MIMS V. WESTERN-SOUTHERN AGENCY, INC.
INSURANCE:  Doctrine of substantial compliance and failure to effect intent in life insurance contract to name sole contingent beneficiary 
2006-CA-000657
PUBLISHED: AFFIRMING (STUMBO)
DATE RENDERED: 4/6/2007

Mims appealed order of the Jefferson Circuit Court which granted Western-Southern’s motion to dismiss suit claiming that the company and its agent had negligently failed to effectuate Mims’s late father’s intent to make her the sole contingent beneficiary of his life insurance policy.

COAKY held Mims has stated a cognizable claim for recovery of proceeds under the doctrine of substantial compliance, and thus it did not find it necessary to consider whether Kentucky law permits a third party beneficiary to pursue a negligence claim against an insurer, and thus vacate and remand.

In her suit, Mims alleged  Western-Southern was negligent in failing to ensure that her father James executed the form properly which resulted in her losing the entire proceeds (less the funeral expenses) of the life insurance policy.

Western-Southern acknowledged that, under Kentucky law, strict compliance with the policy provisions is not necessary in order to effect a change of beneficiary.

In granting the motion to dismiss, the circuit court agreed with Western-Southern there was no evidence that James O. Hayes intended to change beneficiaries and found “Mary Hayes had no authority to sign on her husband’s behalf, did not own the policy and had no recognized legal authority to sign in his stead."

Although a cause of action by a purported beneficiary of a life insurance policy against the insurer for negligent breach of duty has never been recognized in Kentucky, Mims urges us to adopt the approach taken in Parlette v. Parlette, 596 A.2d 665, 670-71
(Md. Ct. Spec.App. 1991), in which it was held that “an intended beneficiary can recover from another’s insurance agent if the intended beneficiary can prove that intent to benefit him, or her, was a direct purpose of the transaction between insured and agent and [can show] the other elements of negligence.”  Such a cause of action necessitates the finding of an independent duty owed by the insurer to the intended beneficiary of the insurance policy.

Under a negligence theory, as outlined in Parlette, Mims would bear the burden of proving that her father intended to change his contingent beneficiaries, but that his intent was thwarted by the negligence of the Western-Southern agent who allowed Mary to sign the form, and by the further negligence of the home office in accepting the form. But if Mims is able to meet this burden of proof, she would in effect also be proving that James substantially complied with the provisions of his insurance policy, thereby providing her with a recognized cause of action to recover proceeds under Kentucky’s “very liberal” interpretation of the substantial compliance doctrine. See Pikeville National Bank & Trust Co. v. Shirley, 135 S.W.2d 431, 433 (1939).

The order dismissing Mims’s suit is therefore vacated, and this case is remanded to the Jefferson Circuit Court for further proceedings in accordance with this opinion.

Digested by Michael Stevens.