life insurance cases: application of slayer...

LIFE INSURANCE CASES:

APPLICATION OF SLAYER STATUTES

W H A T ’ S I N T H I S M O N T H ’ S

N E W S L E T T E R

A M E S S A G E F R O M

M I C H A E L W . L A G O S , C F P®

Dear Strategic Advisor:

For most of our clients, the key financial attribute of life insurance is its death benefit. A

life insurance contract’s ability to provide a substantial and liquid source of cash at the

insured’s death can solve plenty of financial problems faced by the policy’s beneficiary.

The increase in a policy’s value at the insured’s death creates potential problems for in-

surance companies. Underwriters must deal with the idea that someone could be more

valuable financially when dead than when alive. In fact, one of the complaints around the

whole stranger-owned life insurance business is that it creates circumstances under which

a person unrelated to the insured could be motivated to hasten an insured’s death.

Do people murder for financial gain in real life? Unfortunately yes. The cases below have

elements that could easily have made up a movie plot. In fact, one such case (Principal v.

Peterson) was actually made into a movie. The courts in all these cases were forced to

decide how the state’s public policy to prevent unjust enrichment for a person who caused

a death would be applied in specific situations.

Do these cases provide valuable lessons for prospective insureds and life insurance pro-

fessionals? Read on and decide for yourself.

Regards,

Michael W. Lagos, CFP®

T h e A d v i s o r ’ s B u l l e t i n

i s p r o v i d e d b y L A G O S

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i n s u r a n c e p l a n n i n g

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t a c t o u r o f f i c e .

Michael W. Lagos, CFP®

President

Robert L. Langsam

Director of Tax Strategies

Jane M. Roberts

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Financial Advisor

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W W W . L A G O S A D V I S O R S . C O M

A D V I S O R ’ S B U L L E T I N

V O L U M E 1 5 , I S S U E 5

This month's Strategic Planning Idea is with respect to Employer Owned Life Insurance

(EOLI) and PLR 20127017. More of a cautionary message than a strategy, however

vitally important to your clients who have Employer Owned Life Insurance in place. Re-

view of your business clients' life insurance planning could result in preserving the in-

come tax-free benefits of life insurance.

T H I S M O N T H ’ S S T R A T E G I C P L A N N I N G I D E A

Nearly every state has decided that it would be unfair to let a beneficiary who caused the insured’s death profit

from a life policy. They have implemented laws to prevent a person who causes an insured’s death from profiting

as beneficiary of the insured’s insurance policy. Such laws are commonly referred to as slayer statutes.

The Cases

Here are a handful of cases decided over the past several years dealing with the slayer statutes of various states.

Castro v. Ballesteros, 213 P.3d 197 (2009)

In November 2009, Adolfo Suarez was found shot to death in his home. Suarez’s widow, Luz Ballesteros-Suarez,

made claims for the proceeds from two term life insurance policies on Suarez’s life. The policies were issued by

American Family Insurance and Fidelity and Guarantee Life Insurance Company.

The insurance companies found out that Mrs. Ballesteros-Suarez was a suspect in her husband’s murder. The in-

surance companies filed interpleader actions, asking the court to determine who the rightful beneficiary was, not-

ing that Mr. Suarez’s mother was originally named the beneficiary of both policies. The deceased’s widow also as-

serted an interest in the policies’ death benefits based on community property rules.

Arizona’s slayer statute provides that

a person who feloniously and intentionally kills the decedent forfeits all benefits with respect to the dece-

dent’s estate, and revokes any revocable disposition or appointment of property made by the decedent to

the killer. . . . In the absence of a conviction the court shall determine under the preponderance of evidence

standard, whether the person would be found criminally accountable for the killing of the decedent.

The statute also says that

the felonious and intentional killing of the decedent: (1) Revokes any revocable: (a) Disposition or appoint-

ment of property made by the decedent to the killer. . . . (2) Severs the interests of the decedent and killer

in property held by them at the time of the killing as joint tenants with the right of survivorship as communi-

ty property with the right of survivorship, transforming the interests of the decedent and killer into tenan-

cies in common.

Mrs. Suarez denied any knowledge or involvement in her husband’s death. She was generally uncooperative and

asserted her right against self-incrimination any time she was questioned. A police officer testified that according

to the evidence he believed Mrs. Suarez was involved with her husband’s death, believing either she or her son

pulled the trigger.

A person named Mrs. Castro acted on behalf of the deceased’s mother at trial. The trial court found that the Ameri-

can Family form naming Mrs. Suarez beneficiary was a forgery but that the Fidelity form was properly executed in

favor of Mrs. Suarez. It also decided that because of the slayer statute Mrs. Suarez was treated as predeceasing

Mr. Suarez and had no community property interest in the proceeds of the insurance policies.

LIFE INSURANCE CASES:

APPLICATION OF SLAYER STATUTES

LAGOS WEALTH ADVISORS

Advisor’s Bulletin – May 2015

ADVISOR USE ONLY. NOT FOR CLIENT DISTRIBUTION

Mrs. Suarez appealed claiming that the inferences the lower court used to establish the applicability of the slayer

statue were inadequate, specifically that Mrs. Castro had failed to prove that Mrs. Suarez caused Mr. Suarez’s

death.

The appeals court found that Mrs. Suarez’s uncooperative nature at trial, the forged beneficiary documents, and

the testimonies of the police officer and Mrs. Castro could be used as circumstantial evidence that Mrs. Suarez

was involved with her husband’s demise, and that even if she didn’t pull the trigger, her involvement in Mr.

Suarez’s death was enough to invoke the slayer statute.

According to Arizona criminal law, “a person commits first degree murder if intending or knowing that the person’s

conduct will cause death, the person causes the death of another person.” Further the code provides that “a per-

son is criminally accountable for the conduct of another if the person is an accomplice of such other person in the

commission on an offense.” Thus a person that solicits or commands another to cause someone’s death could be

found guilty of first-degree murder.

On appeal Mrs. Suarez again argued that the slayer statute could not defeat her community property interest in the

life insurance proceeds. The appeals court determined that because the slayer statute precludes a person from

profiting from her wrongs, the value of the slayer’s interest in any community property must be determined as of

the moment before the wrongful act was committed. Using this logic, the court found that the term life insurance

policy had no value in the minute before he died, and thus there was no community property value for Mrs. Suarez

to collect. Thus, the appeals court affirmed that she had no right to the term policy’s death benefit.

Dougherty v. Cole, 934 N.E.2d 16 (2010)

Does the successful insanity defense to criminal murder charges defeat the slayer statute in Illinois?

In June 2008, Jack Cole suffered a severe manic episode, and he beat and stabbed his mother, Jane Cole, to

death. In November 2008, Jack was found not guilty of the first-degree murder of his mother by reason of insanity.

Alycia Dougherty, Jane’s daughter and Jack’s sister, filed a petition pursuant to the Illinois slayer statute seeking to

bar Jack from collecting from their mother’s estate, the funds in a thrift savings plan and from collecting the pro-

ceeds from an employee group insurance policy under which Jack was a 50 percent beneficiary. She argued that

the slayer statute barred Jack from collecting.

The Illinois slayer statute bars a person from benefiting from their wrong if it can be determined they “intentionally

and unjustifiably caused the death” of a person.

Jack argued that applying the slayer statute to a criminally insane person does not further the purpose of the stat-

ute, nor does it have any legitimate public policy objectives. The trial court found that the slayer statute did apply

and worked to bar Jack from collecting.

Jack appealed, citing other states that found that the perpetrator of a homicidal act committed while legally insane

cannot be as a matter of law one “who intentionally kills.” The appellate court decided that Jack’s argument was

not on point, as it applied to a different state’s slayer statute with different construction and legislative history.

The court looked at Illinois’s legislative history concerning the slayer statute and the language of the statute itself.

The court found that to prevent a beneficiary from taking under the slayer statute a party must prove that the dece-

dent was intentionally and unjustifiably killed by the beneficiary.







At trial court Jack testified that he knew the person he beat and stabbed was his mother and that he knew he was

grabbing a knife and trying to kill her when he stabbed her. When considering Jack’s testimony and the legislative

intent behind the slayer statute, the court found that regardless of the criminality of the act, the intentional and

unjustifiable causing of death was enough to bar inheritance. The appeals court stated that where “an individual

was insane for criminal purposes but nevertheless cognizant he was killing a person, the slayer statute will prevent

him from benefitting from his actions.”

In re Estate of Stafford, 244 S.W.3d 368 (Tex. App. 2008)

On August 1, 2004, Marygene Stafford died as a result of blunt force injuries to her head. A jury convicted Elton

Stafford, the primary beneficiary of Marygene's life insurance policy, of murder.

Prudential filed an interpleader action with the court, asking them to determine that Deborah Shaw, the contingent

beneficiary, be awarded the proceeds. Prudential deposited the death proceeds with the court.

Deborah filed a motion for summary judgment, claiming that Elton forfeited his right to Marygene’s life insurance

policy as a result of his conviction of her murder. Summary judgment was awarded.

Elton filed an appeal arguing that because his conviction was on appeal and not final he had not forfeited his rights

to the policy proceeds.

Section 1103.151 of the Texas Insurance Code provides that a beneficiary of a life insurance policy forfeits his in-

terest in the policy if he is “a Principal or an accomplice in willfully bringing about the death of the insured.”

The trial court took judicial notice of civil proceedings which found that Elton assaulted Marygene in a way to cause

severe trauma to her head—which eventually resulted in her death. The trial court found by a preponderance of the

evidence that Elton “committed willful acts that brought about” Marygene's death.

On appeal the court stated that Section 1103.151 does not require a “final conviction” before a beneficiary forfeits

his rights to proceeds, and the appeals court affirmed the summary judgment in favor of Deborah.

Hartford Life Ins. Co.v. Pottorff, NO. 5:13-CV-77 (U.S.D.C. N.D. NY 2014)

Janet L. Pottorff was insured by Hartford. She had named her husband Keith Pottroff a 50 percent beneficiary, her

daughter Brandi Beers 25 percent beneficiary, and her son Scott Beers 25 percent beneficiary. She did not name

any contingent beneficiaries.

On July 20, 2012, Janet died from strangulation or suffocation. Her death was determined to be a homicide. On

March 7, 2013, Keith Pottroff was convicted of the second-degree murder of Janet.

Scott and Brandi were each paid their 25 percent shares of the policy proceeds, but Hartford asked the court to

determine who should receive the remaining 50 percent of the proceeds. Hartford deposited the funds with the

court.

Under New York’s slayer statute “one cannot take property by inheritance or will from an ancestor or benefactor

whom he has murdered.” New York courts have found that it applies even if the crime was committed without the

intent to acquire the victim’s property or even to cause the victim’s death.




Keith Pottorff was found guilty of second-degree murder, such conviction is necessarily predicated on an “intent to

cause the death of another person” and a rejection of any insanity or self-defense arguments. Based upon his con-

viction, he was deemed disqualified to receive the insurance proceeds.

Since the Hartford beneficiary designation form provided that “payment will be made in equal shares or all to the

survivor unless otherwise indicated,” the court found that since Pottorff was disqualified from receiving any benefit,

he was deemed to have predeceased Janet. His share therefore passed to the surviving beneficiaries.

Clifton v. Anthony, 401 F.Supp.2d 686 (2005)

After Jared Belser died of a gunshot wound to the head, his wife Shy Anne Belser was convicted of his murder.

Jared was the insured on four insurance policies with American Heritage Life Insurance Company that were issued

as part of Shy Anne’s employee benefits. All four policies named Shy Anne as primary beneficiary. The first two poli-

cies named no contingent beneficiaries. The remaining two policies named Otha Anthony as contingent beneficiary;

Ms. Anthony was Shy Anne’s mother.

Jared had a child with another woman while married to Shy Anne. Ms. Clifton, the child’s mother, filed for the pro-

ceeds from all four policies on behalf of her minor daughter as next of kin for Mr. Belser.

American Heritage Life Insurance asked the court to determine who the correct beneficiaries were.

The first two policies were obtained legitimately, but there were questions about the second two policies. Policy 3

was never signed by Mr. Belser (as the insured), and all the plaintiffs claimed that his signature on the fourth policy

was a forgery.

The court found that the murder of the insured by a beneficiary disqualifies that beneficiary from receiving pro-

ceeds of a policy under Texas law. In such cases the payment of proceeds is to be in accordance with the provi-

sions of the Texas Insurance Code. The Insurance Code provides that a contingent beneficiary should receive the

proceeds. If none is named, then the nearest relative of the insured is to receive the insurance proceeds.

The court determined that Mr. Belser’s minor child was his nearest kin and awarded the proceeds of the first two

policies to her, with Ms. Clifton acting as guardian.

The court found that the third policy had never been signed by Mr. Belser. Under Texas contract law the absence of

the insured’s signature on a contract does not necessarily destroy its validity if it can be proven that the contract

reflected the intent of the parties. Ms. Anthony had the burden of proving that Mr. Belser consented to and intend-

ed for her to be the contingent beneficiary of the life insurance policy. While Ms. Anthony could prove that she and

Mr. Belser had a good relationship, it was not enough to convince the court that Mr. Belser intended that Ms. An-

thony be named beneficiary of the life insurance policy.

With regard to the fourth policy, the court determined by comparing handwriting samples that the signature was a

forgery completed by Mrs. Belser. Ms. Anthony could not prove that Mr. Belser authorized the policy or had intend-

ed for her to be the beneficiary of the policy.

Therefore, the proceeds of the third and fourth policies were also awarded to Ms. Clifton on behalf of Mr. Belser’s

minor daughter, who was his next of kin.




Ahmed v. Ahmed, 817 N.E.2d 424 (Ohio Ct. App. 2004)

Lubaina was a physician, and as part of her employee benefits, she was enrolled in a life insurance policy. She

named her husband Nawaz as primary beneficiary and her son Ibtisam as the contingent beneficiary. After the birth

of her second child, Ahsan, Lubaina never added Ahsan as a second contingent beneficiary.

Under the terms of the contract, the contingent beneficiary would only receive the proceeds of the policy if the pri-

mary beneficiary predeceased the insured.

Nawaz was convicted of murdering Lubaina. Pursuant to Ohio’s slayer statute, all property and insurance proceeds

were to be distributed as if Nawaz had predeceased Lubaina.

The company insuring Lubaina’s life paid half of the proceeds of the policy to Ibtisam as contingent beneficiary but

did not distribute the other half because of the dispute over who should receive them.

Ohio Revised Statutes 2105.19(A) says no one who is convicted of murder, aggravated murder, or voluntary man-

slaughter “shall in any way benefit by the death.” It continues,

All property of the decedent, and all money, insurance proceeds, or other property or benefits payable or

distributable in respect of the decedent’s death, shall pass or be paid or distributed as if the person who

caused the death of the decedent has predeceased the decedent.

Section 2105.19(B) says that if the murderer has benefited from the death, then he or she “is a constructive trus-

tee for the benefit of those entitled to any property or benefit that the person has obtained, or over which he has

exerted control, because of the decedent’s death.”

Ahsan argued that Section 2105.19(B) required that the proceeds be placed in a constructive trust for the benefit

of both of the brothers. Ibtisam argued that Section 2105.19(A) governed and that the proceeds should be distrib-

uted as if Nawaz had predeceased Lubaina. The trial court sided with Ibtisam and awarded him the proceeds.

On appeal Ahsan argued that Nawaz should receive the proceeds but that they should be placed in constructive

trust for the benefit of Ahsan and Ibtisam.

The appeals court however applied ERISA law. The U.S. Supreme Court had previously ruled that ERISA preempts

state statutes, and the Ohio appeals court reasoned that ERISA would preempt Ohio’s slayer statute. The court also

found that it was the intent that ERISA preempt state laws, because state’s laws vary widely on a number of is-

sues—not just the “slayer statute.” The intent of ERISA was to have a nationally uniform plan administration.

Under federal law, which has no applicable slayer statute of its own, the court concluded that Nawaz could not re-

cover any of the insurance proceeds. The court used the plain language of the contract to determine the benefi-

ciary. The contract language did not allow the proceeds to be paid to the contingent beneficiary if the primary was

still alive. The court determined that the proceeds of the policy, based on interpretation of its internal language

consistent with ERISA, should be paid to Lubaina’s estate.

The ultimate distribution of the policy’s death proceeds to the estate’s beneficiaries was governed by the Ohio pro-

bate process.




Estate of Foleno v. Estate of Foleno, 772 N.E.2d 490, 493 (Ind. App. Ct. 2002)

Billy Foleno found his wife Charlotte Foleno in the midst of an affair. He killed her and then he killed himself. All

parties agreed that Charlotte died before Billy.

Billy owned a life insurance policy on himself designating Charlotte as the primary beneficiary. According to the

terms of the policy, in the event there was “no designated beneficiary living at the death of the insured,” the

insurance company would “pay the benefits to the persons surviving the Insured who are listed in the order they

appear.”

First the Insured’s Spouse

Next the Insured’s children

Next the Insured’s parents

Next the Insured’s brothers and sisters

Rick and Charlotte had no children. Rick was survived by his three brothers.

Thomas, the representative for Charlotte’s estate, filed a court complaint for imposition of a constructive trust. The

surviving Foleno brothers asked the court to grant summary judgment in their favor. The court granted the motion,

and the proceeds were paid to the Foleno brothers.

Thomas appealed arguing that equity imposed a “constructive trust” because neither Billy nor his related contin-

gent beneficiaries should benefit from Billy’s wrongful acts.

The appeals court examined the history of the slayer statute in Indiana and particularly where the court had or-

dered constructive trusts where the slayer statute had been invoked. The court acknowledged that there was a his-

tory of using a constructive trust where both spouses were deceased because of a murder suicide. The court

acknowledged a use of constructive trusts where both spouses owned property by the entirety and the murderer

becomes a constructive trustee for the victim’s estate in one-half of the property.

The appeals court observed that neither Billy nor his estate acquired property through Charlotte’s killing, so the

constructive trust rules should not apply. It affirmed that the terms of the insurance contract dictated that the pro-

ceeds be paid to the Foleno brothers.

The appeals court took the position that insurance policy proceeds will be distributed to contingent beneficiaries

where the insured intentionally kills the primary beneficiary as long as the contingent beneficiaries are in no way

responsible for the killing.

Principal Life Insurance Company v. Peterson, 156 CA4th 676 (Cal. Ct. App. 2007)

At the end of 2002 and in early 2003, it was hard to avoid the story of Laci Peterson’s disappearance and the com-

panion stories of her husband Scott’s increasingly bizarre behavior. Laci’s body was discovered on a California

beach in April 2003, and Scott was arrested for her murder shortly thereafter.

California law provides that when the named beneficiary of a life insurance policy “feloniously and intentionally

kills” the person whose life is insured, the beneficiary “is not entitled to any benefit under the policy and it becomes

payable as though the killer had predeceased the decedent.”




Scott Peterson was the named beneficiary of a $250,000 life policy insuring Laci’s life. Mr. Peterson was found

guilty of the first-degree murder of Mrs. Peterson and their unborn child. He was sentenced to death. At the time of

this trial and appeal in this civil case, Mr. Peterson was appealing his conviction.

The insurer, Principal Life Insurance Company, brought an interpleader action asking the court to determine who

was the rightful beneficiary, Scott or Laci’s estate.

The trial court took judicial notice of Mr. Peterson’s murder convictions. The court granted the Peterson estate’s

motion for summary judgment, finding that the California slayer statute burden had been met, and it ordered the

proceeds to be paid to Laci Peterson’s estate.

On appeal Mr. Peterson argued that because the death sentence was on appeal his conviction was not final. The

judicial notice of Mr. Peterson’s convictions did not prove that he had “feloniously and intentionally” caused the

death of Mrs. Peterson, and Laci Peterson’s estate failed to meet the burden of proof required.

California law provides that in the absence of a final judgment of murder, the court may determine by a preponder-

ance of the evidence whether the killing was felonious and intentional for the purpose of California’s slayer statute.

The burden of proof is on the party seeking to establish that the killing was felonious and intentional for the purpos-

es of the part. Mr. Peterson argued that Mrs. Peterson’s estate had not met this burden.

The appeals court looked to rules of evidence to determine whether or not a nonfinal judgment of first-degree mur-

der, not rebutted by any evidence to the contrary, constitutes sufficient evidence to warrant the granting of Laci

Peterson estate’s motion for summary judgment.

The court recognized that in the past a criminal conviction is treated as “prima facie evidence of the facts involved”

in the crime, and the “the conviction is admissible in evidence, not merely as proof of the conviction, but also as

presumptive proof of the commission of the crime.” Mr. Peterson did not dispute the evidence used against him in

the criminal case—only that the judgment wasn’t final and that the Peterson Estate had the burden of proof. The

appeals court found that the summary judgment was correctly granted.

Scott Peterson’s murder conviction was subsequently affirmed. He remains on death row in San Quentin prison.




Conclusion

The cases discussed in this issue are a mere sampling. In most the murder triggering the court proceeding was be-

tween spouses or other close family members.

Where the emotional bond between the insured and the beneficiary is weak, the circumstances arguable increase

the temptation for the beneficiary to pursue conduct that increases the possibility of a death claim.

The state slayer statutes attempt to prevent a killer from profiting financially from his or her crime. As laws and fact

patterns differ from case to case, so results in such cases can also be hard to predict.

Likewise, where amounts of coverage are high, the possibility of foul play also increases. Underwriters and produc-

ers share some responsibility to make sure the insured understands the personal risks associated with dispropor-

tionately large amounts.

Were the results in these cases fair? It’s hard to say, although it does seem clear that the decisions were fairer

when a slayer statute was applied than they would have been if such a rule did not exist.




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LIFE INSURANCE

CASES:

APPLICATION OF

SLAYER STATUTES

life insurance cases: application of slayer...

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