A recent decision in a case involving allegations that a decedent’s modifications to his life insurance beneficiary were invalid due to undue influence illustrates the difficulty in challenging a beneficiary change made by an insured shortly before dying.
James Barnett Jr. was born Nov. 21, 1943. He worked for Fiat Chrysler Automobiles US L.L.C., eventually retiring.
Barnett obtained life insurance coverage through Fiat Group Life Insurance Plan. Metropolitan Life Insurance Company was a fiduciary and responsible for administering the plan in accordance with the federal Employee Retirement Income Security Act of 1974 (ERISA).
Throughout his life, Barnett apparently struggled with alcohol abuse and also suffered from hypertension and diabetes. On Dec. 1, 2014, Detroit police reported to Barnett’s residence. According to the police report, Barnett had fired one shot into the driver’s side window of his own vehicle, believing that he had seen someone in his vehicle. Barnett also stated to officers that there had been a woman seated at a table in his home and that an unknown man had been in the rear of his home.
The officers, however, did not see either of the people Barnett had described.
The officers confiscated Barnett’s gun, a black .40 caliber Smith & Wesson semi-automatic pistol. Later, the police transported Barnett to the hospital.
At that time, medical notes indicated that Barnett did not have any hearing or visual proble. Barnett denied having any visual hallucinations.
The doctors scheduled a series of medications, apparently addressing Barnett’s diabetes and hypertension.
On July 16, 2015, Detroit police again reported to Barnett’s residence. According to the police report, Deborah Kelly, Barnett’s girlfriend, had visited him. When Kelly left, Barnett said that he realized that his wallet and his gun, a black Smith & Wesson .40 caliber pistol, were missing. The police report stated that Kelly had taken the gun to secure it.
Barnett passed away on Oct. 15, 2015 at the age of 71. He left behind six children, at least one grandchild, an ex-wife, and a long-term girlfriend.
Shortly after Barnett’s death, MetLife received competing claims for Barnett’s life insurance benefits. In the years leading up to his death, Barnett had changed the beneficiary to his life insurance several times.
Here’s a list of Barnett’s beneficiary designation decisions, based on court documents. (Image: Allison Bell/TA)
On Nov. 4, 2015, LaShawn Barnett, Barnett’s daughter, alleged that Barnett had suffered from alcoholic hallucinations at the time he had changed the beneficiary from Kelly to his ex-wife, Shirley Conner-Barnett.
MetLife brought an interpleader to resolve the dispute among the potential beneficiaries. Although five potential beneficiaries were listed in the action, only two potential beneficiaries seemed to make claims to the benefits: Conner-Barnett and Edith Garnett.
Conner-Barnett moved for summary judgment.
The District Court’s Decision
The district court granted Conner Barnett’s motion.
In its decision, the district court explained that, to establish undue influence under Michigan law, it must be shown that the grantor “was subjected to threats, misrepresentation, undue flattery, fraud, or physical or moral coercion sufficient to overpower volition, destroy free agency and impel the grantor to act against his inclination and free will.” Motive, opportunity, or even ability to control, in the absence of affirmative evidence that it was exercised, were “not sufficient.”
The district court added that, in some transactions, the law presumed undue influence:
The existence of a confidential or fiduciary relationship between the grantor and a fiduciary;
The fiduciary or an interest that the fiduciary represented benefited from a transaction; and
The fiduciary had an opportunity to influence the grantor’s decision in that transaction.
Moreover, the district court observed, it was “frequently said” that a presumption of undue influence arose where the person benefitted was in a fiduciary, confidential, or quasi-confidential relationship, such as a trustee, attorney, physician, member of the clergy, or business adviser.
Here, the district court found, there did not appear to be an allegation of undue influence taken by any person with a fiduciary relationship. Therefore, it ruled, there was “no presumption of undue influence.”
The district court then examined whether Barnett had been “competent to contract,” and decided that he had been.
The district court explained that, in Michigan, competence to change a beneficiary on a life insurance policy was akin to the test of metal capacity to contract. The test of mental capacity to contract, it continued, was whether the person in question possessed “sufficient mind to understand in a reasonable manner the nature and effect of the act” in which the person was engaged. To avoid a contract, the district court added, it must appear “not only that the person was of unsound mind or insane when it was made, but that the unsoundness or insanity was of such a character that the person had no reasonable perception of the nature or terms of the contract.”
Similarly, the district court continued, the test to determine the mental competency of an insured at the time the insured attempted to effect a change of beneficiaries of a life insurance policy was whether the insured “then had sufficient mental capacity to understand the business in which the insured was engaged, to know and understand the extent of the insured’s property, how the insured wanted to dispose of it, and who [were] dependent upon the insured.” A mentally incompetent person was one who was “so affected mentally as to be deprived of sane and normal action.” According to the district court, a person may be incapable of conducting his or her business successfully “and still not be mentally incompetent.”
Michigan courts, the district court added, “generally presume the legality, validity, and enforceability of contracts.” This presumption included the assumption that the individuals signing a contract were mentally competent at the time of the signing, the district court noted. Therefore, the district court explained, the party seeking to invalidate an insurance designation (Garnett, in this case) had the burden of proving that the decedent lacked the legal capacity to contract.
The district court then ruled that evidence did not create an issue of fact that prohibited summary judgment as to the issue of undue influence.
It noted that one affidavit stated:
I have personal knowledge of the statements made in this Affidavit. During several conversations, [Barnett] indicated that he felt that Shirley and Deborah were forcing themselves back into his life and that they were manipulating him and his finances. It is my belief that, based upon these concerning allegations and my conversations with James, that Shirley and Deborah were taking advantage of him based upon his lack of understanding and confusion by changing his beneficiary designation to them.
The district court found a number of “problems” with this affidavit that led it to decide not to consider it. First, it said, the affidavit proceeded on hearsay, rather than personal knowledge. It added that the portions of the affidavit that were not hearsay were “conclusory, and insufficient to defeat summary judgment.”
The district court acknowledged that, with the affidavit excluded, the case boiled down to the police reports and Barnett’s medical records.
It found that, when viewing that evidence in the light most favorable to the non-moving party, it was clear that Barnett had “struggled with alcohol and hallucinated on at least two occasions.” It pointed out that six months after Barnett had shot a gun into his own vehicle while hallucinating, Barnett had changed his life insurance beneficiary from Garnett to Kelly. Then, two weeks after Barnett had called the police (seemingly and mistakenly believing that Kelly had taken his gun), he had changed his life insurance beneficiary from Kelly to Conner-Barnett.
The district court ruled that, at most, the evidence demonstrated that within a year of Barnett’s death, he suffered from a “weakened mental state due to hallucinations and alcohol.” It said that even if it accepted the argument that Barnett had been manipulated, that “still would not be enough survive summary judgment.”
That’s because demonstrating undue influence pursuant to Michigan state law was a “very high hurdle to clear” and there had to be more than the existence of “mere coercion or manipulation.” The district court ruled that the coercion had to reach a level that overpowered volition, destroyed free will and agency, and impelled the grantor to act against the grantor’s inclination and free will. In this case, the district court concluded, there was no evidence or argument that any manipulation, albeit in Barnett’s weakened mental state, had risen to a level to destroy Barnett’s free will and had forced him to act against his own free will.
The case is Metropolitan Life Ins. Co. v. Kelly, No. 16-cv-12544 (E.D. Mich. July 20, 2017). Attorneys involved include: For Deborah Kelly, Defendant: Michael J. Gildner, Simen, Figura,, Flint, MI. For Edith Barnett, Defendant: Trevor Weston, Fedor, Camargo & Weston, PLC, Birmingham, MI. For Shirley Conner-Barnett, Defendant: Dean E. Patrick, Law Office of Dean E. Patrick, PLLC, Southfield, MI.
—-Check out When Clients Want To Change Beneficiarieson ThinkAdvisor.