Copyright 2009 Strafford Publications, Inc.All Rights Reserved Texas Insurance Law & Litigation Alert

February 28, 2009

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Beneficiary designated by annuity owner is entitled to annuity payments; Royal Indem. Co. v. Bates, No. 08-40144 (5th Jan. 16, 2009)

The Fifth U.S. Circuit Court of Appeals ruled that a district court erred in granting summary judgment in favor of the person the decedent designated as the beneficiary for annuity payments. Only the annuity owner could designate the beneficiary for the annuity payments.

Royal Indemnity Co. and First Colony Life Insurance Co. brought an interpleader action. The disputed property was proceeds from an annuity that Royal owned with First Colony. Royal owned the annuity, through a settlement agreement, because it was an insurer: Royal's insured, General Motors Corp., instructed Royal to purchase the annuity to finance a settlement agreement between General Motors, another company, and James Koonce and his then-wife Zanna Russell. As the annuity's owner, Royal possessed the exclusive right to change the annuity's payees.

Subsequently, Koonce sent a signed, notarized letter to the insurance broker servicing the annuity contract, Casualty Services Inc. (CSI), in which he purported to designate Kathy Bates as his survivor-beneficiary. CSI forwarded the letter to Royal. Royal did not, however, instruct First Colony to designate Bates as Koonce's survivor-beneficiary. Koonce was not advised by Royal or First Colony that Royal had not designated Bates as his survivor-beneficiary.

When Koonce died, Royal and First Colony found a copy of Koonce's letter purporting to designate Bates as his beneficiary. Uncertain whether Koonce's purported designation was effective, Royal and First Colony suspended payment of the annuity and initiated the interpleader action to determine who, among Bates, Russell and Koonce's heirs (James Koonce; Stephanie Koonce Mendez; Sandy Alvarado; Tammy Steinburg; Tina Robertson; and Doris Meyer, individually and as guardian of minors Christina Koonce, Christopher Koonce and Alexander Koonce) was entitled to the annuity payments.

The district court granted summary judgment in favor of Bates, granted costs and attorneys' fees to Royal and First Colony, and denied leave to Koonce's heirs to file a counter-complaint against Royal and First Colony for breach of contract. Koonce's heirs appealed. Only annuity owner can designate beneficiary.

The Fifth Circuit affirmed in part, reversed in part and remanded the case. There was no properly designated beneficiary at the time of Koonce's death since only Royal, as the annuity owner, could designate Bates as Koonce's beneficiary. Because Bates had never been designated as Koonce's beneficiary under the annuity, Bates was not Koonce's beneficiary. Koonce's heirs were entitled to the funds.

The Fifth Circuit also found that because Royal and First Colony's actions were in part responsible for much of the uncertainty surrounding whether Bates was Koonce's beneficiary, rewarding their endeavors with costs and attorneys' fees was an abuse of discretion. However, the district court did not abuse its discretion by denying the Koonce heirs' motion for leave to file the counter-complaint against Royal and First Colony since the counter-complaint was not timely filed.

Counsel for Royal : Timothy J. O'Driscoll, Drinker Biddle & Reath, 215-988-2700, Philadelphia; Robert W. Weber, Smith Weber L.L.P., 903-223-5656, Texarkana, Tex.; Lisa D. Stern, Drinker Biddle & Reath, 610-993-2200, Berwyn, Pa.

Counsel for Koonce's heirs : David J. Potter, David J. Potter & Assocs., 903-794-2283, Texarkana, Tex.

Counsel for Bates : William W. Miller, Greer McCasland & Miller, 903-791-9300, Texarkana, Tex.

Source: Texas Insurance Law and Litigation Alert, 02/28/2009

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March 3, 2009

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