667 F. 2d 572 - Travelers Insurance Company v. Daniels E

This is a statutory interpleader action brought by Travelers Insurance Company pursuant to 28 U.S.C. § 1335, to determine the appropriate beneficiaries of the proceeds of the life insurance policy of Fred Daniels. Ruth Daniels and Hattie Hunter are the named beneficiaries of the policy. Kaye and Kendall Daniels claim that Kendall is entitled to the policy proceeds because Kaye and Fred Daniels' divorce decree ordered Fred Daniels to maintain a life insurance policy on his life, with his daughter Kendall as irrevocable beneficiary during her minority.

The district court denied Kaye and Kendall Daniels' motion for summary judgment and sua sponte entered summary judgment in favor of Ruth Daniels and Hattie Hunter. For the reasons stated below, we reverse.

* The facts here are not in dispute. Fred D. Daniels was employed by the Chicago Transit Authority ("CTA") from 1967 until he died in 1979. As a CTA employee, he was eligible for and secured group life insurance with Travelers Insurance Company. He initially named his mother, Hattie Hunter, as sole beneficiary.

Fred Daniels and Kaye Daniels were married in 1968. In 1971, Kendall Lynniece Daniels was born. On April 9, 1976, Fred and Kaye were divorced. Fred Daniels was personally served, but did not appear at the divorce hearing. The divorce decree ordered Fred to "maintain in full force and effect, all existing life insurance policies which he has on his life, and designate KENDALL LYNNIECE DANIELS, minor child of the parties, as irrevocable beneficiary during her minority." Daniels v. Daniels, No. 76 D 1162 (Cir.Ct. Cook Co. April 9, 1976) (Judgment for Divorce P (d)). Although the Travelers Insurance policy was in effect at the time of the divorce, Fred Daniels never designated Kendall as beneficiary.

On October 20, 1976, Fred Daniels married Ruth Daniels. On January 9, 1977, he changed the beneficiary of his insurance policy by designating Ruth Daniels as sixty percent beneficiary and Hattie Hunter as forty percent beneficiary.

Ruth Daniels and Hattie Hunter were still the designated beneficiaries when Fred Daniels died in 1979. Because of the conflicting claims to the proceeds of Fred Daniels' policy, Travelers Insurance Company filed this interpleader action. The district court entered summary judgment for Ruth Daniels and Hattie Hunter, the named beneficiaries.

In deciding who is entitled to the proceeds of the policy, this court must apply Illinois law. See Continental Assur. Co. v. Platke, 295 F.2d 571, 573 (7th Cir. 1961); Prudential Ins. Co. v. Moore, 145 F.2d 580, 583 (7th Cir. 1944), cert. denied, 324 U.S. 849, 65 S.Ct. 686, 89 L.Ed. 1409 (1945). In Illinois, as a general rule, the named beneficiary of a life insurance policy obtains a vested right to the proceeds upon the death of the insured. Bank of Lyons v. Schultz, 22 Ill.App.3d 410, 318 N.E.2d 52, 57 (1974). On this basis, the district court here ruled in favor of the named beneficiaries.

But Illinois courts have created exceptions to this "named beneficiary" rule where someone other than the named beneficiary has acquired an equitable right to be treated as the beneficiary. In two cases with facts similar to those of this case, Illinois courts have found that when a divorce decree orders a party to name his children as beneficiaries of his life insurance policy, those children are entitled to receive the proceeds, even if they were not the named beneficiaries at the time of that party's death. Lincoln National Life Ins. Co. v. Watson, 71 Ill.App.3d 900, 28 Ill.Dec. 339, 390 N.E.2d 506 (1979); Brunnenmeyer v. Mass. Mutual Life Ins. Co., 66 Ill.App.3d 315, 23 Ill.Dec. 652, 384 N.E.2d 446 (1978).1 See also Appelman v. Appelman, 87 Ill.App.3d 749, 43 Ill.Dec. 199, 410 N.E.2d 199 (1980) (recognizing decedent's divorced wife's cause of action for imposition of a constructive trust on life insurance proceeds paid to decedent's widow in contravention of settlement agreement which was incorporated into judgment for divorce).

In Brunnenmeyer, the divorce decree ordered the father to maintain his minor children as beneficiaries of his life insurance policy. This provision was part of a property settlement agreement that was incorporated into the divorce decree. The father complied with the decree until one month before his death, when he changed the beneficiaries, naming his second wife and a bank (as trustee of a trust for the benefit of the minor children). The Illinois Appellate Court held that "the minor children of Brunnenmeyer have an equitable interest in all of the proceeds of the life insurance policy which is superior to that of (the second wife and trustee bank)." 23 Ill.Dec. at 654-55, 384 N.E.2d at 448-49.

In this case, the district court distinguished Brunnenmeyer on several grounds. First, in Brunnenmeyer, the father complied with the decree until one month before his death. At the time of the Daniels' divorce, Kendall was not the beneficiary of Fred Daniels' life insurance policy, nor did Fred ever comply with the insurance provision in the divorce decree. Second, the insurance provision in Brunnenmeyer was part of a property settlement agreement that was incorporated into the divorce decree. Here, there was no written agreement concerning the insurance provision in the divorce decree.

The first Brunnenmeyer distinction, that Fred Daniels never named Kendall as beneficiary before or after the divorce, is not significant in light of the more recent Lincoln case.2 Lincoln, like this case, was an interpleader action, where the rival claimants to the proceeds of a life insurance policy were the deceased's second wife and his son from his first marriage.3 The first wife had been the original beneficiary of the policy. The 1963 divorce judgment ordered the father to designate his minor child as the beneficiary of the life insurance policy. He remarried one year after the divorce and died in 1976, never having changed the beneficiary designation.4 Nevertheless, the court held:

The resolution of the rights of the parties necessarily rests upon the ancient maxim of the courts of chancery that "equity regards as done that which ought to be done." (See In re Estate of Krotzsch (1975), 60 Ill.2d 342, 346, 326 N.E.2d 758 quoting from Shay v. Penrose (1962), 25 Ill.2d 447, 449, 185 N.E.2d 218.) In the case before us the property settlement agreement and the judgment for dissolution of the marriage required the deceased to make a change in the stated beneficiary of the insurance policy to provide that the beneficiary should be Craig Martin, the son of the deceased. The record does not indicate if the deceased made any attempt to comply with the requirements of these documents or if the divorced first wife, Cora Watson, ever attempted to compel this action. However, we will follow the maxim as stated and we will determine the rights of these parties commencing with the assumption that Craig Martin, son of the deceased, had been made beneficiary of the policy.

28 Ill.Dec. at 341, 390 N.E.2d at 508. Accordingly, we find that the facts that Fred Daniels never named Kendall as beneficiary of the insurance policy, and that Kaye Daniels did not compel Fred's compliance before his death, do not affect Kendall's right to the proceeds.

The second distinction from Brunnenmeyer made by the district court was that the property settlement agreement between the parties, and not the divorce decree itself, was a controlling factor in the Brunnenmeyer decision. Ruth Daniels and Hattie Hunter argue that a property settlement agreement was also the decisive factor in Lincoln. In the case before us there was no signed property settlement agreement.

In Brunnenmeyer the court framed the issue in terms of both the agreement and the decree. It defined the issue as whether "the trial court erred in awarding the proceeds of life insurance policies to named beneficiaries changed in violation of the terms of a property settlement agreement which was incorporated into a divorce decree." 23 Ill.Dec. at 654, 384 N.E.2d at 448 (emphasis added). That court also stated that "a beneficiary may, however, acquire a vested interest in the proceeds of the life insurance policy if he gives valuable consideration in return for the promise of the insured that the insured will name him beneficiary," id., and concluded that "the property settlement agreement gave the children an equitable right which could be enforced." Id. But the children in Brunnenmeyer did not really give "valuable consideration" to their father. Rather, his promise to name his children as beneficiaries was a discharge of a portion of his child support obligation. An agreement between the parents is not necessary to trigger this obligation or to enable a court to fashion a divorce decree that ensures child support. Ill.Rev.Stat. ch. 40, § 19.5 Gray v. Gray, 57 Ill.App.3d 430, 15 Ill.Dec. 47, 52, 373 N.E.2d 317, 322 (1978) (for the benefit of the children, and in the absence of a property settlement agreement, the divorce court had the power, under Ill.Rev.Stat.1975, ch. 40, § 19, to award possession of the family home to the wife until the youngest child reached age sixteen). Thus, even in the absence of an agreement, the divorce court could have required the father to name his children as beneficiaries.

Contrary to Ruth Daniels' and Hattie Hunter's argument, the Lincoln case also supports the view that a property settlement agreement is not necessary to enforce a divorce decree's requirement that a parent name his child as beneficiary of his life insurance policy. While there was a property settlement agreement in Lincoln, the court did not rely on the agreement itself, but rather the fact that the "judgment contained a provision substantially the same as the property settlement agreement concerning the insurance." 28 Ill.Dec. at 341, 390 N.E.2d at 508 (emphasis added). The court went on to describe what the terms of the judgment required of the father. Id. There is no implication in Lincoln that a judgment is less powerful than an agreement in bestowing an equitable interest on the child ordered to be named as beneficiary. See Ward v. Sampson, 395 Ill. 353, 70 N.E.2d 324, 331 (1946) (divorce decree's requirement that husband convey real estate to wife was enforced after wife's death, pursuant to the maxim that "equity considers that as done that which ought to be done").

As discussed above, it was not necessary for Fred Daniels to have agreed to child support to make him subject to enforcement of the child support provisions in the decree. The divorce judgment set out the terms of his child support obligation, and he never petitioned the divorce court for modification of the insurance provision in the decree.6 The record indicates that Fred Daniels was not diligent in paying child support while he was alive, and that Kaye Daniels was forced to turn to the courts to enforce the decree on behalf of Kendall.7 In light of Lincoln and Brunnenmeyer, we believe that an Illinois court would follow the maxim that "equity regards as done that which ought to be done" and would enforce the terms of the divorce judgment here, even in the absence of a property settlement agreement.8 To do otherwise would be to allow parties to flaunt child support responsibilities by not entering agreements.

We realize that neither Ruth Daniels nor Hattie Hunter are responsible for Fred Daniels' dereliction of his duty. But neither are they entitled to reap the benefits of the policy when Kendall should have been named as the irrevocable beneficiary since the 1976 divorce decree. Brunnenmeyer and Lincoln teach us that Illinois law does not allow circumvention of child support terms ordered in a divorce decree. When those terms relate to life insurance, so that the named beneficiaries, rather than the recalcitrant parent, are parties to the enforcement action, the rights of the parties are determined by assuming that that which ought to have been done was done. Thus, the child is made beneficiary of the policy.

A final issue arises from the fact that this divorce was by default. Ruth Daniels and Hattie Hunter argue that Fred Daniels was not even aware that the decree required him to name Kendall as beneficiary to his life insurance policy.9 The possibility that Fred Daniels did not bother to ascertain the specific terms of the divorce decree does not change our holding. He was personally served with notice of the divorce proceedings.10 He obviously was aware of the divorce, since he remarried. He also was aware of the child support provisions in the decree, since numerous appearances were made in connection with his arrearages in child support.

It would be unconscionable to hold that a parent may evade his child support obligations, as set out in a valid divorce decree, by not only failing to appear at the divorce hearing, but then by ignoring the terms of the decree. Section 18 of the Illinois Divorce Act, Ill.Rev.Stat. ch. 40, § 19, specifically authorizes child support orders in default cases.11 Ordering a parent to name a minor child as beneficiary to a life insurance policy is an accepted method of providing security for child support. The policy behind such a provision in a divorce decree is especially appropriate here, where Kendall was deprived of her father's support at such a young age.

Accordingly, the order of the district court is REVERSED. The district court is ordered to enter judgment in favor of Kendall Lynniece Daniels.