Tuesday, March 12, 2013

Wilhoit v. Peoples Life Insurance Co. case brief

Wilhoit v. Peoples Life Insurance Co. case brief summary
218 F.2d 887

SYNOPSIS: Defendant, heir of a beneficiary's brother, and plaintiff beneficiary's grandson disputed which of them should inherit the proceeds of an investment account. Defendant and intervenor, administrator of the insurance beneficiary's brother's estate, appealed a judgment from the United States District Court for a District in Indiana, which granted summary judgment to plaintiff and denied defendant's motion for summary judgment.

FACTS: A beneficiary of a life insurance policy collected the proceeds and, instead of accepting the terms of the insurer's investment plan, proposed different investment terms, which the insurer accepted. The beneficiary then established a trust for her brother in the event of her death. When her brother predeceased her, the beneficiary then bequeathed the trust proceeds to her grandson. A dispute arose between the brother's heir and the grandson about who was entitled to the trust fund. The district court granted summary judgment to the grandson, and the court affirmed. The brother's heir argued that the beneficiary's brother had been designated as a successor beneficiary and that, as the successor's heir, he should inherit.

The court found that the agreement between the parties was not an insurance agreement or a successor agreement, but an entirely new contract.

-Under the law of gifts, the beneficiary could not retain control of the trust and simultaneously give it to her brother.
-When the brother predeceased her, the gift had never been delivered and the beneficiary was free to give the trust proceeds to another person under her will.

OUTCOME: The court affirmed the order of the district court and held that the investment proceeds should be given to plaintiff, the insurance beneficiary's grandson, and not to defendant, the heir of the beneficiary's brother. Although the beneficiary provided that the investment proceeds were to be distributed to her brother in the event of her death, under the law of gifts she was free to give the proceeds to another when her brother predeceased her.

Wilhoit v. Peoples Life Ins. Co. (7th Cir. 1955) [7 CB 325]: Insured died, leaving death benefit to his wife.  Insurer distributed money to wife, who 23 days later, deposited the funds back with the insurer with a death beneficiary of her brother.  Her brother died without bequeathing the funds, and she then died leaving it to her stepson’s son.  Rule: The deposit of the funds with the insurer was not a part of the original insurance contract, which had ended when the insurer paid out the benefit, and accordingly, the death designation was not an effective will substitute.
i.    Court treats the deposit and death designation as an ineffective POD in a deposit account because it fails to comply with the formalities required by the statute
ii.   Applies the minority rule still in force in some states that POD designations in anything but a life insurance contracts are invalid

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