Statutory Injunction and Life Insurance Proceeds Disputed in Clarksville, Tennessee: Coleman v. Olson

February 5, 2020 K.O. Herston 0 Comments

Facts: This is the third appellate opinion in this case and my third post about it. Here’s where you can read the first and second.

Tennessee statutory injunction

Mother and Father were the married parents of one child.

Four days after Mother filed for divorce, she became ill and was hospitalized.

Mother’s mother, i.e., Grandmother, came to the hospital. They discussed Mother’s desire that the proceeds of her $400,000 life insurance policy for which Father was the beneficiary, be used to benefit the child. Grandmother created a handwritten document naming herself as the beneficiary of Mother’s life insurance policy, with the child named as a contingent beneficiary. Mother signed the document, it was submitted to the insurance company, and the beneficiary changed.

Nine days after being admitted to the hospital, Mother died. The proceeds from her life insurance policy were paid to Grandmother per the handwritten change of beneficiary.

Father sued Grandmother to recover the proceeds from Mother’s life insurance policy.

The trial court found Mother’s change of beneficiary violated the automatic injunction that went into effect when she filed for divorce. The trial court ordered that the proceeds be deposited with the court for the use and benefit of the child.

The Court of Appeals reversed, holding that the equities require returning the insurance proceeds to Father.

The Tennessee Supreme Court affirmed that a trial court has the authority to consider the equities between the parties when remedying the violation of the statutory injunction when a divorce is abated by a party’s death. It remanded the case back to the trial court for this balancing of the equities.

On remand, Father demonstrated that he receives approximately $45,000 a year from Social Security and life insurance benefits due to Wife’s death. Wife’s death forced him to be solely responsible for $190,000 of joint debt.

After finding that Father was forced to assume all the marital debts, the change of beneficiary deprived Father of funds to pay for Mother’s share of their financial obligations, Mother’s death left Father as the sole caregiver and provider for their child, and Mother intended that their child be the beneficiary of the insurance policy rather than Father, the trial court ruled the equities weighed in favor returning the life insurance policy to its status before Mother violated the statutory injunction. The trial court awarded the life insurance proceeds to Father.

Grandmother appealed.

On AppealThe Court of Appeals reversed the trial court.

When a divorce is filed in Tennessee, Tennessee Code Annotated § 36-4-106(d) imposes an automatic injunction on both parties designed to maintain the financial status quo pending a final resolution of their respective property interests.

The Court found the trial court erred in its legal analysis:

[T]he trial court’s analysis reveals that it viewed the remedy for a violation of the statutory injunction as an all-or-nothing allocation rather than an equitable division of the insurance proceeds. In its analysis, the trial court twice framed the issue as whether the “factors balance in favor of returning the life insurance policy to its status before [Mother] violated the statutory injunction.” Thus, it is apparent the court was of the mistaken belief it was limited to two options—award the proceeds to [Father] because he was the beneficiary when the injunction went into effect or award the proceeds to [Grandmother] because she was the beneficiary when the divorce action abated. To the contrary, the trial court had the option of remedying the violation of the statutory injunction by awarding all or a portion of the life insurance proceeds to either or both parties.

The instruction on remand was to fashion an equitable remedy to the extent necessary to avoid unjust results. Because the trial court limited its discretion to an all-or-nothing option, the trial court applied an erroneous legal principle in determining the equities of the parties. As a consequence, it is incumbent on this court to identify the most appropriate legal principles and the applicable facts to fashion an equitable remedy to the extent necessary to avoid unjust results.

The Court determined that the legal principles most applicable when a widow or widower seeks to recover life insurance proceeds based on the now-deceased spouse’s violation of the automatic injunction are:

  • a beneficiary of life insurance has no vested interest in the policy before the death of the insured, but a mere expectancy;
  • the statutory injunction does not convert the beneficiary’s expectancy interest into a vested interest;
  • final divorce judgments equitably divide the marital estate and responsibility for children;
  • Social Security support payments a parent receives are to be credited toward child support obligations of the other parent; and
  • an equitable remedy tries to avoid an unjust result.

The Court applied the facts to these principles:

Except for being solely responsible for the child’s unexpected medical and extraordinary educational needs, [Father], as the surviving spouse, was not put in a worse position than he would have been had [Mother] obeyed the injunctive order and the divorce action proceeded to judgment. Conversely, [Grandmother’s] financial circumstances are significantly worse due to the expenses incurred to honor her daughter’s wishes to prevent [Father] from receiving any of the proceeds and for the insurance proceeds [to] be used for the child’s benefit.

[Mother’s] violation of the temporary stay by changing the beneficiary of her insurance policy does not require an all-or-nothing, either/or determination. Instead, the equities of this case justify an award of a portion of the proceeds to [Father] for unexpected medical and extraordinary educational expenses that [Father] may incur in the future, with the balance of the remaining proceeds to the designated death benefit beneficiary, [Grandmother].

* * * * *

Having considered [Father’s] circumstances after [Mother’s] death, we conclude that [Father’s] equitable share of the insurance proceeds should be based on the award of support in the amount of $500 per month, calculated from the death of [Mother] to when the child turns 18 years of age.

The trial court’s judgment is modified to reduce Father’s award to the aggregate sum of the monthly payments for $500 calculated from Mother’s death to the time their child turns 18. Grandmother is awarded the remainder of the insurance proceeds.

K.O.’s Comment: (1) One week after this opinion was issued, the Tennessee Supreme Court released its opinion in Harmon v. Hickman Cmty. Healthcare Servs., Inc. in which it reiterates the limited standard of review of a trial court’s discretionary decision:

Because, by their very nature, discretionary decisions involve a choice among acceptable alternatives, reviewing courts will not second-guess a trial court’s exercise of its discretion simply because the trial court shows an alternative that the appellate courts would not have chosen. Accordingly, if the reviewing court determines that reasonable minds can disagree with the propriety of the decision, the decision should be affirmed.

Will this third appellate opinion be the final word, or will the Tennessee Supreme Court give us a fourth?

(2) In my commentary on the Court of Appeals’ first opinion, I mention some facts discussed by the Court that make Father rather easy to dislike. Those same facts were mentioned again in this opinion. Reasonable minds may wonder what role those facts played in the negative outcomes Father received on appeal.

Coleman v. Olson (Tennessee Court of Appeals, Middle Section, January 21, 2020).

Statutory Injunction and Life Insurance Proceeds Disputed in Clarksville, Tennessee: Coleman v. Olson was last modified: February 3rd, 2020 by K.O. Herston

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