Ex-Spouse May Not Be Removed as Beneficiary of Life Insurance Policy under New York’s Revocation on Divorce StatuteA recent Second Circuit opinion highlights an important nuance in New York’s revocation on divorce statute, N.Y. Est. Powers & Trusts Law § 5-1.4. In New York Life Insurance Company v. Sahani, the Second Circuit affirmed the district’s courts finding that a decedent’s ex-spouse was entitled to life insurance policy proceeds despite divorcing the decedent the year prior.

In 2001, New York Life Insurance Company issued a $250,000 whole life insurance policy to the decedent. The decedent’s mother, Shukti Singh, was the beneficiary of the whole life policy. In 2007, the decedent married Seema Sahani. Shortly thereafter, the decedent transferred ownership of the whole life policy to Sahani and designated her as the primary beneficiary. Also in 2007, New York Life issued a $1 million term life insurance policy on the decedent’s life to Sahani. Sahani was both the beneficiary and owner of the term life policy. In 2013, the decedent and Sahani divorced. In 2014, the decedent died. Both Sahani and the decedent’s mother, Singh, made claims to New York Life under both policies.

New York’s revocation on divorce statute, EPTL § 5-1.4(a), provides that a divorce revokes any revocable disposition made by a divorced individual to his or her former spouse in a life insurance policy.  Among other things, Singh argued that New York’s revocation on divorce statute applied under these facts and revoked Sahani’s beneficiary designation under the policies. The Second Circuit disagreed. Looking “first to plain language of the statute,” the court held “§ 5-1.4(a) does not apply to the situation here.” According to the court, “the beneficiary designation was not ‘revocable’ because the decedent was not ‘empowered’ to cancel it, since Sahani—not the decedent—was the owner of both policies at the time of the divorce.” As the opinion highlights, Sahani was entitled to the policies’ death benefits because she was the owner and beneficiary of the policies. Conversely, if the facts were slightly altered and the decedent had retained ownership of the policies, the ex-spouse would not have been awarded the death benefits because New York’s revocation statute would have revoked her beneficiary designation.

Moreover, the Sahani opinion is instructive for an additional reason—it is an interpleader action. When faced with Sahani’s and Signh’s claims, New York Life interplead the funds and moved for discharge pursuant to 28 U.S.C. § 2361. Early in the lawsuit, the district court granted New York Life’s motion and dismissed New York Life from the lawsuit. Unlike some states’ revocation on divorce statutes, New York’s statute does not expressly insulate insurers from liability to a former spouse when interpleading the contested funds (compare § 5-1.4 with Tex. Fam. Code Ann. § 9.301(c)(2), insulating insurer from liability where insurer interpleads proceeds). However, interpleader should still be considered a viable option where uncertainty exists as to the facts or operation of the statute. Insurers are afforded some protection under the New York law. In New York, insurers are not liable for making a payment to a former spouse unless the insurer “received written notice of the divorce, annulment, or remarriage” at the insurer’s “main office.”

This blog continues a series of blogs addressing this issue and the particulars of revocation on divorce statutes nationwide. If there is a specific state you are interested in or a global question that needs to be addressed, please comment below.