Vasconi v. Guardian Life Insurance Co. of America

*350 POLLOCK, J.,

dissenting.

Until today an insured could change the beneficiary on an insurance policy only by notifying the insurer in accordance with the policy or by substantially complying with policy provisions. The majority rejects that rule. It holds that after the death of a divorced insured, the named beneficiary, his former wife, may be deprived of the insurance proceeds because her lawyer did not specifically protect her in their property settlement agreement. I would leave so drastic a change to the Legislature. The rule accomplishes little except to engender uncertainty and spawn litigation. Consequently, I dissent.

-I-

Edgardo Vasconi, administrator of the Estate of Robert Vasconi, the insured, sues to obtain the proceeds of a life insurance policy made payable to the insured’s former wife, Leah Wolf. Robert married Leah on September 9, 1982. On August 24, 1984, Robert designated Leah as the beneficiary of a $20,000 group policy issued by the insurer, The Guardian Life Insurance Company of America. The policy expressly provided that the insured could change the beneficiary only by notifying the insurer. When Robert designated Leah as his beneficiary, the couple was already experiencing marital problems. On May 6, 1985, Robert and Leah signed a property settlement agreement and were divorced. In the agreement, they released all claims to share “in the estate of the other party upon the latter’s death.” Although they also waived any claims against each other’s property, the agreement did not specifically mention life insurance. Robert knew that the agreement did not affect the beneficiary designation. According to the administrator, Robert told him on several occasions that he proposed to change the designation. With knowledge of the policy provisions, Robert neither notified nor attempted to notify the insurer of that proposal. On December 28, 1986, nineteen months after his divorce from Leah, Robert died of liver failure, apparently due *351 to alcoholism. He had never changed the beneficiary designation.

On January 23, 1989, the administrator instituted this action, claiming that Robert had meant to change the designation. Leah filed a proof of claim and counterclaimed.

The Law Division granted Leah’s motion for summary judgment. In an unreported decision, the Appellate Division affirmed, holding that “[wjell established law dictates that unless the owner of the policy has changed the beneficiary in the manner provided by the policy, the insurer is obligated to pay the proceeds to the named beneficiary.”

-II-

Basically, a life insurance policy is a contract between the insurer and the insured for the benefit of the beneficiary. W. Jaeger, 7 Williston on Contracts § 901B at 130-31 (3rd ed. 1963) (Williston). In this State, the beneficiary of a life insurance policy has a vested interest in the proceeds subject to divestment according to the terms of the policy. Gerhard v. Travelers Ins. Co., 107 N.J.Super. 414, 424 , 258 A.2d 724 (Ch.Div.1969); John Hancock Mut. Life Ins. Co. v. Heidrick, 135 N.J.Eq. 326, 328, 38 A.2d 442 (Ch.Div.1944). The underlying theory is that the beneficiary-designation is part of the contract between the insured and the company and can be changed only by complying with that contract. Although insurance policies may vary concerning the procedures for changing a beneficiary, many policies, like the one at issue, require that the insured notify the insurer of the change. See Williston, supra, § 916 at 478-79. An insured, moreover, may effect a change of beneficiary by substantial compliance with the policy. Haynes v. Metropolitan Life Ins. Co., 166 N.J.Super. 308 , 399 A.2d 1010 (App.Div.1979); Novern v. John Hancock Mut. Life Ins. Co., 107 N.J.Super. 570, 579 , 259 A.2d 504 (Law Div.1969). To comply substantially, an insured must make “every reasonable effort to comply” with the policy. Haynes, supra, 166 *352 N.J.Super. at 313 , 399 A.2d 1010 ; Novern, supra, 107 N.J.Super. at 579, 259 A.2d 504 .

Most jurisdictions, including New Jersey, have long held that divorce alone will not divest a former spouse’s beneficiary of his or her interest in the proceeds of the policy. Gerhard, supra, 107 N.J.Super. at 423, 258 A.2d 724 ; 2 J. Appleman, Insurance Law and Practice § 804 at 250 (1941). Some courts have carved out a narrow exception for a former spouse to waive that interest through a separation agreement that specifically encompasses the proceeds. 4 Couch on Insurance 2d § 29.4 at 243 (1960) (Couch); see Mullenax v. National Reserve Life Ins. Co., 29 Colo.App. 418, 424 , 485 P.2d 137, 139-40 (1971). Unless the agreement demonstrates that the parties clearly contemplated a waiver, however, a general waiver of any interest in the property of the other spouse does not destroy a beneficiary’s right to life insurance proceeds. Mullenax, supra, 29 Col.App. at 424, 485 P.2d at 139-40 ; Standard Life Ins. Co. v. Franks, 278 So.2d 112, 114 (La.1973); Gerhard, supra, 107 N.J.Super. at 424, 258 A.2d 724 ; Heidrick, supra, 135 N.J.Eq. at 327-28, 38 A.2d 442 ; Couch, supra, § 29.4 at 243; Note, Life Insurance Beneficiaries and Divorce, 65 Tex. L.Rev. 635, 637 (1987) (Texas Note). Although this Court has not addressed the issue, the Law Division has indicated that a specific provision in a property settlement agreement can effect a change of beneficiary. Novern, supra, 107 N.J.Super. at 578, 259 A.2d 504 . Similarly, the Appellate Division has held that in certain circumstances a provision in a judgment of divorce can override the designation in the insurance policy. Prudential Ins. Co. of Am. v. Prashker, 201 N.J.Super. 553 , 493 A.2d 616 (1985).

Robert and Leah’s separation agreement does not fit within the exception. The agreement did not mention Robert’s life insurance policy and provided only that Leah waived generally any interest in Robert’s personal property. Apparently, Robert understood that the agreement did not encompass the policy. *353 Otherwise, his statements to the administrator that he intended to change the beneficiary would make no sense.

The absence of evidence, however, does not deter the majority. In addition to modifying the insurance policy, the majority has also modified the terms of the property settlement agreement. By creating a presumptive revocation of Leah’s beneficial interest, the majority has effectively rewritten the agreement. In doing so, the majority has contravened the rule that courts should not make different contracts from those that the parties made for themselves. In re Community Medical Center, 623 F.2d 864, 866 (3d Cir.1980); Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529 , 562 A.2d 208 (1989); Washington Constr. Co. v. Spinella, 8 N.J. 212, 217-18 , 84 A.2d 617 (1951); Girard v. Pardun, 318 N.W.2d 137, 139 (S.D.1982); Couch, supra, § 29.4 at 243.

By finding that the general waiver in a property settlement agreement presumptively revokes a beneficiary’s interest in life insurance proceeds, the majority has overturned settled law and ignored the facts of this case. Until today, insureds, insurers, and beneficiaries could rely on the rule that to change the designation of a beneficiary, the insured was obliged to comply substantially with the policy. That clear rule is now replaced with one fraught with uncertainty. Administrators and executors, heirs and beneficiaries, and perhaps even strangers to the policy, may now try to overturn the designation of a beneficiary in a life insurance policy. This result is admittedly more flexible than the one tolerated by the present rule. The cost of heightened flexibility, however, is uncertainty. Nowhere is uncertainty less welcome than in the law of after-death transfers.

Nothing in the majority’s rule facilitates the ability of divorcing spouses to, contract about life insurance policies in property settlement agreements. Spouses could agree as readily about those policies under the former rule as under the new one. In the absence of a specific, provision in the property settlement *354 agreement, the uninsured spouse formerly could rely on receipt of the proceeds if he or she were designated as the beneficiary in the policy. The certainty of that rule is tempered by the exception that permits a change of beneficiary by an insured who substantially complies with the policy requirements. In a comparable context, we recently adopted a rule permitting probate of a will when witnesses have substantially complied with attestation requirements. See In re Ranney, 124 N.J. 1 , 589 A.2d 1339 (1991). It is one thing to respect substantial compliance with the policy requirements for changing beneficiaries or the statutory requirements for the execution of a will. To revoke the designation of a beneficiary because of a divorce is a quite different matter.

Because payment of policy proceeds is so swift and certain, life insurance has become, as the majority observes, the “modern means of transferring assets” after death. Ante at 342-343, 590 A. 2d at 1162-1163; accord Texas Note, supra, 65 Tex.L.Rev. at 635 (citing T. Atkinson, The Law of Wills § 39 at 161 (2d ed. 1953)). One reason for the appeal of life insurance is that payment of the proceeds is quicker, more efficient, and more certain than the distribution of assets under a will. Texas Note, supra, 65 Tex.L.Rev. at 635. Thus, life insurance avoids the cost and delay inherent in probate. Ante at 342-343, 590 A. 2d at 1162-1163; see also Senate Judiciary Committee Public Hearing on Uniform Probate Code Bills at 9 (Testimony of Professor Richard Wellman, Chief Reporter of the Special Committee on the Uniform Probate Code) (noting that because of its complexity and inefficiency, people have sought to avoid probate). Although the majority endorses those goals, its rule undermines them. Under that rule, unless a separation agreement specifically provides that the former spouse is to remain as the beneficiary, life insurance proceeds become fair game. In effect, the majority opinion is an invitation to litigation. The inevitable consequence will be the cost of a lawsuit and delay in payment.

*355 The substantial compliance rule adequately balances the swift and certain payment that makes life insurance so attractive with the need for flexibility. Under the rule, the insured often can change the beneficiary by merely notifying the insurer or by substantially complying with the policy requirements. See Bersch v. VanKleek, 112 Wis.2d 594, 598-99 , 334 N.W.2d 114, 117 (1983) (noting ease with which a life insurance beneficiary designation may be changed) (citing Redd v. Brooke, 96 Nev. 9, 11 , 604 P.2d 360, 361 (1980)); Williston, supra, § 916 at 479 (usual mode of changing beneficiary is written notification of insurer). Here, for example, Robert could have removed Leah as the beneficiary simply by notifying the insurer. Although apparently appreciating the need for such notification, he elected not to do so.

The majority now places on the beneficiary the burden to provide specifically that the designation is unaffected by their divorce and settlement agreement. The rule overlooks that not everyone intends that divorce should deprive a former spouse of life insurance proceeds. True, the partings in many divorces are bitter. Ante at 345, 590 A.2d at 1165. Others, however, are simply the parting of two people who have decided to go their separate ways. The record is devoid of empirical evidence supporting the proposition that the proper balance of interest favors treating a divorce and settlement agreement as a presumptive revocation of the insured’s designation of a former spouse as the beneficiary. I would leave such a determination to the Legislature.

The absence of a statute providing that divorce presumptively revokes the designation of the spouse as a beneficiary cannot be attributed to legislative insouciance. As the majority points out, ante at 343-344, 590 A.2d at 1164, the Legislature has provided in N.J.S.A. 3B:3-14 that divorce revokes a testamentary disposition in favor of a former spouse. The absence of a comparable statutory provision concerning life insurance policies does not mean that the Legislature also intended that divorce should revoke the designation of a former spouse as the *356 beneficiary. The Legislature expressed its awareness of life insurance when adopting the 1977 amendments to the Probate Code. See, e.g., N.J.S.A. 3B:8-3, :8-5, :8-6. If it had intended that divorce effect a revocation of the designation of a former spouse as beneficiary under a life insurance policy, it could have said so. Furthermore, the majority ignores the fact that life insurance policies, unlike wills, involve a contract with the insurer.

I hold to the view that marriage is essentially a partnership in which each party contributes to the venture. The diversion of earnings to pay the premium on a life insurance policy deprives both spouses of funds that would be available for other purposes. Considering their mutual contributions, spouses reasonably expect to be the beneficiaries of each other’s life insurance policies and, when so designated, that the designation will continue. This expectation arises not merely from the matrimonial relationship, but also from the beneficiary’s contribution, indirect though it may be, to the payment of the premiums. In the face of an express designation as the beneficiary, I am not prepared to deprive a former spouse of that expectation.

Finally, this is not a case in which the insured has clearly manifested the intent to comply with the insurer’s procedures for changing the beneficiary. See, e.g., Novern, supra, 107 N.J.Super. at 573, 259 A. 2d 504 (insured designated second wife as beneficiary when filling out new policy after old one had lapsed). This record is devoid of any evidence that Robert intended to deprive Leah of the proceeds of his life insurance. Indeed, the facts point in the opposite direction. They suggest that Robert, knowing that he was obliged to inform the insurer to effect a change in beneficiary, failed to take any steps toward that end. The majority ignores these facts, preferring instead to rely on its perception of the feelings of divorced husbands and its sense of social policy. In reaching that result, the majority has overstepped its judicial bounds and fashioned a *357 rule that is inappropriate for this case and unworkable generally-

I would affirm the judgment of the Appellate Division.

Justice GARIBALDI joins in this opinion.

For reversal and remandment — Chief Justice WILENTZ, and Justices HANDLER, O’HERN and STEIN — 4.

For affirmance — Justices POLLOCK and GARIBALDI — 2.