In its decision, the court explained that the policy required “no specific manner by which the insured must change the beneficiary.”

A federal district court in Colorado has ruled that a letter changing the beneficiary of a life insurance policy, written by the policy’s owner the day before his suicide, was effective to change the beneficiary even though it was not on the insurer’s “beneficiary designation” form. 

The Case 

On February 24, 2004, Richard M. Talley applied for a life insurance policy with Transamerica Life Insurance Company. He listed Cheryl Talley on the application as the sole primary beneficiary.

Transamerica issued the policy, with a face amount of $1,000,000, on or about April 1, 2004. The policy listed “the insured,” Mr. Talley, as the owner.

Sometime before January 2006, Mr. Talley executed a “beneficiary designation” form designating American Title Services Company as the primary beneficiary of the policy. From 2001 until his death, Mr. Talley was the president, director, and shareholder of American Title, which provided title insurance through Title Resources Guaranty Company (“TRGC”), which had a right to audit American Title’s business.

Transamerica effectuated the change that Mr. Talley requested even though the beneficiary designation form was incomplete because the “Date Signed,” “Witness Signature,” and “Address of Witness” lines in the form were left blank.

American Title paid at least seven premiums on the policy.

Beginning around 2007, Mr. Talley allegedly misappropriated funds from American Title for his personal use. In either January or early February 2014, TRGC conducted an audit of American Title’s books and records and discovered Mr. Talley’s alleged theft.

On February 3, 2014, Mr. Talley wrote a letter to Transamerica stating, in relevant part:

I Richard Talley…hereby change the beneficiary to Ms. Cheryl Talley, living at [address], my wife. I [sic] is my desire for this change to take effect immediately upon execution of this notice.

Mr. Talley committed suicide the next day.

On February 19, 2014, Transamerica wrote to Mr. Talley that it was “unable to process the request” for a change in beneficiary because “[t]he incorrect form was used for the requested change.” The letter also stated that “[n]o changes will be made until we receive the requested information and fully completed forms.” Transamerica’s beneficiary designation form was attached to this correspondence.

After receiving news of Mr. Talley’s death, however, Transamerica appended an electronic note dated March 10, 2014 to Mr. Talley’s February 3, 2014 letter stating “going to accept this.”

Transamerica then recorded a change in the records to reflect that Ms. Talley was the primary beneficiary of the policy.

American Title entered bankruptcy and John C. Smiley, the bankruptcy trustee, argued that American Title was entitled to the proceeds. The trustee characterized the policy as a “key man” policy intended to compensate American Title for losses that would arise from Mr. Talley’s death. 

Transamerica initiated an action in a federal district court in Colorado to resolve who was entitled to the proceeds.

The trustee and Ms. Talley filed cross motions for partial summary judgment, each seeking judgment that he or she was the policy’s proper beneficiary.

The Transamerica Policy

The Transamerica policy provided that the insured:

may change the designated Beneficiary while the Insured is living by sending a satisfactory written notice to [Transamerica]. The change will not be effective until we record it at our Administrative Office. Even if the Insured is not living when we record the change, the change will take effect as of the date it was signed. However, any benefits we pay before we record the change will not be subject to the change.

The policy defined:

written request

as:

a signed request in a form satisfactory to [Transamerica] that is received at [Transamerica’s] Administrative Office.

The Court’s Decision

The court granted summary judgment in favor of Ms. Talley, ruling that Mr. Talley’s February 3, 2014 letter constituted “satisfactory written notice” of his intention to name Ms. Talley as the policy’s primary beneficiary.

In its decision, the court explained that the policy required “no specific manner by which the insured must change the beneficiary.” Rather, the court continued, the policy stated only that it required “satisfactory written notice.”

The court was not persuaded by the trustee’s argument that Mr. Talley’s letter, which was addressed to Transamerica’s home office in Los Angeles, was ineffective because it violated the policy’s requirement that all written requests be received at Transamerica’s administrative office in Kansas City, Missouri. The court reasoned that the policy did not state that the request had to be “sent” to the insurer’s administrative office, adding that it was “undisputed that Transamerica received Mr. Talley’s letter” and that there was “no evidence” that the letter was not received at the insurer’s administrative office.

Therefore, the court ruled that Mr. Talley had complied with the policy’s requirements.

In concluding that Ms. Talley was the beneficiary, the court found that Mr. Talley’s alleged misappropriation of American Title funds to pay premiums on a life insurance policy did not effect a change in legal ownership of the policy and that there was no evidence that Mr. Talley lacked the capacity to understand the effect of his February 3, 2014 letter.

The case is Transamerica Life Ins. Co. v. Talley, No. 14-cv-01412-PAB-CBS (D. Colo. Aug. 31, 2015).