SDV Insights

The recent case, Prudential Insurance Company of America v. Sheppard,¹ decided by the Federal District Court for the Middle District of Florida, highlights the importance of reviewing life insurance policy beneficiary designations for clarity and accuracy, to ensure that death benefits are properly paid to the intended beneficiaries. 

In this case, an employee of the Mayo Clinic had received life insurance coverage as a benefit of employment. Because the employer provided this insurance, it was governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), a federal statute that governs most employer-sponsored insurance coverages. As is often the case with ERISA-governed benefits, a Plan Document dictated the terms of the life insurance coverage, including payment of claims.

After the employee passed away, as part of death claim administration, Prudential reviewed the beneficiary designation form.²  The form was less than clear concerning who should receive the death benefit. Instead of the form identifying a primary beneficiary for 100% of the proceeds and contingent beneficiary if the primary beneficiary was predeceased, it identified a primary beneficiary at 50% and a contingent beneficiary at 50%.³  The deceased employee’s fiancé was named the primary beneficiary, and the deceased’s sister was named the contingent beneficiary.⁴  The fiancé argued for 100% of the death benefit, while the sister sought 50%. Given the dispute over the benefits, Prudential filed an interpleader action depositing the funds with the Federal Court and asking for guidance regarding distribution of the proceeds.⁵

The District Court assessed the competing beneficiaries’ claims by applying the ERISA “plan documents rule.”⁶  Under this rule, in keeping with U.S. Supreme Court precedent and the requirements of the ERISA statute, benefits are to be paid in accordance with the literal written designation, and then if additional funds remained, they are to be paid in a specific order, first to a surviving spouse, then surviving children, then surviving parents, and then surviving siblings.⁷

The Court reasoned that the basis for the “plan documents rule” is to avoid injecting the expressions of intent of the decedent into the decision and a potential for protracted beneficiary contests.⁸  Focusing solely on the content of plan documents reinforces the ERISA imperative that employer-sponsored plans must be established and maintained in keeping with a written document to afford those benefitting from such plans a clear understanding of their rights.⁹  Consequently, in this case, the Court held that the fiancé was due 50% of the face value, and the decedent’s sister was due the remaining 50%. 

These types of life insurance contests can be avoided when beneficiary designations are clearly stated. Those insured under group life insurance policies provided by their employers should ensure that beneficiary designation forms are completed and transmitted in accordance with Plan requirements. A good practice is to ask the insurer to confirm receipt of the designation in writing and maintain in your records a physical or electronic version of your policy along with the written beneficiary designation.

If you have questions about life insurance claims, reach out to attorney Eve-Lynn Gisonni at EGisonni@sdvlaw.com; (203) 287-2158. 
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¹2024 WL 693967 (M.D. Fla. Jan. 22, 2024).
²Id. at *1.
³Id.
⁴Id.
⁵Id.
⁶Id. at *3.
⁷Sheppard at *1.
⁸Sheppard at *3.
⁹Sheppard at *3; 29 U.S.C. § 1102(a)(1).