A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

The most newsworthy life insurance cases are those involving allegations of foul play of some type: a person killed for the life insurance money, or a change of beneficiary from a family member to a lover just prior to death.

A recent article from New Mexico falls in this category, but it has a unique twist — as many of them do. It involves an employee who obtained a life insurance policy through her employer and who also embezzled hundreds of dollars from her employer. So who should receive the death benefits: the employer or the friend who was named as beneficiary?

The case raises questions about whether life insurance policies should be strictly adhered to, or not, in instances where doing so would not lead to a fair and just result.

Deborah Dusenbery, the director of the Farmington Convention and Visitors Bureau, obtained a $100,000 life insurance policy on her life through Principal Life Insurance Company which issued her employer a group policy. These are the types of policies that many people are offered through their employment, generally providing a limited benefit and not requiring much, if any, underwriting by the insurance company. Policies are, in effect, purchased “in bulk” and so the risk is spread out over numerous lives.

For whatever reason, on January 13, 2012, Dusenbery told a police officer that she had embezzled between $100,000 and $200,000 to pay for her mother’s medical care, but that her will directed that her estate reimburse the funds to her employer. The officer confirmed that her will directed this to occur. (Why she would tell the officer this, and why she was not immediately arrested, is not disclosed in the article. Call it New Mexico justice?)

At any rate, on January 16, Dusenbery faxed a change of beneficiary form to Principal Life naming a friend as beneficiary. Two weeks later, on January 31, she was found dead in Arizona from suicide.

And get this — Dusenbery, in speaking to the cop, was dishonest about her dishonesty. She actually embezzled twice the amount she indicated and the funds were used for extracurricular activities such as trips to the Carribean, vehicles, and, again, get this, a hot tub.

Principal wants to commence an interpleader action by depositing the death benefit into court and letting the parties battle for it. This is commonly done by insurance companies whenever there is a dispute over a life insurance death benefit. Basically, the insurance company is saying: you guys can fight over it, we don’t want to have anything to do with your squabble. So there’s nothing out of the ordinary there.

Who will win? Well, I don’t have access to all of the facts, but based on the article, I would put my money on the friend. If it was a valid change of beneficiary, which it seems to be, there would be no legal justification to overturn it. True, the insured committed fraud, but that does not invalidate her legitimate designation of beneficiary in accordance with the policy terms. There is no law that says if an employee embezzles from her employer, the employer will receive the death benefit from a group life insurance policy. This is just a strange situation in which the employer got screwed.

Also, Dusenbery said that her will bequeathed money to her employer — and that’s all she said. She did not represent that her life insurance policy would be distributed to her employer. Nor, for that matter, can the employer claim that it relied on anything Dusenbery did or said that would make it entitled to the death benefit based on a theory of “reliance.” It was defrauded by her, pure and simple, but its remedy would be as a creditor of the estate — and the life insurance policy would pass outside of that estate.

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