, as a business owner with Robert, had an insurance interest in Robert’s life. Menard’s lack of an insurable interest in the life of her ex-brother in law did not affect her right as a death benefit beneficiary. Also only the insurer, Prudential could have raised an argument of a lack of an insurable interest which it did not, evidently because it knew the argument had no merit. Furthermore, since the divorce decree between Richard Santy and Menard did not specifically address the life insurance, the insurance death benefits were paid out on Robert’s death to his ex-wife; a result quite possibly unintended by Robert eleven years after his brother Richard had divorced Menard.
This decision illustrates the importance of addressing all life insurance, including those subject to a contingent beneficiary in a divorce, as well addressing them in any business breakup or employment termination. For example, a top executive who may also be a part owner in a company upon her departure should consider whether or not the “key person” life insurance that has been provided to date by the company and is payable to the company is more valuable to her than what she could buy in the market place on her own. If is it, the remaining business owners of the company, as part of the agreed-to separation, may very well agree to an assignment of the insurance policy from the company to the departing executive. Also, a divorcing employee should consider whether an insurance policy currently provided as an employee benefit is to remain in the divorcing spouse’s name. A smaller policy aimed at covering burial expenses or other final expenses is still important to point out to your divorce attorney to be addressed in a final divorce order.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].