The New Jersey Superior Court, Appellate Division, has rejected the argument that an insured’s spouse has a “presumptive right” to the policyholder’s life insurance benefits. Fox v. Lincoln Financial Group concerns a life insurance policy that initially named the policyholder’s first spouse as a beneficiary. After the policyholder divorced, he designated his sister as sole beneficiary. Several years later, the policyholder married a Brazilian citizen. In support of his spouse’s application for American citizenship, the policyholder executed an affidavit in which he agreed to support his spouse at 125 percent of the poverty level. Under the terms of the affidavit, this obligation terminated upon the policyholder’s death.
While the citizenship application was pending, the policyholder died in a car accident. Prior to his death, the policyholder made no effort to designate his new spouse as a beneficiary under the policy. The policyholder’s spouse sued the named beneficiary and the life insurer for the policy funds. After the life insurer paid its policy funds into the court and was dismissed from the lawsuit, the beneficiary filed a motion to dismiss. The plaintiff responded by filing a motion for summary judgment. The trial court granted the motion to dismiss, while denying the plaintiff’s motion for summary judgment.
At trial and on appeal, the plaintiff spouse claimed that if a life insurance policyholder remarries after obtaining a policy, a “rebuttable presumption” should exist that the policyholder intended to replace the named beneficiary with the spouse. The Appellate Division began its analysis by noting the general rule that a policyholder’s intent to change a beneficiary designation on a life insurance policy is ineffective unless the designation is changed in accordance with the policy, or a policyholder “substantially complies” with the policy requirements. The New Jersey Supreme Court has recognized an exception to this rule in Vasconi v. Guardian Life Ins. Co. of Am., holding that when a policyholder has divorced and entered into a settlement agreement allocating marital assets among the couple, such an agreement presumptively revokes the divorced spouse’s rights as a beneficiary under the life insurance policy.
The Court rejected the plaintiff’s argument that pursuant to Vasconi, marriage of a life insurance policyholder should create a presumption that the policyholder intends to designate the spouse as a beneficiary. In doing so, the Court noted that unlike the present case, Vasconi concerned the execution of an agreement that expressed an intent contrary to the policy provision.
The Court therefore concluded that adoption of the “bright-line” rule advocated by the plaintiff spouse should be a matter left to the Legislature. The Court observed that while statutes have been enacted establishing that divorce forfeits a former spouse’s rights to a life insurance policy and creating inheritance rights to a surviving spouse unintentionally omitted from a premarital will, no statute has been enacted giving a spouse an automatic entitlement to life insurance policy proceeds.
Having declined to adopt a presumption that the spouse was entitled to the life insurance proceeds and in the absence of any evidence that the policyholder took steps to designate the spouse as a beneficiary, the Court affirmed the trial court’s dismissal of the plaintiff spouse’s lawsuit.
The Appellate Division’s decision reflects a hesitation to adopt bright-line rules for construction of an insurance policy that are contrary to the language of the policy. Absent compelling circumstances, courts will generally apply policy language as written.