Typically, beneficiary designations for life insurance policies and other direct distribution accounts must be in writing to be enforced. In this case, the Iowa Supreme Court changes the requirement and allows purported beneficiaries to now bring an action against the decedent’s insurance agent for his purported failure to ensure a verbal statement made by a decedent indicating a desire to change a beneficiary designation of an insurance policy is carried out or face liability for the resulting loss by the beneficiary.
The facts are pretty simple. An ex-husband was required to hold a life insurance policy to ensure support for his minor child after a divorce from the child’s mother. Several years later, he married the plaintiff. Thereafter, he met with his insurance agent and purchased a life insurance policy. The beneficiary designation listed his daughter as the primary beneficiary for the first $50,000 of the proceeds, with his new wife, the plaintiff, to receive any remainder. A few years later, the he filed a new beneficiary designation form entitling his daughter to the first $35,000 of the policy with the remainder to be paid to the plaintiff. No additional substantive changes were made to the beneficiary form for the remainder of the ex-husband’s life.
The new wife , however, alleged that after the ex-husband’s child support obligation ended in 2005, he notified his insurance agent to change the beneficiary designation to make her the primary beneficiary of all proceeds. She also alleged that on separate occasions the agent told both of them that his daughter was no longer listed as a beneficiary. In fact, when the new wife was in the agent’s office with her parents filling out the paperwork to collect the proceeds after his death, she was told she would receive the entire amount, which was approximately $108,000. While she was in the office, the agent received a phone call informing him that the daughter was still listed as a beneficiary and was to receive $35,000.
Two years later, the plaintiff sued the agent and the insurance company alleging negligence and misrepresentation by the agent and respondeat superior against the company for the agent’s negligence. The company moved for summary judgment on the claims because all beneficiary changes were required to be in writing and the plaintiff had no such document. The company stated that without the document, the company owed no duty to her because she was not the policyholder. The district court granted summary judgment finding the failure to remove the decedent’s daughter as a beneficiary was not an act of negligence but was due to the agent’s lack of authority to do so without the decedent’s written authority.
The plaintiff appealed. The Court of Appeals affirmed, and the Supreme Court granted further review. On review, the Court focused on the fact that the decedent intended the plaintiff to be the sole beneficiary. The Court also focused on whether the agent was negligent in responding to the decedent’s oral request to change the beneficiary of the policy, and if the request was made whether there was negligent misrepresentation by the agent to the plaintiff after receiving the oral request from the decedent.
In analyzing the matter, the court determined the issue should be decided under agency principles as there was an agency relationship as insurance agent, insured, and intended beneficiary, so the issue of whether a duty was foreseeable was not at issue. There was no dispute that the agent owed a duty to the decedent as the insured, the question was whether that duty extended to the plaintiff. The court held that the duty did extend to her because she was the intended beneficiary, her status was communicated to the insurance agent, and the agent owed her a duty to ensure the requested insurance was procured.
The court reviewed the facts as known and determined the plaintiff was “exactly the kind of person” the agent could know and foresee was relying on his professional performance for her protection. Because of this, he had a duty to her and he could be negligent for failing to ensure she received the insurance proceeds as requested by the insured.
The Court affirmatively stated that, in Iowa, an insurance agent owes a duty to the intended beneficiary of a life insurance policy in “limited circumstances. In order to limit the potential liability of insurers, avoid conflicts of interest, and not interfere with the insured-insurer relationship, the Court requires future plaintiffs to show they were the “directed, intended, and specifically identifiable beneficiary of the policy” in addition to other negligence elements.
The Court also determined the plaintiff could bring a negligent misrepresentation claim against the agent and company. Because the agent was acting as an insurance agent at the time he made the misrepresentation and was providing information regarding the identity of the beneficiary to both the insured and intended beneficiary of the policy. Because this information was provided during the course of his business and for the benefit of the plaintiff and the possible harm of providing incorrect information on a critical issue of a policy was foreseeable.
In reviewing the particulars of this case, the court held that questions of fact remained on the plaintiff’s claims and summary judgment should not have been granted on any of the issues. The court reversed the district court’s decision and remanded for further proceedings.
A dissent filed in the case by Justice Mansfield argued that prior to this case, putative beneficiaries claiming negligence were allowed only to the extent the plaintiff’s status as an intended beneficiary was revealed in the written document. By removing the requirement that the intention must have been expressed in the written instrument, the court is now creating he said, she said contests over whether a change in a written plan was requested and whether the insurance agent is to blame for failing to ensure the change was carried out. This lack of written proof will lead to uncertainty and instability and the court should have stuck with the rule that written proof was required.
This new ruling places a significant (and unfair) burden on the insurance agent. If a decedent indicates a desire to change a beneficiary in the presence of the verbally stated beneficiary, but fails to follow through with making a written change, the agent must ensure the change is made for the insured. But how is the agent able to know if this is the insured’s actual intent if the insured does not put the request in writing? After this ruling, the agent is now required to determine whether the insured really intended to make the change. Requiring the insured to take affirmative steps to change his beneficiary designation provided certainty as to his intent. Now, the agent is required to determine the insured’s intent in addition to facing the real possibility of negligence claims brought by purported beneficiaries based solely on verbal statements made by a decedent. This becomes particularly difficult if the insured did not really intend to make the change. In this case, there was a company policy that required beneficiary designation changes to be in writing, but that did not seem to change the agent’s responsibility to the plaintiff. So, what’s an agent in Iowa to do now? Pitts v. Farm Bureau Life Insurance, No. 11-0117, 2012 Iowa Sup. LEXIS 76 (Iowa Sup. Ct. Jul. 6, 2012) rehearing denied by Pitts v. Farm Bureau Life Ins. Co., 2012 Iowa Sup. LEXIS 87 (Iowa Sup. Ct. Aug. 10, 2012).