Federal court finds beneficiary designations the product of undue influence

A recent case out of federal court in Ohio is interesting because the federal judge overturned several ERISA beneficiary designations. The judge found that the insured had lacked mental capacity to execute two of the designations and also that the designations were the product of undue influence.

Undue influence claims are not easy to prove, so this case is particularly notable. The insured was a long time employee of General Motors. Through the company he had life insurance, which was part of an ERISA plan because he obtained it through his employer. Thee administrator was the life insurance company, Metlife.

He had executed a beneficiary designation way back in the 80s but then in 2009 and twice in 2011 he had executed new beneficiary designations. In a detailed opinion, the court invalidated those three later designations; the two in 2011 and the designation in 2009. It was a complicated fact scenario which is not unusual in these cases. The bottom line was it was a dispute between siblings as to who ought to receive the policy proceeds and the court examined detailed testimony and found that their father was lacking mental capacity to execute the later designations he had become forgetful he was unable to pay his bills he needed substantial assistance in his life activity according to all the children. There was also testimony that he had become a hoarder, and his physical appearance had begun to deteriorate. He was also unkept, Various signs of someone struggling with capacity.

Regarding undue influence, the court found that the daughter who was the beneficiary of the later designations had attempted to restrict his contact with other members of the family. His phone had been cut off and there was testimony that she had not paid the phone bills so he could not talk to other family members. Isolation is a key component of undue influence claims as it facilitates the influencer.

As part of its analysis the court also noted that an ERISA administrator is obligated to follow the planned documents. Plan documents inevitably state they're supposed to pay the designated beneficiary. But the court noted that analysis was not enough in a case like this because the beneficiary designation was called it into question due to the allegations regarding capacity and undue influence. Those are fact specific allegations. The ERISA administrator don't have the ability to judge whether or not somebody's been the victim of undue influence or whether they lack capacity. That is why they will file an interpleader in federal court and let a court decide whether or not the beneficiary designations are valid.

We handle a lot of beneficiary disputes in which someone claims that a designation is not valid because of lack of capacity or undue influence.