No Reasonable Excuse to Refuse to Pay Beneficiary
Once a life insurer receives proof of the insured’s death and a claim from the beneficiary it must pay the limits immediately but not later than 30 days. When the insurer delays without reason it is, in Illinois, found to act vexatiously, and required to pay attorneys fees and costs to the beneficiary.
In Anne Mangano, an individual v. Jackson National Life Insurance Company, a Michigan corporation, Barbara Mangano, et al., No. 16-11685, United States Court Of Appeals For The Eleventh Circuit (February 5, 2018) Jackson National Life Insurance Company had a dilemma: After her husband Norman Mangano died, Anne Mangano sought payment on Norman’s life-insurance policies. But Anne was not listed as a beneficiary on those policies in Jackson’s records. Instead, Norman’s former wife Barbara Mangano was the identified beneficiary on Jackson’s records.
Rather than taking meaningful steps to sort out the correct beneficiary, Jackson used the circumstances to stall payout for nine months. Only after Anne filed suit did Jackson eventually concede that Anne was entitled to payment.
After Jackson finally paid, mooting Anne’s initial lawsuit, Anne sought payment of attorney’s fees and interest accrued during the nine-month delay. The district court denied both items.
Between 1985 and 1988, Jackson issued three life-insurance policies to Norman Mangano (“the Policies”). These Policies stated that Jackson would pay the face amount of the policy “to the designated Beneficiary upon due proof of the death of the Insured and not later than two months after receipt of such proof.” Collectively, the Policies provided for the payment of $150,000 to a designated beneficiary.
At the time the Policies were issued, Norman designated his then-wife Barbara as his beneficiary, a fact reflected in Jackson’s internal records. Each policy contained the same provision permitting the policyholder to change the beneficiary “by filing at the Home Office of the Company an acceptable written request,” and any change was to “take effect only when recorded by the Company at its Home Office.” They divorced on May 21, 1990, and their Judgment for Dissolution of Marriage, entered in DuPage County, Illinois, incorporated a Property Settlement Agreement. In part, it provided for Norman to have “as his sole and exclusive property,” among other things, the Policies. Additionally, the Property Settlement Agreement included a general release between Norman and Barbara. By the release Barbara gave up the right to the proceeds of the life insurance policies.
Norman passed away on May 24, 2014. Anne called to notify Jackson on June 10. On June 26, 2014, Anne’s financial advisor (the same outfit that submitted Norman’s Designation of Beneficiary form in 1993) sent Jackson a letter on Anne’s behalf demanding payment to her under the Policies. Enclosed with the letter was a copy of the Dissolution of Marriage, Norman’s signed July 6, 1993, Designation of Beneficiary, and a copy of the transmittal letter that Norman and Anne’s financial advisors had sent with the original Designation of Beneficiary form.
On September 4, 2014, almost three months after Jackson first advised Anne that Barbara was listed as the beneficiary in Jackson’s records, and more than two months after Anne sent Jackson a copy of the 1993 Designation of Beneficiary form, Jackson called Barbara for the first time. Jackson later reported that during their phone conversation, Barbara expressly refused to waive her legal rights to the Policies’ proceeds, though Jackson did not reveal what specifically she said.
Anne made one final written demand on Jackson for payment of the Policies’ full proceeds. Attached to the demand was a copy—though not a certified copy—of Norman’s death certificate. Jackson never responded to this demand.
Jackson waited nearly a month after Anne filed her complaint, and then on November 21, 2014, removed Anne’s lawsuit to federal court. At that time, along with an answer, Jackson filed a Counterclaim for Interpleader. The Counterclaim named Barbara and Anne as defendants and claimed that Jackson risked exposure to double litigation and double liability as a result of adverse claims.
Although Barbara did not respond Jackson never sought entry of a default judgment against Barbara. The district court entered summary judgment in Jackson’s favor as to attorney’s fees and interest but entered final judgment for Anne as to her claim for benefits under the life-insurance policies.
The district court below applied the substantive law of Illinois, where Norman originally entered into his life-insurance agreement with Jackson. Anne seeks attorney’s fees under Section 155 of the Illinois Insurance Code, and she seeks interest under Chapter 215, Section 5/224 (1)(l) of the Illinois Compiled Statutes.
Before we may evaluate whether the district court abused its discretion in declining to award fees, we must consider whether, as a matter of law, the district court correctly applied the “vexatious and unreasonable” standard to Jackson’s conduct. The appellate court concluded that it did not. For that reason, the appellate court concluded it must vacate the award of summary judgment denying fees and remand to allow the district court to consider whether to exercise its discretion to award fees, accounting for the fact that Jackson’s delay was “vexatious and unreasonable” as a matter of law.
The Illinois legislature enacted Section 155 to provide a remedy to an insured who encounters unnecessary difficulties when an insurer withholds policy benefits. In passing Section 155, the Illinois legislature intended to make suits by policyholders economically feasible and to punish insurers.
Under Section 155, “vexatious” means without reasonable or probable cause or excuse. Ultimately, though, whether conduct rises to the level of “vexatious and unreasonable” under Section 155 depends on the totality of the circumstances.
The district court here concluded that while Jackson negligently failed to record the change of beneficiary form, there was “no evidence to suggest the failure was done in bad faith,” and Jackson’s delay was not vexatious and unreasonable because the company was investigating “the conflict between [Anne’s] claim that she was the beneficiary and Barbara Mangano as being the beneficiary designated by the Policies in [Jackson’s] file.”
The record unambiguously reflects that Jackson’s was an attitude of delay, deter, and defer. Jackson did nearly nothing to investigate Barbara’s alleged competing claim—and conducted the modest investigation it did undertake only after much delay.
The record reflects that Jackson used Barbara’s oral claim of entitlement—without any investigation—as an excuse to delay payout of the insurance proceeds. Even after Jackson had Barbara’s waiver in hand, it still did not seek a default judgment.
While Jackson had a basis for believing a dispute to exist at some point, Barbara’s unsubstantiated oral claims alone simply do not justify the nine months Jackson took to pay Anne the proceeds, since Jackson did nothing effective to actually investigate Barbara’s claim. If Jackson truly believed there was a dispute, it could have filed an interpleader action immediately rather than waiting five months for Anne to sue first. Jackson’s own actions belie its contention that a bona fide dispute really existed.
In the end Jackson offered no explanation as to why it waited so long to investigate the questions raised by Anne’s claim, let alone to pay out the Policies’ proceeds once it had ample evidence at its disposal. As a matter of law, its conduct was vexatious and unreasonable.
Jackson received sufficient information as to its liability before January 30, 2015. By then, it long had the documents Anne sent on June 26, 2014, and Barbara’s deadline to respond to the interpleader action had passed unheeded. Because no other legal impediments were dependent on third parties, the only question is whether Jackson had received “due proof” of Norman’s death before January 30.
Since it is clear Jackson paid Anne more than thirty-one days after all three of the events listed in Section 5/224, Anne is entitled under the statute to prejudgment interest.
Jackson’s response to Anne’s claim—one of delay, deter, and defer—was vexatious and unreasonable as a matter of law. On remand, the district court must consider whether or not she is entitled to attorney’s fees in light of this circumstance. We also conclude that Jackson had due proof of Norman’s death more than thirty-one days before it paid Anne. Anne is entitled to prejudgment interest under Section 5/224.
Insurance is, as I have often said, a business of utmost good faith. When an insurer, like Jackson acted in this case, investigates a claim with actions designed to delay, deter, and defer payment, it has clearly breached the covenant of good faith and fair dealing. There should be no excuse for such inadequate claims handling and lack of a thorough investigation.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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