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Phone call to keep beneficiary didn’t ‘comply’

Where a dying man called his life insurance company to verify that he could keep his ex-wife as his beneficiary and was assured by an operator that he did not need to complete any more paperwork, the phone call did not “substantially comply” with the company’s requirements for naming a beneficiary.

The man’s three sisters get the proceeds of nearly $282,000, a federal judge in Alexandria has ruled.

Phone-Call-Right-MAIN-298x300There is little Virginia law on substantial compliance, the judge noted.

The deceased man, Eugene Hubka, worked for Exxon Mobil and was insured under the company group life insurance plan.

In 2004, he named his then-wife, Judith Gorman-Hubka, as his beneficiary. They divorced in May 2014.

In late July of that year, Hubka called the insurance company stating that he wanted to keep his ex-wife as the beneficiary. An employee referred to as “Operator Ben” in a transcript told him that if she was already the beneficiary, there was nothing he needed to do.

Hubka died Aug. 3, 2014.

There were competing claims for the $281,920 due to the proper beneficiaries. The insurer deposited the money with the court and filed an interpleader.

U.S. District Judge T.S. Ellis III had the task of deciding who got the money – the ex-wife or the dead man’s three sisters.

Hubka’s father, who survived him, would be in line as an heir for the insurance proceeds, but he waived that right in favor of his daughters.

Ellis analyzed whether ERISA preempted Virginia law in construing the policy, deciding that Virginia law controlled.

And the ex-wife’s claim ran headlong into Virginia Code § 20-111.1, which holds that when a couple divorces, any designation of a spouse on insurance policies is automatically revoked.

Even with that statute, though, Ellis said that if Hubka had made a post-divorce designation, the ex-wife could recover.

The issue became whether Hubka has substantially complied with the carrier’s requirements to change a beneficiary.

“Substantial compliance is an equitable principle that gives effect to the demonstrated intent of an insured in designating a beneficiary,” he wrote.

There is little Virginia law on substantial compliance, but state law is clear that a beneficiary change should be allowed “when the [policy] owner does everything within his power to effectuate the change,” said Ellis.

Ellis used a test taken from a case decided by the 4th U.S. Circuit Court of Appeals: Substantial compliance is when the insured (1) shows an intent to make a change and (2) undertakes some positive action which is similar to the actual action needed to effect the change.

The ex-wife argued that Hubka did nothing, because Operator Ben said he did not need to, if she was “already the beneficiary.” Thanks to Virginia Code § 20-111.1, she was not.

Despite the “misleading” advice from Operator Ben, Ellis said that Hubka hadn’t done all he could. He didn’t tell Ben the date of the original designation, the date of divorce, where it took place or any other relevant information that would put Operator Ben on notice that the code had automatically revoked his ex-wife’s status.

Therefore, there was no substantial compliance, since Hubka had not done “everything to the best of his ability to effect the change,” Ellis concluded.

He granted the sisters’ cross-claims against the ex-wife and denied her cross-claims. Remaining on the docket was a claim by the ex-wife against the carrier.

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