November 20, 2009
PRUDENTIAL INSURANCE COMPANY OF AMERICA, PLAINTIFF,
CONNESTER MAHONE, APRIL MAHONE, JAMES MAHONE, JR. AND SHAWN MAHONE, DEFENDANTS, AND JANNIE B. MAHONE, DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT,
STATE OF NEW JERSEY, DEPARTMENT OF TREASURY, DIVISION OF PENSIONS AND BENEFITS, THIRD-PARTY DEFENDANTS-RESPONDENT, AND JAMES MAHONE, JR. AND SHAWN MAHONE, THIRD-PARTY DEFENDANTS, AND APRIL MAHONE, THIRD-PARTY DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-3526-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: November 2, 2009
Before Judges Lisa, Baxter and Alvarez.
This appeal requires us to decide whether the Law Division erred when it determined that the decedent's wife, rather than his daughter, was entitled to the refund of his pension contribution payments and to the proceeds of his employment-related life insurance policy. We reject the judge's conclusion that the decedent's substantial compliance with applicable regulations for changing a beneficiary demonstrated decedent's intent to name his wife as beneficiary, and therefore his failure to utilize the prescribed method for beneficiary designation should be excused. We likewise reject the judge's conclusion that the Department of Treasury, Division of Pensions and Benefits (Division) breached its affirmative obligation to advise decedent that he had not properly changed his beneficiary designation. We reverse.
On December 1, 1971, while employed by Rutgers University, decedent James Mahone enrolled in the Public Employees Retirement System (PERS) and was an active member of PERS until the time of his death on December 14, 2005. Because he had not yet retired at the time of his death, James's named beneficiary was entitled to an active service life insurance death benefit in the amount of $157,158, payable through a group life insurance policy administered by plaintiff Prudential Insurance Company of America (Prudential). Similarly, because James died while in active service, PERS was obliged to return his accumulated pension contributions, with interest to the date of his death, which totaled $98,436.72, to the person or persons whom he had designated as his beneficiary for purposes of the return of his pension contributions.
PERS records reflect that on July 21, 1971, when James enrolled in the pension system, he designated his then-wife, defendant Connester Mahone, the beneficiary of his group life insurance policy and for return of any accumulated pension deductions. He named his children as his contingent beneficiaries. A few months later, on November 1, 1971, James completed a new designation of beneficiary document in which he retained his wife Connester as his primary beneficiary and "my children" as his contingent beneficiaries for his life insurance benefit; however, he altered the beneficiaries for the return of his accumulated pension benefits. In particular, he designated his daughter, defendant April Mahone, as his primary beneficiary, and his sons James, Jr. and Sean, as contingent beneficiaries for the return of his accumulated pension deductions. James never sent PERS any additional change in beneficiary designation after November 1, 1971.
James and Connester divorced on September 9, 1981, and James married defendant third-party plaintiff Jannie B. Mahone, on April 22, 1988. On October 25, 2005, James and Jannie met with Judith Crespo, a Human Resources Administrator at Rutgers-Newark, to discuss the benefits Jannie would receive upon James's death. According to a letter Crespo prepared on May 12, 2006, which Jannie submitted in support of her motion for summary judgment, Crespo questioned James as to whether he had updated his beneficiary information. According to Crespo, James assured her that he had indeed completed an updated beneficiary form designating Jannie Mahone as his sole beneficiary.
During that same meeting, Crespo assisted James in preparing a written request to PERS to provide him with two retirement estimates on forms entitled "Request for a Retirement Estimate." One estimate was for an early retirement allowance and the other for an ordinary disability retirement allowance. Both requests asked PERS to assume a retirement date of March 1, 2006, and to assume his wife, Jannie, would be designated on the retirement application as the beneficiary of his pension benefits. Significantly, both of the Request documents clearly indicated that the Request for a Retirement Estimate is not a retirement application, and contained the notice "This Form Is Not An Application For Retirement."
Subsequently, on November 10, 2005, PERS sent James each of the "estimated retirement benefits" that he had requested, each one showing Jannie as the sole beneficiary and displaying four different levels of monthly benefit payments, depending upon certain variables that are not pertinent to this appeal. Notably, like the Request for a Retirement Estimate, the actual Estimates that PERS provided on November 10, 2005 bore the statement "This is not an Application for Retirement Allowance" immediately below James's name and address, and immediately preceding the balance of the relevant information.
Upon her husband's death on December 14, 2005, Jannie contacted Crespo, who directed her to contact Carmela M. Joseph of the Division of Pensions. Joseph informed Jannie that Jannie was not the designated beneficiary on the records of the Division of Pensions, and that instead, the beneficiaries were as stated on the November 1, 1971 Designation of Beneficiary form. In response, Jannie notified the Division that James assured her he had completed an updated Designation of Beneficiary form; however, she was unable to find it. In that same letter, Jannie advised the Division that she intended to contest the designation of April and Connester as her late husband's beneficiaries. Additionally, Prudential notified Jannie that based upon the information in its file, Connester was the designated beneficiary of James's life insurance policy and he had never changed that designation.
Aware of the dispute between Connester, Jannie and April, Prudential filed an interpleader complaint against Jannie and Connester on April 26, 2006, in which it asserted that because it was unable to determine which party should receive James's life insurance benefits, Prudential sought a judgment authorizing it to pay the proceeds into a fund maintained by the court, and directing defendants to then interplead their rights to that sum.
Separately, Jannie filed a complaint against both the Division of Pensions and April on August 4, 2006. After cross-complaints were filed, the parties to Jannie's complaint included the Division of Pensions, April, Connester, Jannie, and Prudential. James Jr. and Sean never filed answers to the complaint. During the course of the litigation, both Prudential and the Division of Pensions received authorization from the court to deposit the benefits, together with accrued interest, with the court's Trust Fund Unit.
In June 2007, the Law Division entered an order dismissing with prejudice Connester's cross-complaint. In February and March, 2008, April and Jannie filed a motion and cross-motion, respectively, for summary judgment. The judge explained that the case involved "competing interests of substantial compliance and intent." The judge observed that "unlike the run-of-the-mill case where the decedent did nothing to change the beneficiary, here we have some facts that clearly indicate an intent and from all appearances a confirmation of the information he provided to the Division of Pensions." The judge reasoned that because the Division of Pensions failed to tell James that he had not properly changed his beneficiary designation, Pensions had inadvertently "lulled" James into thinking he had complied.
The judge found that the facts "clearly indicate[d] an intent" by James to change the beneficiary of his pension benefits, and that the confirmation by the Division of Pensions, when it sent James the completed Estimate of Retirement Benefits on November 10, 2005, "was no indication to the contrary" and "was sufficient for [decedent] to rely on." The judge ruled that James had "substantially complied" with the requirements to change his beneficiary. Consequently, the judge held that Jannie was the rightful beneficiary of James's pension contributions. Employing similar reasoning, the judge concluded that Jannie was also the beneficiary of the life insurance proceeds.*fn1
On appeal, April argues that the judge's conclusions were flawed because a demonstrated intention to change beneficiaries is insufficient if not executed in the manner prescribed in the benefits plan itself. She argues that the grant of summary judgment to Jannie was, in effect, a conclusion that a mere verbal expression of intent to change a beneficiary is the equivalent of a duly-executed written form prepared in the manner required by the benefits plan. She maintains that James's submission of the "Request for Retirement Estimate" document is not sufficient to change a beneficiary, and the Law Division's conclusion to the contrary was reversible error.
Jannie, in contrast, maintains that the record supports a conclusion that James substantially complied with the requirements imposed by the Division of Pensions and by Prudential to change a beneficiary designation, and it was James's intent to designate her as such beneficiary.
The Division, while "tak[ing] no position on the court's determination between the parties as to who is entitled to the death benefits that were deposited into Superior Court," argues that "[i]n resolving the factual dispute among the claimants, the trial court failed to consider the relevant pension statute, N.J.S.A. 43:15A-57.1 and its implementing regulation, N.J.A.C. 17:2-3.14(a), which specify the requirements for an acceptable designation of beneficiary for retirement death benefits." The Division also maintains that the proposed beneficiary designation on the Request for Retirement Estimate is a "planning tool" that "is merely hypothetical and does not effectuate a change in beneficiary." Thus, the Division argues, an intent to change a beneficiary "may not be conclusively demonstrated by the [filing of] retirement estimate forms," which are merely "anticipatory estimates." The Division maintains that acceptance of the trial court's determinations "would create a conflict with current regulations and practice and cause confusion and delay in determinations of . . . the proper beneficiary."
"In general, a designated beneficiary has a vested property right 'which can be divested only by a change of beneficiary in the mode and manner prescribed by the [policy].'" Czoch v. Freeman, 317 N.J. Super. 273, 285 (App. Div.), certif. denied, 161 N.J. 149 (1999) (quoting Metro. Life Ins. Co. v. Woolf, 138 N.J. Eq. 450, 454-55 (1946)). If an attempt to change the beneficiary does not comply with the procedure provided by the policy, "evidence that the insured intended to change the beneficiary will not effect the change." Ibid. Moreover, "the burden of proof to change the designated beneficiary of an insurance policy is upon the party seeking to upset the beneficiary designation." Id. at 289.
To establish a beneficiary, and later to alter a beneficiary designation, a member of the pension system must comply with the requirements of the applicable statute, N.J.S.A. 43:15A-57.1, which provides that the "designation of beneficiary by a member [of PERS] shall be made in writing on a form satisfactory to the retirement system, and filed with the retirement system." (emphasis added). If the member later wishes to change the beneficiary designation, he must "fil[e] written notice of the change with the [retirement] system on a form satisfactory to it." N.J.S.A. 43:15A-57.1. Jannie does not claim that James's completion of the Request for Retirement Estimate documents complied with the statutory requirement of "a form satisfactory to the retirement system." Ibid. Instead, she maintains that James's statement to Crespo that he had already filed a form changing his beneficiary to Jannie, when combined with his completion of the Request for Retirement Estimate, in which he named her as beneficiary, constituted substantial compliance with the statutory requirement imposed by N.J.S.A. 43:15A-57.1.
As April correctly argues, the cases that have accepted a "substantial compliance" exception to the requirement that a policyholder or pension member comply with the precise requirements of the policy represent an exception that has been narrowly construed, and has been applied only in extenuating circumstances. For substantial compliance to be found, the court must "be convinced that the insured made every reasonable effort to effect a change of beneficiary." Haynes v. Metro. Life Ins. Co., 166 N.J. Super. 308, 313 (App. Div. 1979).
For example, in Haynes, we concluded that the decedent's intention to change his beneficiary should be honored despite a lack of strict compliance with the insurance company's requirement that the insured surrender the actual policy before being permitted to change the beneficiary. Id. at 316-17. We observed that the insured had submitted a written request to the insurer to change the beneficiary designation, but could not surrender the actual policy of insurance because his ex-wife had removed it from the home and refused to return it. Ibid. We reasoned that the insured could not have been expected "to do any more than he actually did in order to effectuate the desired change of beneficiary." Id. at 316. Under those narrow circumstances, we applied the substantial compliance doctrine and approved the change of beneficiary despite the insured's failure to comply with all of the insurer's requirements. Central to our holding was the conclusion that the insured was not able to take any action beyond that which he had already taken. Ibid. This is not such a case.
Here, nothing prevented James from completing a change in beneficiary form. It is evident from the record that he was aware of that requirement because he apparently stated to Crespo that he had filed the required form. Whether he was simply trying to appease Jannie or whether he made that statement for some other reason, we cannot determine. What is clear, however, is that James did not comply with the statutory requirements for changing a beneficiary; and the facts submitted by Jannie fall woefully short of the extenuating circumstances presented in Haynes.
Similarly, in Vasconi v. Guardian Life Insurance Co., 124 N.J. 338 (1991), the Court addressed competing claims to an insurance policy in the context of a matrimonial property settlement agreement (PSA). The Court was required to decide whether the PSA between the decedent and his former spouse should be permitted to supersede the decedent's insurance policy, which named the former spouse as beneficiary. Id. at 340-41. The PSA, however, contained a provision that each party relinquished "'any claim on the other party of any kind whatsoever.'" Id. at 347. The Court concluded that the beneficiary designation in the policy of insurance "must yield to the provisions of a separation agreement expressing an intent contrary to the policy provision." Ibid. Although the Court authorized a deviation from the express provisions of the beneficiary designation, it did so because an unambiguous PSA plainly and unequivocally "express[ed] an intent contrary to the policy provision." Ibid. Again, as in Haynes, this is not such a case. Here, James filed no writing that unequivocally expressed an intention to designate Jannie as his beneficiary. The Request for Retirement Estimate plainly stated that "This Form Is Not An Application For Retirement." Moreover, the facts upon which the Court relied in Vasconi are entirely distinguishable from the situation presented here, and Jannie's reliance upon it is misplaced. Thus, we conclude that the Law Division's reliance upon the doctrine of substantial compliance was error.
The judge's grant of summary judgment to April was flawed for a second reason. In particular, by relying on James's purported oral statement to Crespo that he had already filed the appropriate documents to change his beneficiary to Jannie, and by further relying upon Jannie's certification claiming that James had assured her that he had taken all steps necessary to effectuate such change, the judge ignored the rule that "a verbal expression of intent does not constitute substantial compliance with the provisions of insurance policies requiring execution of change of beneficiary forms." DeCeglia v. Estate of Colletti, 265 N.J. Super. 128, 135 (App. Div. 1993).
Last, we reject the judge's determination that although James never filed a new change of beneficiary form, his request for the two retirement estimates, which included the name of the potential retirement pension death beneficiary, demonstrated his "clear intentions" to name Jannie as his beneficiary for pension purposes. In reaching that conclusion, the judge did not reconcile that determination with other contrary facts in the record, including James's failure to ever file a change of beneficiary form and the undisputed fact that the two retirement estimates clearly stated that they were not retirement applications. We agree with the Division that the retirement estimate is merely a device to provide information to a member so the member can make an informed decision about whether to retire at that time or instead wait until a later time when the pension will be larger, or whether to select the maximum pension without a death benefit or to reduce his monthly benefit and name a beneficiary to continue receiving monthly payments should he die.
It is also beyond dispute that PERS is unable to supply a member with a Retirement Estimate unless the member names a "hypothetical beneficiary" and provides that person's date of birth so that benefits can be calculated properly by applying the correct actuarial data. Viewed in that light, requests for retirement estimates are a planning tool, not a formal retirement application. To conclude, as the motion judge did here, that the Request for Retirement Estimate was the functional equivalent of a duly executed designation of beneficiary on a written form satisfactory to PERS was error. For all of these reasons, we reject the judge's conclusion that Jannie was entitled to the return of James's accumulated pension contributions.
We turn next to the policy of insurance issued by Prudential. There, the judge's error is even more clear. James filed nothing with Prudential that could remotely be considered an expression of intent to change the 1971 beneficiary designation, nor did any of his conduct constitute "substantial compliance" in relation to the policy Prudential issued. We therefore reverse the Law Division's grant of summary judgment to Jannie in relation to the Prudential policy.
Reversed for entry of a judgment awarding all proceeds to April. Jurisdiction is not retained.*fn2