Lutz vs. Monumental Life Insurance Co. and Sheree Nordall No. 2014-469

Civil Action-Orphans’ Court-Petition for Declaratory Judgment by Wife-Beneficiary Designation by Husband-Divorce-Death of a Former Spouse-Title 20 Pa.C.S. Section 6111.2-Retroactivity-Dead Man’s Act-Interest Adverse to a Decedent

1. Plaintiff was named as a primary beneficiary on her husband’s life insurance policy during the marriage via a beneficiary change form dated June 7, 2012. Defendant Sheree Nordall was named a contingent beneficiary on the beneficiary change form for that life insurance policy. Plaintiff and her husband divorced on August 28, 2012. Plaintiff filed a Petition for Declaratory Judgment, seeking the proceeds of the life insurance policy after her former husband’s death on September 26, 2012.

2. Tile 20 Pa.C.S. § 6111.2, which was enacted on December 16, 1992, renders a beneficiary designation in favor of a former spouse ineffective unless it is found that the designation was intended to survive the divorce. The Pennsylvania Supreme Court has held that retroactive application of § 6111.2 violates the Contracts Clause of the Pennsylvania Constitution. Plaintiff asserted that § 6111.2 was not applicable in this case based upon the prohibition against its retroactive application, as she originally was designated as the primary beneficiary of the life insurance policy on July 8, 1988, before the statute’s enactment.

3. The Court found that the Plaintiff had no right to the recovery of the proceeds under the life insurance policy. The Court held that § 6111.2 was applicable and was not being applied retroactively in the instant case, as the date when the Plaintiff’s former husband completed a beneficiary change form on June 7, 2012 controlled with regard to determining retroactivity under Section 6111.2, which occurred after the date when that statute was enacted. The Court held that under Section 6111.2, the evidence presented did not establish that the designation of the Plaintiff as the primary beneficiary was intended to survive the parties’ divorce, as the marriage settlement agreement executed between the Plaintiff and her deceased former husband on August 28, 2012 indicated that the parties were free to designate beneficiaries of any insurance policies and contained no language indicating that beneficiary designations of any policies would survive the divorce.

4. On appeal to the Pennsylvania Superior Court, in addition to challenging the above-determinations by the Court with regard to the application of § 6111.2, Plaintiff asserted that the Court erred in prohibiting testimony regarding communications she had with her deceased former husband, as he was not a party to the within action pursuant to the Dead Man’s Act, 42 Pa.C.S. § 5930.

5. The Dead Man’s Act presents an exception to the general rule of evidence that every person is competent to testify as a witness. In order for a witness to be disqualified from testifying under the Dead Man’s Act, the decedent must have had an actual right or interest in the matter at issue, the interest of the witness must be adverse to that of the decedent and the right of the decedent must have passed to a party of record who represents the decedent’s interest.

6. The Court reviewed multiple decisions in which courts found that persons claiming proceeds of an insurance policy against designated beneficiaries were not considered to be witnesses with interests adverse to the decedents so as to render the persons incompetent to testify regarding communications with the decedents pursuant to the Dead Man’s Act. The Court indicated that even if the Superior Court were to determine that communications between the Plaintiff and her deceased former husband were admissible pursuant to the Dead Man’s Act, this error would be harmless and would not require a new hearing, as the credibility of the Plaintiff was called into question already at the hearing when she testified that she last spoke with the decedent the Friday prior to his death and indicated to a police officer that she last spoke with the decedent two (2) weeks prior to his death.

L.C.C.C.P. No. 2014-469, Samuel A. Kline, October 13, 2014.

Magdalene C. Zeppos, Esquire, for Plaintiff Sandra A. Lutz

Patricia Carey Zucker, Esquire, for Defendant Monumental Life Insurance Company

Kim L. Lengert, Esquire, for Defendant Sheree Nordall

IN THE COURT OF COMMON PLEAS OF LEBANON COUNTY, PENNSYLVANIA

CIVIL ACTION-ORPHANS’ COURT No: 2014-469

SANDRA A. LUTZ, Appellant

v.

MONUMENTAL LIFE INSURANCE COMPANY and

SHEREE NORDALL, Appellees

ORDER

And now, to wit, this 13^th day of October, 2014, upon consideration of the Appellant’s Concise Statement of Errors Complained of on Appeal, we affirm our Order dated July 23, 2014 in the above-captioned case.

Pursuant to Pa.R.A.P. 1931, the Register of Wills of the Court of Common Pleas of Lebanon County is directed to transmit this case’s record, including this Order and attached Opinion, to the Superior Court of Pennsylvania immediately.

BY THE COURT:

SAMUEL A. KLINE, J.

APPEARANCES:

Magdalene C. Zeppos, Esq. for Sandra A. Lutz

Patricia Carey Zucker, Esq. for Monumental Life Insurance Co.

Kim L. Lengert, Esq. for Sheree Nordall

OPINION, KLINE, J., OCTOBER 13, 2014

Before the Court is Appellant’s Concise Statement of Errors Complained of on Appeal. For the reasons set forth herein, we affirm our Order dated July 23, 2014, as specified below.

FACTS AND PROCEDURAL HISTORY

Appellant and Richard Lutz (hereinafter “the decedent”) were married on May 18, 1985. On May 4, 1985, the decedent obtained a life insurance policy. On July 8, 1988, the decedent made Appellant the primary beneficiary of the policy. No contingent beneficiaries were named.

On June 7, 2012, the decedent completed a beneficiary change form, where he still listed Appellant as the primary beneficiary, but he made Appellee Sheree Nordall (hereinafter “Nordall”) the contingent beneficiary. The parties also entered into a Marriage Settlement Agreement, dated August 28, 2012. On September 6, 2012, Appellant and the decedent were divorced from the bonds of matrimony. The certificate of death lists the decedent’s date of death as September 26, 2012.

On October 17, 2013, Appellant filed a Petition for Declaratory Judgment, where she sought the proceeds of the life insurance policy of the decedent. Appellant argued that she was entitled to the proceeds because she was named as the primary beneficiary of the policy, but Monumental Life Insurance Policy refused to process the claim because Appellant was disqualified to receive the benefits pursuant to Section 6111.2 of the Pennsylvania Probate, Estates, and Fiduciary Code. In essence, section 6111.2 renders ineffective a beneficiary designation in favor of a former spouse unless it is found that the designation was intended to survive the divorce. Manufacturers Life Ins. Co. v. Dougherty, 986 F.Supp. 928, 931, footnote 4 (E. D. Pa. 1997). Appellant argued that the statute was enacted on December 16, 1992, and the Pennsylvania Supreme Court subsequently held, in Paronese v. Midland Nat. Ins. Co., 706 A.2d 814 (Pa. 1998), that retroactive application of this section violates the Contracts Clause of the Pennsylvania Constitution. Therefore, Appellant claimed that Section 6111.2 could not be applied to the instant case because she was designated as the primary beneficiary prior to the statute’s enactment.

A hearing was held on the matter on June 3, 2014. At the conclusion, this Court reserved final judgment until the parties filed proposed findings of fact, conclusions of law, and legal memorandum in support of their respective positions within 20 days. The parties notified the Court that they would not be submitting memoranda in support of their positions.

On July 23, 2014, this Court issued an Order and Opinion denying the Petition for Declaratory Judgment, and we dismissed the Complaint. The Court ordered that Appellant had no right to the recovery of the life insurance proceeds. We found there was no retroactive application of the statute, and the evidence did not indicate that the designation was intended to survive the divorce. Therefore, Appellant must be treated as if she predeceased the decedent. (See July 23, 2014 Opinion, p. 9, 10, 14).

On August 20, 2014, Appellant filed a Notice of Appeal. Pursuant to our Pa.R.A.P. 1925(b) Order, Appellant filed her Concise Statement of Errors Complained of on Appeal on September 3, 2014. Appellant raises 3 alleged errors:

I. The Court erred in prohibiting testimony regarding communications Appellant had with the decedent under the Dead Man’s Act as the decedent is not a party to the within action.

II. The Court erred in concluding that the decedent’s designation of Appellant as the primary beneficiary on his insurance policy with Monumental Life Insurance Company was not intended to survive the divorce.

III. The Court erred in concluding that retroactive application of Section 6111.2 of the Decedents, Estates, and Fiduciaries Code is not required.

The case is thus before us and ripe for disposition.

DISCUSSION

The Superior Court of Pennsylvania’s standard of review in a declaratory judgment action “is limited to determining whether the trial court clearly abused its discretion or committed an error of law.”

National Cas. Co. v. Kinney, 90 A.3d 747, 752 (Pa. Super. 2014). The Superior Court may not substitute its judgment for that of a trial court if the court’s determination is supported by the evidence. Id. Additionally, the Superior Court will review the decision of a trial court as it would a decree in equity and set aside the factual conclusions of that court only where they are not supported by adequate evidence. The application of the law, however, is always subject to review. Id.

Alleged errors #2 and #3 are addressed in our Opinion dated July 23, 2014. We ordered that Appellant had no right to the recovery of proceeds under the life insurance policy at issue. In particular, the Court found there was no retroactive application of the statute because the June 7, 2012 date controlled when the decedent completed a beneficiary change form, which cancelled all previous designations. Further, this Court found that the evidence did not indicate that the designation was intended to survive the divorce. Therefore, the Court concluded that Appellant must be treated as if she predeceased the decedent, and the proceeds went to Nordall. We adhere to the analysis in our July 23, 2014 Opinion, and we will only address the alleged error with regard to the Dead Man’s Act in this Opinion.

Appellant contends that the Court erred in prohibiting testimony regarding communications she had with the decedent because the decedent was not a party to the within action.

The Dead Man’s Act is set forth in full as follows:

Except as otherwise provided in this subchapter, in any civil action or proceeding, where any party to a thing or contract in action is dead, or has been adjudged a lunatic and his right thereto or therein has passed, either by his own act or by the act of the law, to a party on the record who represents his interest in the subject in controversy, neither any surviving or remaining party to such thing or contract, nor any other person whose interest shall be adverse to the said right of such deceased or lunatic party, shall be a competent witness to any matter occurring before the death of said party or the adjudication of his lunacy, unless the action or proceeding is by or against the surviving or remaining partners, joint promisors or joint promisees, of such deceased or lunatic party, and the matter occurred between such surviving or remaining partners, joint promisors or joint promisees and the other party on the record, or between such surviving or remaining partners, promisors or promisees and the person having an interest adverse to them, in which case any person may testify to such matters; or, unless the action is a possessory action against several defendants, and one or more of said defendants disclaims of record any title to the premises in controversy at the time the suit was brought and also pays into court the costs accrued at the time of his disclaimer, or gives security therefor as the court in its discretion may direct, in which case such disclaiming defendant shall be a fully competent witness; or, unless the issue or inquiry be devisavit vel non, or be any other issue or inquiry respecting the property of a deceased owner, and the controversy is between parties respectively claiming such property by devolution on the death of such owner, in which case all persons shall be fully competent witnesses.

42 Pa.C.S.A. § 5930. The Pennsylvania Dead Man’s Act is an exception to the general rule of evidence that every person is competent to testify as a witness. Mt. Airy Ins. Co. v. Thomas E. Angst & Associates, 954 F.Supp. 1040 (E.D. Pa. 1997). In order for a witness to be disqualified from testifying under the Dead Man’s Act, the deceased must have had an actual right or interest in the matter at issue, the interest of the witness must be adverse, and the right of the deceased must have passed to a party of record who represents the deceased’s interests. Punxsutawney Mun. Airport Authority v. Lellock, 745 A.2d 666 (Pa. Super. 2000).

At the commencement of the hearing, Appellant was called as a witness, and Attorney Zucker asked for a proffer with regard to the witness. (N.T. 3). Attorney Zucker stated that she was concerned with testimony by the Appellant that might be adverse to the deceased. (N.T. 3). This Court stated: “All right. If we get into that issue, I will warn you that that might be an issue because of the Dead Man’s Rule. I am well aware of that. So, if that becomes an issue, Attorney Zeppos, if an objection is made, we are going to hold off on that until we have rulings on those matters, because she cannot say what he said, he’s not here.” (N.T. 4). “…I want to make a ruling that any statements made up through the time of the Decree—at a very minimum, there is an issue with the Dead Man’s Rule that I will deal with on a question by question basis, but my inclination is that would not be admissible. The evidence is the objective evidence of what is in the record.” (N.T. 5). “…[I]f that becomes an issue and there is an objection, I am going to rule on that one by one.” (N.T. 5).

Although it was the Court’s inclination that certain testimony would not be admissible, this Court also advised the parties that the Court would deal with any issues with regard to the Dead Man’s Rule on a question by question basis. Further, if there was an issue and an objection was made, then the Court would rule on the issue one by one. Upon review of the transcript of the hearing, only one objection was made in relation to a Dead Man’s Act issue. (N.T. 26). There was some confusion as Attorney Lengert objected believing that Appellant was testifying to what the decedent said, when she in fact was testifying to what an insurance agent said. (N.T. 26). There were no other objections made with regard to any Dead Man’s Act issues.

The Court notes that issues with regard to the Dead Man’s Act have arisen with regards to claims against decedent’s estates. The general rule is that surviving parties who have an interest which is adverse to a decedent’s estate are disqualified from testifying as to any transaction or event which occurred before the decedent’s death. Zigmantanis v. Zigmantanis, 797 A.2d 990 (Pa. Super. 2002). The application of the Dead Man’s Act requires that the interest of the proposed witness be adverse to the interest of the decedent’s estate. In order to be adverse, the interest must be one from which the witness will either gain or lose as the direct legal operation and effect of the judgment. Gibbs v. Herman, 714 A.2d 432 (Pa. Super. 1998). However, these holdings are distinguishable from the instant case as an estate of the decedent is not a party in the instant matter.

A review of the case law reveals holdings with various fact patterns that are in relation to the issue of proceedings by persons claiming insurance proceeds. Persons claiming insurance proceeds against designated beneficiaries were not witnesses adverse to any rights of the decedent so as to render them incompetent to testify. Grasso v. John Hancock Mut. Life Ins. Co., 214 A.2d 261 (Pa. Super. 1965). Testimony of insured’s intent to change beneficiaries on a life policy was not inadmissible under the Dead Man’s Act where the alleged beneficiary did not represent any interest of the insured. Cipriani v. Sun Life Ins. Co. of America, 757 F.2d 78 (C.A. 3 Pa. 1985). Persons who claimed insurance proceeds against designated beneficiaries were not witnesses who were adverse to any rights of the deceased-insured and were, therefore, not rendered incompetent by virtue of the Dead Man’s Act. Pinkerton v. Beaver Trust Co., 31 Beaver 187 (1971).

If the Superior Court determines that communications that Appellant had with the decedent prior to his death should have been admissible, the Court suggests that any error would be harmless so as not to require a new hearing. As stated in our July 23, 2014 Opinion, pursuant to the Marital Settlement Agreement, the parties were free to designate beneficiaries to any life insurances policies. However, there was no express language indicating that any policies in effect shall survive the divorce. Moreover, assuming that the Appellant would have testified to certain communications she had with the decedent, her credibility was called into question at the hearing. Appellant testified on direct examination that the last time she spoke with the decedent was the Friday night before his death, which was the 23^rd of September. (N.T. 16-17). However, on cross-examination, a police report revealed that Appellant told a police officer that she spoke to the Appellant two weeks prior. (N.T. 23).

We now turn this case over to the Superior Court for review. We will enter an Order consistent with the foregoing.