## Facts

- Luis Gerardo “Gerry” Ortiz obtained employer-provided group term life insurance issued by Life Insurance Company of North America (LINA).
- While married to Gloria Ortiz, Gerry designated Gloria as the sole beneficiary.
- Gerry and Gloria later divorced and executed a marital settlement agreement (MSA) that warned divorce did not automatically cancel beneficiary rights under a life-insurance policy.
- Gerry’s attorney advised him to change the beneficiary designation, but Gerry did not do so.
- Gerry later married Graciela Ortiz and was killed in the line of duty about one month after the marriage.
- At Gerry’s death, the policy still named Gloria as beneficiary.
- LINA filed an interpleader action and deposited more than $500,000 in proceeds with the court due to competing claims by Gloria (as named beneficiary) and Graciela (as surviving spouse), with the children also asserting interests through the estate.
- The district court awarded the proceeds to Gerry’s estate for intestate distribution, effectively denying Gloria the beneficiary payout.
- Gloria appealed.

## Issues

1. Whether a divorce judgment and MSA extinguish or waive an ex-spouse’s rights as the named beneficiary of a life-insurance policy absent an express waiver or change of beneficiary.
2. How to allocate proceeds of a group term life policy under California community-property law when premiums for the final coverage period were funded by earnings from different marital communities.

## Decision

- The Ninth Circuit reversed the district court and remanded.
- The court held that the divorce and MSA did not revoke Gloria’s beneficiary designation because there was no explicit waiver of beneficiary rights and no change of beneficiary.
- The court held that California community-property law required a pro rata allocation of proceeds based on the character of earnings used to fund the premium for the final coverage period in effect at death.
- Applying that method, the court allocated approximately 94.55% of the proceeds to Gloria and approximately 6.45% to Graciela (reflecting her one-half interest in the portion attributable to the second marital community).

## Legal Principles

- Under California law, an ex-spouse’s status as named beneficiary of a life-insurance policy is not terminated by divorce or property division alone; it continues unless the insured changes the beneficiary or the ex-spouse clearly and expressly waives the beneficiary expectancy.
- A dissolution agreement must specifically address and relinquish beneficiary rights to effect a waiver; intent inferred from surrounding circumstances is insufficient.
- For group term life insurance renewed in short increments, community-property interests in death benefits may be apportioned according to the character of earnings used to pay the premium for the coverage period in effect at death.
- Beneficiary designation determines entitlement to payment as against the insured’s estate, but proceeds may still be subject to partial reallocation to satisfy community-property ownership interests.

## Conclusion

The Ninth Circuit held that the named ex-spouse beneficiary remained entitled to policy proceeds absent an express waiver or beneficiary change, while also requiring a community-property apportionment of group term life insurance benefits based on the earnings that funded the final coverage period.


Life Ins. Co. of N. Am. v. Ortiz, 535 F.3d 990 (9th Cir. 2008)