Can an agent, using a power of attorney, change the beneficiary designation on a life insurance policy? That was the straightforward question posed in a recent Tennessee Court of Appeals case.

Brenda Gail Langley bought a $50,000 policy in 1999, naming her three children and one grandchild as beneficiaries. By late 2002, however, Ms. Langley had apparently become disenchanted with her offspring, and she signed new estate planning documents reflecting her unhappiness. She named her sister, Linda Sue Rose, as agent in a power of attorney. She left her children $100 each and the rest of her estate to Ms. Rose.

Ms. Langley did not, however, change the beneficiary designation on her life insurance policy. Generally speaking, the beneficiary designation prevails over even an express provision of a will or any other document, so if no change was made Ms. Langley’s children would still receive the $50,000. According to Ms. Rose, Ms. Langley then asked her to use her power of attorney to change beneficiaries on the policy.

Ms. Rose contacted the life insurance company, secured the beneficiary change form, listed herself as the sole beneficiary, and signed the form as her sister’s agent. When Ms. Langley died a few months later, she filed a claim for the proceeds; Ms. Langley’s children also made a claim, and the insurance company found itself facing a dilemma.

Rather than pay anything to either set of beneficiaries, the insurance company chose to “interplead” the policy proceeds. That meant that the money was transferred to the Tennessee courts, and asked a judge to decide who should receive it. The trial judge ruled that Ms. Rose did not have the power to make the beneficiary change and ordered that the money be distributed to Ms. Langley’s offspring.

The Tennessee Court of Appeals agreed. State law, ruled the Court, limits the power of an agent to change insurance beneficiaries unless there is a clear indication in the document itself that the agent was given that authority. General language in Ms. Langley’s power of attorney giving her sister power “to transact all insurance business” was not enough, said the judges; if Ms. Langley had wanted to give her sister the right to make such a change it needed to be expressly spelled out in the document. Tennessee Farmers Life Reassurance Co. v. Rose, March 17, 2006.

The result in Arizona should be the same, but for a slightly different reason. Arizona law prohibits an agent from taking any action that benefits someone other than the principal without separately initialed authority in the document. Since Ms. Rose’s change benefited herself, it would not have been permitted unless there was a specific provision in the document.

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