Opinion
No. 2002-CA-001826-MR.
June 18, 2004.
Appeal from Jefferson Circuit Court, Honorable Geoffrey P. Morris, Judge, Action No. 01-CI-006435 01-CI-006793.
Gregory C. Menefee, Louisville, Kentucky, Brief and Oral Argument for Appellant.
John V. Hanley, Louisville, Kentucky, Brief and Oral Argument for Appellee.
Before: COMBS, Chief Judge; DYCHE and JOHNSON, Judges.
OPINION
Brenda Childers, the widow of Grover Childers and the administratrix of his estate, has appealed from an order of the Jefferson Circuit Court entered on July 30, 2002, which declared that Myrtle Childers, Grover's former wife, was entitled to the proceeds from Grover's two life insurance policies. After our review of the record and the pertinent law, we affirm.
Grover and Myrtle were married on January 28, 1959. During their marriage, Grover obtained coverage under two separate life insurance policies with John Hancock Mutual Life Insurance Company (Unicare) and Minnesota Life. Myrtle was named the beneficiary on each of the two policies. At some point, Myrtle also obtained a life insurance policy and named Grover as her beneficiary.
On June 19, 1985, the Jefferson Circuit Court entered a decree dissolving the marriage of Grover and Myrtle. In the decree of dissolution, the trial court incorporated the parties' property settlement agreement, which included a provision dealing with Grover's two life insurance policies and Myrtle's life insurance policy. The provision purported to divest the expectancy interest of each spouse in the life insurance policy or policies of the other. In addition, the agreement provided that Grover and Myrtle would have "the right to change beneficiary" on their respective policies.
On June 13, 2000, Grover married the appellant, Brenda Childers. Less than one year later, on April 1, 2001, Grover died intestate without having changed the named beneficiary on either of his two life insurance policies. Therefore, Myrtle remained the named beneficiary on both of Grover's life insurance policies at the time of his death. Grover was survived by his widow, Brenda, and three adult children, Keila C. Mills, Vickie L. Childers, and Ricky A. Chenault. On May 17, 2001, Brenda was appointed administratrix of Grover's estate.
On September 19, 2001, Myrtle filed a petition for declaration of rights, naming as party defendants Minnesota Life, Unicare, Brenda, and Betty Eschman, Grover's former companion. According to the record, Betty Eschman lived with Grover subsequent to his divorce from Myrtle but prior to his marriage to Brenda. She claimed to be entitled to the policies' proceeds based upon a written agreement with Grover. On February 25, 2002, the trial court entered an order granting Myrtle's motion for a default judgment against Eschman after she had failed to file a timely answer to Myrtle's petition for declaration of rights. Eschman has not appealed from that order, and thus she is barred from making any claims under Grover's life insurance policies.
On October 4, 2001, Unicare filed an interpleader action, seeking to pay its policy proceeds into court pending a judicial determination of the parties' respective rights. On November 27, 2001, the trial court entered an order consolidating Unicare's interpleader action with Myrtle's petition for declaration of rights. On January 28, 2002, the trial court entered an order permitting Unicare to tender the full policy amount of $44,000.00 into an interest bearing account pending any further orders by the court regarding the proper distribution of the life insurance proceeds.
Myrtle asked that she be declared the sole beneficiary of Grover's two life insurance policies and that she be paid the full amount under those policies. On November 6, 2001, the trial court entered an order permitting Myrtle to add Brenda in her capacity as administratrix of Grover's estate as a party defendant.
According to the record, the Unicare policy was worth approximately $44,000.00, and the Minnesota Life policy was worth around $1,500.00 at the time of Grover's death.
On December 21, 2001, Brenda filed an answer to Myrtle's petition for declaration of rights and asserted a counterclaim against Myrtle. Brenda claimed that Grover's estate should be declared the sole beneficiary under both of his insurance policies. On January 7, 2002, the court entered an order permitting Vickie Childers, Grover's daughter, to intervene as a party defendant. Subsequently, Vickie filed an answer to the complaint and also asserted a counterclaim against Myrtle, arguing that either Grover's estate or Grover's surviving issue should be declared the sole beneficiary of Grover's life insurance policies.
On July 30, 2002, the trial court entered an order declaring that Myrtle was entitled to the proceeds under both of Grover's life insurance policies. The court found that the language in Grover and Myrtle's property settlement agreement did not "clearly and unambiguously divest Myrtle of her beneficiary expectancy interest." Accordingly, the court declared Myrtle to be the sole beneficiary under both policies. This appeal followed.
Brenda, the only appellant in this appeal, claims that the court erred in declaring Myrtle to be the sole beneficiary under both of Grover's life insurance policies. She argues that since the property settlement agreement divested all of Myrtle's interest in and to all of Grover's property, it was not necessary for Grover to amend his insurance contracts in order to remove Myrtle as the beneficiary under the two insurance policies. We disagree.
In Ping v. Denton, Ky., 562 S.W.2d 314, 317 (1978), cited by the trial court as authority for its decision, the Kentucky Supreme Court held that where a decree of dissolution of marriage does not specifically provide for the divestiture of a named beneficiary's expectancy interest in a life insurance policy, the divorce decree, standing alone, does not affect the named beneficiary's expectancy interest. Thus, the spouse named as beneficiary under the insured spouse's life insurance policy retains her expectancy interest unless the divorce decree expressly divests the beneficiary spouse of her expectancy interest.
In Hughes v. Scholl, Ky., 900 S.W.2d 606 (1995), the Supreme Court expounded upon the rule announced in Ping, applying it only in limited circumstances:
[T]he rule applies only in limited situations where neither the parties' property settlement agreement nor decree specifies that the former spouse is divested of her expectancy as beneficiary and the insured has not otherwise removed the former spouse as his beneficiary after the divorce.
Id. at 608 (Emphasis added).
In the case before us, the property settlement agreement directly addressed Grover's life insurance policies and purported to divest Myrtle of her expectancy interest. However, "expectancy interest" must be defined in specific terms since arguably more is at stake than proceeds payable as death benefits to a beneficiary. The language addressing the couple's life insurance policies provides as follows:
Each party has a life insurance policy and each released unto the other all right, title and interest in and to the other's life insurance policy with the right to change beneficiary.
However, that provision addressed two separate and distinct expectancy interests: (1) all interest in the policy itself as an item of value (cash surrender, collateral value, etc.) and (2) proceeds payable upon death according to the designation of beneficiary. The trial court properly summarized this distinction in the two severable interests by citing to footnote two of Hughes, supra, 900 S.W.2d at 608:
The divestiture language should be clear and unambiguous. A general waiver of any interest in the property of the other spouse is insufficient to destroy a beneficiary's right to receive insurance policy proceeds.
Brenda's argument emphasized the inclusion of the "change of beneficiary language" in the property settlement agreement, concluding that the only purpose for its inclusion was to cause an automatic release of mutual entitlement to proceeds. However, in order to give meaning to every word as we must under the rules of contract interpretation, we construe the addition of that language as more than a mere redundancy. Instead, it served as a reminder that an affirmative act remained necessary in order to effectuate a change in the right to claim the insurance proceeds as distinguished from the automatic waiver of right or interest in the insurance policy itself that was achieved by the provision in the property settlement agreement.
As Ping held and Hughes reinforced, Kentucky law contemplates that an insured retains the right to perform an affirmative act of removal in the absence of unequivocal language of cancellation of a beneficiary in the decree of dissolution. The facts of this case and the provisions of the property settlement agreement indicate an absence of the "clear and unambiguous" language required by Hughes in order for a divorce decree alone to serve to divest this interest. While the divestiture language in the property settlement agreement terminated the interest of each in the policies' various property values, it did not affect the right to proceeds as evidenced by the retention of the right of each to change beneficiaries.
Grover and Myrtle divorced in 1985 after a twenty-six year marriage. He had co-habited with Betty Eschman prior to his re-marriage to Brenda Childers in 2000. More than fifteen years had elapsed between the divorce and his death. He had ample time and motivation (a new marriage) as opportunity and incentive to change his beneficiary. He clearly elected not to exercise his contract right under the policy or that same right, which was reiterated in his property settlement agreement.
Perhaps he felt that he did not have to do anything and that the policy proceeds would pass to his estate. Perhaps he forgot about the matter entirely. Or perhaps he intended that Myrtle not be deprived of the interest released years ago "unto the other." We cannot know. But the language of his property settlement agreement clearly highlighted the right (and by implication, the responsibility) to designate a new beneficiary. Having failed to do so, Grover should be presumed to have deliberately allowed the status quo to remain unaltered. We should refrain from executing that right posthumously on his behalf. We have neither reason nor legal mandate to elect in his place.
We affirm the order of the Jefferson Circuit Court.
DYCHE, JUDGE, CONCURS.
JOHNSON, JUDGE, DISSENTS AND FILES SEPARATE OPINION.
Since I have concluded that Grover and Myrtle in their property settlement agreement clearly "released unto the other" any expectancy interest they had in the other spouse's life insurance policy or policies, I must respectfully dissent.
The Majority reaches its result in part by emphasizing the "two separate and distinct expectancy interests" in the life insurance policies in question, i.e., the interest in the policy itself (cash surrender value, collateral value, etc.) and the proceeds payable to the beneficiary upon Grover's death. Assuming, arguendo, that such a distinction is material to the analysis, it is rendered moot by the clear and unambiguous language of the property settlement agreement. Grover and Myrtle expressly "released unto the other all right, title and interest in and to the other's life insurance policy . . ." [emphasis added].
In my opinion, the only reasonable interpretation of this contractual provision is that, following the mandate in Hughes, in which our Supreme Court stated that "[t]he divestiture language [must] be clear and unambiguous[,]" Grover and Myrtle intended to effectuate a total release of whatever interests that they might have had in the other spouse's life insurance policy or policies. They effectuated this total release by (1) acknowledging that they each held a life insurance policy; and by (2) expressly agreeing to release "all right, title and interest" that they might have had in the other spouse's policy or policies. Although Myrtle remained the named beneficiary on both of Grover's policies, a construction of the property settlement agreement permitting Myrtle to collect the proceeds of Grover's life insurance policies would have the effect of ignoring the specific "release" language of that agreement.
Hughes, 900 S.W.2d at 608 n. 2.
The Majority also emphasizes the last phrase of the paragraph in question which states that each party has "the right to change beneficiary." The Majority contends that since Grover did not exercise his right to change the beneficiary, Myrtle remained his beneficiary. I cannot accept this argument because its only basis arises from a contractual right that Grover already possessed from the insurance policy. In other words, since the terms of the insurance policies owned by Grover gave Grover the right to change his beneficiary, the only reasonable construction that can be given to this phrase is that the parties desired to more clearly express their mutual release of any claim of right as to any expectancy interest in the other's insurance policies' proceeds. The Majority's interpretation of this phrase, which gives the releasing party a continued expectancy interest even though the remaining language of the paragraph makes it clear that each party desires to release their expectancy interest, unnecessarily creates an inconsistency in the paragraph. While the paragraph in question is not artfully worded, I would hold that interpreting the paragraph as a complete release of all interests is the only interpretation which would give effect to the entire paragraph and best carry out the intentions of the parties.
See Cantrell Supply, Inc. v. Liberty Mutual Insurance Co., Ky.App., 94 S.W.3d 381, 384-85 (2002) (quoting City of Louisa v. Newland, Ky., 705 S.W.2d 916, 919 (1986)) (stating that "`[a]ny contract or agreement must be construed as a whole, giving effect to all parts and every word in it if possible'"); and North Star Co. v. Howard, Ky., 341 S.W.2d 251, 255 (1960) (construing a lease provision and stating that "[w]hen the intention of the parties can reasonably be ascertained from the language used in the lease as a whole it is the duty of the court to effectuate such intention even though their purpose was inarticulately expressed").
A review of several cases from other jurisdictions lends support for this result. For example, in Phillips v. Pelton, the Supreme Court of Ohio stated:
461 N.E.2d 305 (Ohio 1984).
The general rule is that divorce (or dissolution) alone does not automatically defeat the right of a named beneficiary to receive the proceeds of a former spouse's life insurance policy. In order to effectuate a change of beneficiary, the insured must ordinarily follow the procedure directed in the policy of insurance. In summary, the intentions of the insured as expressed in the designation of beneficiary will normally be upheld [citations omitted].
An exception applies where the terms of a separation agreement which is made part of the divorce (or dissolution) decree "plainly indicate" the elimination of the named beneficiary from all rights to the life insurance proceeds. In that instance, the insured and the former spouse have manifested a contrary intent from the specific designation contained in the policy which should be given effect [citation omitted].
Id. at 307.
After quoting the relevant portion of the property settlement agreement at issue in Phillips, the Court stated:
[T]he parties specifically directed their attention to the issue of life insurance and expressed their intention to release all rights which each may have had as beneficiary under the policies of the other. It is our view that this language was sufficient to eliminate each party as beneficiary of the other notwithstanding the fact that no specific change of beneficiary was made [emphasis added].
Id. See also Beneficial Life Insurance Company v. Stoddard, 516 P.2d 187, 188 (Idaho 1973) (stating that "[t]he weight of competent authority, however, supports the proposition urged by respondent in the instant case that the beneficiary's interest in the policy may be terminated by a property settlement agreement which may reasonably be construed as a relinquishment of the spouse's rights to the insurance. This is true even though the insured does not remove the former spouse as the beneficiary under the policy" [emphasis added]); In re McEndaffer's Estate, 560 P.2d 87, 89 (Colo. 1977) (holding that even though the former spouse was not removed as beneficiary on any of the life insurance policies, where the "release" language of the property settlement agreement was construed to encompass the former spouse's expectancy interest, allowing the former spouse to recover as beneficiary "would do violence to the parties' obvious intent, an intent we are bound to honor"); Romero v. Melendez, 498 P.2d 305, 308 (N.M. 1972) (stating that although the husband did not remove his wife as designated beneficiary prior to his death, "[t]he weight of competent authority seems to support the proposition that where the divorce decree makes a definite disposition of the insurance policies, the wife's interest as a beneficiary can be defeated by such disposition"); Estate of Anello v. McQueen, 953 P.2d 1143, 1145 (Utah 1998) (noting that "[e]ven though the beneficiary has not been changed in accordance with the statute or policy, if the language in a particular decree of divorce must be construed as a waiver or renunciation of a party's right to take as a beneficiary, then the proceeds of the policy may not be paid to the former spouse, although he [or she] remains the designated beneficiary" [second bracketed language original]) (quoting Culbertson v. Continental Assurance Co., 631 P.2d 906 (Utah 1981)); and Brewer v. Brewer, 390 S.W.2d 630, 632 (Ark. 1965) (holding that although the wife remained as the named beneficiary, she was "foreclosed to claim any interest or proceeds from the policies [that] she specifically transferred and released to decedent" in the couple's property settlement agreement).
I find the rationale of Phillips and the other cases cited herein to be persuasive. Although Myrtle remained the named beneficiary on both of Grover's life insurance policies, Grover and Myrtle clearly reached a contrary agreement under the terms of their property settlement agreement. Thus, I conclude that the language in this property settlement agreement was sufficient to divest Myrtle of whatever interest she may have had in Grover's life insurance policies. Accordingly, I would reverse the trial court's order declaring Myrtle to be the sole beneficiary of Grover's two life insurance policies.
See Napier v. Jones By Through Reynolds, Ky.App., 925 S.W.2d 193, 197 (1996) (holding that when one spouse is awarded specific property in a decree of dissolution, the decree "terminates whatever prior interest the ex-spouse maintained in the property").