Life Insurance Beneficiary Change by Agent Disallowed


John M. Sullivan was employed by the Federal Government. Because of that status, he held a Federal Employees’ Group Life Insurance account with a death benefit of $216,000.

Mr. Sullivan lived in New York, which has a statute permitting agents under durable powers of attorney to change life insurance beneficiaries. Four days before his death, Mr. Sullivan executed a durable power of attorney, naming his brother Joseph as his agent.

Two days after the power of attorney was signed, Joseph Sullivan went to the life insurance carrier’s office and signed forms to change the beneficiary on John Sullivan’s account. Instead of naming his three children as beneficiaries, Joseph’s new designation named himself as sole beneficiary.

After John Sullivan’s death, the insurance company received claims from his brother Joseph and from his three children. Rather than be subjected to multiple claims, the insurance company filed suit with the Federal Court in New York to determine which beneficiary designation was effective.

Despite the New York statute permitting changes of beneficiary designation, the courts ruled that the change was ineffective in this case. The basis for this conclusion was Federal law governing Federal Employees’ Group Life Insurance policies, however. The courts determined that Federal law in this case superseded the state authorization for agents. Metropolitan Life Insurance v. Sullivan, U.S. Court of Appeals, Second Circuit, September 4, 1996.

Would this result be the same in Arizona? Clearly, the Sullivan case is good precedent for Federal employees and retirees. But, since Arizona does not have an express statute authorizing agents to change insurance beneficiaries in the first place, the same result might be reached even for non-Federal employee benefits.

Common law has long held that certain kinds of acts are too personal for agents to be permitted to undertake them. It is clear that an agent can not contract a marriage, make a will or vote for the principal. Can a power of attorney be used to change most life insurance beneficiary designations, or is this akin to those intensely personal decisions? Litigation now pending in Arizona may answer this question.

Life Expectancy and Retirement Planning

Everyone knows that life expectancies have continued to increase for the past century. When retirement age was arbitrarily set at 65 (by German Chancellor Otto von Bismarck) just over a century ago, most people were not expected to live to that age. Pension plans originally constructed early in this century (including Social Security) made actuarial assumptions based on those shorter life expectancies. Current retirement planning often assumes that present life expectancies will continue until retirement.

Today, however, the average 55 year old worker has a statistical likelihood of living another 22.4 years (for men–the figure is 27.2 years for women). Life expectancies for those at or over retirement age:

Life Expectancy for Various Ages (Source: Social Security Administr ation Annual Statistics Supplement 1995)

Age Men Women

   65           15.1       19.1    
   75             9.4       12.2    
   85            5.3        6.8     
   90            3.9        4.8     
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