Edith M. Wallace, Individually & as Administratrix of the Estate of Michael Wallace, Debbie A. Rash & Sharon Gelsone v. Salathiel DeRusse

CV1-078 IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS, AT AUSTIN NO. 3-91-078-CV EDITH M. WALLACE, ET AL., APPELLANTS vs. SALATHIEL DeRUSSE, APPELLEE FROM THE DISTRICT COURT OF TRAVIS COUNTY, 299TH JUDICIAL DISTRICT NO. 471,364-A, HONORABLE PAUL DAVIS, JUDGE PER CURIAM Edith M. Wallace, Debbie A. Rash, and Sharon Gelsone appeal the grant of a summary judgment in favor of Salathiel DeRusse, finding him to be the sole primary beneficiary of Michal L. Wallace's death benefits. (1) We will affirm the judgment of the trial court. BACKGROUND Michal L. Wallace, an employee of Southwestern Bell Telephone Company ("Bell"), died on July 27, 1989. While employed at Bell, he participated in several employee compensation and benefit programs, which entitled his beneficiary to certain benefits at his death. Bell had rules for naming or changing the designated beneficiary of these benefits. In 1986, Michal Wallace executed a beneficiary designation form naming appellee as beneficiary. In 1989, Michal Wallace became seriously ill and by April 1989, needed constant care. On June 30, 1989, Michal Wallace executed a power of attorney naming appellant Edith Wallace, his mother, as his attorney-in-fact. On July 26, 1989, he was hospitalized in serious condition. On the morning of July 27, 1989, approximately five hours before his death at 3:30 p.m., appellant Edith Wallace executed a new beneficiary designation form naming appellants Gelsone and Rash, Michal Wallace's sisters, as beneficiaries. This form was executed at Bell's Austin offices and sent by telefacsimile to Bell's benefits office in San Antonio. The original was later mailed. On July 31, 1989, appellants Gelsone and Rash delivered notice to Bell that they were entitled to the death benefits. On August 18, 1989, Bell forwarded the information to the administrator of the Employee Stock Ownership Plan. On August 22, 1989, Bell informed appellee of the change in the beneficiary. On August 28, 1989, Bell paid $2,509.79 each to Gelsone and Rash, representing unused vacation pay and accrued wages. On September 1, 1989, appellee commenced an action in state district court to be named the beneficiary. On October 24, 1990, the court granted a severance on the issue of appellee's rights as beneficiary and entered a summary judgment in appellee's favor. (2) In three points of error, appellants contend that the trial court erred in: (1) holding that Edith Wallace's attempt to change the designated beneficiary was invalid under the applicable rules; (2) rendering a summary judgment because the evidence raised a fact issue whether the decedent had "substantially complied" with the rules or whether the rules had been waived; (3) ruling that appellee was the single primary beneficiary because Bell's payments to appellants Gelsone and Rash had foreclosed a challenge to the change in beneficiaries. We will deal with point one and the substantial compliance portion of point two together and with point three and the waiver portion of point two together. COMPLIANCE WITH THE RULES Rule 3.C of Bell's rules for beneficiary designations governs changes: An outstanding beneficiary designation is revoked when a subsequently executed beneficiary designation is submitted by the employee in proper form to, and accepted by, the employing corporation or the program administrators prior to the employee's death. A conservator or attorney in fact may not revoke or change a beneficiary designation of the employee except by court order approving the revocation or change. (Emphasis added.) In general, the "majority of courts give effect to changes in beneficiary designations where the insured has done everything in his power to designate a new beneficiary prior to death and only ministerial acts remain to be performed by the insurer thereafter." 2A Appleman's, Insurance Law and Practice (Appleman's) § 1044, at 83 (1966) (emphasis added). A policy may prescribe a certain method of making a change, and in such an event, a beneficiary is not divested until the method is substantially complied with. 2 Appleman's § 901, at 453. In Texas, if an insured does all that he could have reasonably done to change the beneficiaries of his death benefits during his lifetime, he has substantially complied with the policy rules and the change is effective. Creighton v. Barnes, 257 S.W.2d 101, 103-104, (Tex. 1953) (no substantial compliance when forms to make a change remained in a drawer for ten months, will ineffective to make change); Odle v. Williamson, 570 S.W.2d 188, 191 (Tex. Civ. App. 1978, no writ); Porter v. Garner, 386 S.W.2d 618, 619-20) (Tex. Civ. App. 1965, writ ref'd n.r.e.) (change effective even though insurance company actually received executed forms after insured's death); Witt v. Citizens National Bank, 440 S.W.2d 112, 114 (Tex. Civ. App. 1969, no writ) (when insured mailed forms requesting a change in beneficiary to his attorney who, the court assumed, was acting as the insured's agent for transmitting the forms to the insurance company, and the attorney did not send them before the insured's death, no substantial compliance because the attorney's power to act ended on the insured's death). In this case, we have an attorney-in-fact acting for the insured. Under the terms of the rule, whose validity and applicability are not disputed, an attorney-in-fact may not make such a change without a court order. There was no summary judgment evidence that appellants took any steps toward securing such an order. If the facts in this case showed that appellant Wallace had obtained a court order, but mailed it later than the change of beneficiary form, then this situation would be more analogous to the cases on which appellant relies that found substantial compliance. Her failure ot obtain the court's permission to change the beneficiary is not substantial compliance with the company's rules. Appellants contend that the evidence created a fact issue as to substantial compliance with the company's rules, relying on Equitable Life Assurance Society v. Stuart, 575 S.W.2d 64 (Tex. Civ. App. 1978, writ ref'd n.r.e.). In Equitable, the insured sent a form to change a beneficiary to his attorney who sent it to the wrong place because of an incorrect policy number. The form was returned to the attorney on May 6, with directions about where to send it. The insured died on May 23, before his attorney redirected the form. There was nothing in the record, at least as discussed in the opinion, to account for the gap in time between the attorney's receipt of the letter and the death of the insured. Certainly, that lack would raise a fact issue about whether anything else reasonably could have been done in that time period. The circumstances in this case raise no fact issues. As discussed above, there was no evidence of any attempt to obtain a court order to comply with the rules. We overrule point of error one and the part of point two dealing with substantial compliance. WAIVER Appellants contend that the insurance company's act in paying over monies to appellants Gelsone and Rash waived the requirements set out in the rule for changing beneficiaries or at least created a fact issue precluding summary judgment. In general, an insurer itself may not waive compliance with rules concerning a change in beneficiaries except during the life of the insured. 2A Appleman's § 1044, at 83. If the policy requirements have not been waived during the insured's life, then the right to proceeds vests in the beneficiary on the insured's death and cannot be defeated by acts falling short of substantial compliance. Fidelity Union Life Insurance Co. v. Methven, 346 S.W.2d 797, 800 (Tex. 1961). The acts on which appellants rely to support their assertion of waiver all occurred after Michal Wallace's death. There is no evidence of any act occurring before his death that raise a fact issue about waiver. We overrule point three and the portion of point two dealing with waiver. We affirm the judgment of the trial court. [Before Chief Justice Carroll, Justices Jones and B. A. Smith] Affirmed Filed: August 14, 1991 [Do Not Publish] 1. Michal Wallace participated in several employee benefit programs: group life insurance, supplementary life insurance, an employee savings plan, and an employee stock option plan. In addition, unpaid wages and unused vacation days were payable at his death. One beneficiary designation form covered all of these programs. The proceeds of all of the above will be referred to as the "death benefits" and the recipient of the proceeds as the "beneficiary." 2. Plaintiff sued Southwestern Bell Corporation, Southwestern Bell Telephone Company, Southwestern Bell Corporation Group Life Insurance Program, Southwestern Bell Corporation Savings Plan for Salaried Employees, Southwestern Bell Corporation Stock Ownership Plan, General American Life Insurance Company (the Plan defendants), Edith M. Wallace, Debbie A. Rash, and Sharon Gelsone. Plaintiff brought the following causes of action: acting beyond the scope of the agency relationship created by the power of attorney; failure to comply with contractual and rule provisions on changing beneficiaries; violations of Tex. Ins. Code Ann. art. 3.50 (Supp. 1991) and breach of the insurance contract; a declaration that the benefits were non-testamentary under Tex. Prob. Code Ann. § 450 (1980); declaratory judgment under Tex. Civ. Prac. & Rem. Code Ann. art. 37.001 (1986); actual fraud; constructive fraud; breach of fiduciary duty to both plaintiff and decedent; conversion; tortious interference with a contract; tortious interference with a gift; mistake and absence of a meeting of the minds; exemplary damages; claims under ERISA (Employee Retirement Income Security Act, 29 U.S.C. § 1001, 1132(1)(B), 1132(e)(1)); and attorney's fees. All parties filed motions for summary judgment. The court granted plaintiff's in part, finding him the sole owner of the death benefits. Plaintiff filed a motion for severance as to this issue, which the court granted. The Plan defendants had deposited the benefits with the court. They are named as appellees, but filed a letter stating they were filing no brief.