August 5, 2009
Ex-Spouses Take a Financial Hit – Court Rules that an Ex-Spouse was not Entitled to Life Proceeds Despite Being the Named Beneficiary on her Ex-Husband’s Group Life Insurance Policy
In a case of first impression, the Appellate Division, in Hadfield v. Prudential Insurance Company, held that N.J.S.A. 3B:3-14 applies retroactively to remove an ex-spouse as a beneficiary of her ex-husband’s group life insurance policy even though the ex-wife was still the named beneficiary and they had been both married and divorced prior to N.J.S.A. 3B:3-14 being amended on February 27, 2005, to apply to life insurance policies. The court concluded that N.J.S.A. 3B:3-14 could apply retroactively to remove the defendant ex-wife as beneficiary by operation of law because she never had a vested right to the policy proceeds since her ex-husband had the right to change the beneficiary at any time up until the time of his death.
The defendant ex-spouse and the decedent were married in November 2002 and in February 2003, the decedent made defendant beneficiary to his group life insurance policy and the defendant did likewise with her life insurance policy. Prior to that time, decedent, who was a detective with the Hudson County Prosecutor’s Office and as such was a member of the Police and Fireman’s Retirement System (“PFRS”), had named his sister as the beneficiary of this policy. Then, in December 2003, defendant filed an uncontested complaint for divorce and a judgment of divorce was entered on April 13, 2004. Decedent subsequently passed away approximately two years later, on March 15, 2006, without ever changing the beneficiary designation on his life insurance policy.
Defendant, who had since remarried, claimed she was entitled to the policy proceeds, asserting that the divorce had been amicable and that they had agreed that each would maintain the other as the beneficiary on their respective life insurance policy until either remarried. The plaintiffs, who were the decedent’s parents, disputed this assertion, claiming that the decedent had attempted to remove defendant as beneficiary and replace her with her sister but had completed the forms incorrectly. The trial court granted summary judgment in favor of plaintiffs and defendant appealed.
After first rejecting appellant’s argument that group life insurance policies issued under the PFRS are exempt from N.J.S.A. 3B:3-14, the court addressed appellant’s argument that the statute does not apply because, although in effect on the date of decedent’s death, it was not in effect on the date of their divorce. The court first notes that at the time that defendant and decedent were married and divorced, N.J.S.A. 3B:3-14, in effect, operated to “revoke any dispositions or appointment of property made by will to the former spouse” upon divorce or annulment. However, N.J.S.A. 3B:3-14 was amended February 27, 2005 to provide, in pertinent part, that “a divorce or annulment . . . revokes any revocable . . . dispositions . . . made by a divorced individual to his former spouse in a governing instrument” and the definition of “governing instrument” was amended to include a life insurance policy. Thus, it was clear that had the divorce occurred after February 27, 2005, appellant would have automatically been removed as beneficiary of her ex-husband’s life insurance policy by operation of law pursuant to amended N.J.S.A. 3B:3-14.
In addressing the issue of whether amended N.J.S.A. 3B:3-14 applied in the present case, the Hadfield court began by discussing an analogous New Jersey Appellate Division decision holding that N.J.S.A. 3B:3-14 applied to a will even though the annulment occurred prior to its enactment. The court then noted that the highest courts of several other states having statutes similar to N.J.S.A. 3B:3-14 had addressed similar issues and had held that the statute applied retroactively to remove the ex-spouse as beneficiary.
In the end, the court concluded that the “better reasoned approach” was to apply the statute retroactively to remove the ex-spouse as beneficiary. Consequently, the Hadfield court affirmed the trial court order, holding that N.J.S.A. § 3B:3-14 was applicable despite the fact that defendant and decedent were divorced prior to the amendment becoming effective.
Nicholas J. Ferrara is an associate of Hill Wallack LLP in the Princeton Office. He is a member of the Litigation Division and the Trial & Insurance Defense, Product Liability and Insurance Coverage Practice Groups. Mr. Ferrara focuses his represenation in the defense and representation of insurance companies and their insureds in complex claims and litigation.