No Signature? No Problem! Defective Beneficiary Form Is Good Enough

A doctor’s wife of thirteen years surprised him by filing for divorce. Although shellshocked, he quickly amended his will to disinherit her and contacted his life insurance company to remove her as beneficiary of a $300,000 policy and to name his children from a prior marriage instead.

The insurer immediately faxed him the beneficiary change form and he completed it just as quickly and sent it back—alas, with no signature. The insurer sent its standard “you made a mistake” letter, but the doctor never responded, nor did he correct the error. He died about a year later. The former wife claimed the policy proceeds.

The children filed suit to enforce the unsigned change of beneficiary and prevailed initially, only to lose the case at the appellate court, which adopted the unsurprising rationale that an unsigned change is not a change at all. Certainly, no one doubted what the doctor’s actual intentions were, but we all know about the limitations of good intentions.

The Supreme Court of Arkansas took the case and reinstated the trial court’s ruling awarding the $300,000 to the kids. It did so based on the “substantial compliance” theory (sometimes called the “harmless error” doctrine), which is most frequently used to validate noncompliant wills and much less often for beneficiary designations. Perhaps sensing the surprise its ruling would generate, the court supported the decision (in part) by an eyebrow-raising finding that the form’s signature requirement was “ambiguous.” In a  pertinent part, a key statement in the document was as follows: “if you do not sign and date this page, we will not be able to process your request.” Ambiguous?

CCK COMMENT: Was this a good decision? From a “donor intent” point of view, yes. Was it unexpected? For sure, especially since Arkansas has not even adopted a “harmless error” statute to rescue defective wills!

What is the lesson for charities? Perhaps as follows. In Arkansas, and even elsewhere, if a charity finds itself on the short end of a troublesome beneficiary designation and has a good argument that donor intent is on its side, it may not wish to abandon pursuit of the gift, or at least try negotiating a compromise settlement.

The case is James v. Mounts, 660 S.W.3d 801 (2023).