The United States District Court for the Eastern District of Wisconsin recently held that a beneficiary of a trust has standing to sue the life insurance carrier to collect policy benefits on an accidental death policy. Klein v. Hartford Life & Accident Ins. Co., et al., No. 09-C-562 (E.D.Wis. Jul. 17, 2009). For a complete copy of the opinion, please click here.
In Klein, the insured applied for and was issued a basic life insurance policy written by the defendant insurer in the amount of $151,000 (the “Policy Proceeds”). The beneficiary of the policy was a revocable trust in the insured’s name. The policy was offered through the defendant bank, which also served as the trustee of the revocable trust. Plaintiff was primary beneficiary of the trust.
The insured died following a traumatic head injury and the bank, as trustee, submitted a claim to the insurer for payment of the Policy Proceeds. The insurer, however, refused to pay the full policy benefits, claiming that the insured’s death was “not the result of an accident” and that the insured “was not a covered person under the policy.”
Plaintiff filed suit against the insurer and the bank, claiming that the insurer wrongfully denied the bank’s claim for the Policy Proceeds, and for bad faith. The insurer moved to dismiss, claiming that the plaintiff, a beneficiary of the trust, did not have standing to sue.
Under Wisconsin law, ordinarily only the trustee has standing to bring an action for damages against a third party for damage to trust property. The ordinary rule, however, recognizes two exceptions, and permits a beneficiary of a trust to bring an action if: “(1) there is a conflict of interest with the trustee; or (2) the trustee fails to bring a meritorious claim against a third party for failing to provide contracted services.” Finding that the bank, as trustee, failed to pursue an action against the insurer, the Court denied the insurer’s motion, concluding that plaintiff, a trust beneficiary, had standing to sue.