October 31, 2017 Practice Points

Frightening Consequences of Handling Life Insurance Claim by Spouse Indicted for Policyholder’s Murder

The Bailey case demonstrates the need for careful compliance with the legal mandate to withhold funds to a policy beneficiary who allegedly kills the insured, while simultaneously engaging in careful and effective claims handling

by Stephen J. Rapp

Georgia follows the unsurprising rule that the beneficiary of a life insurance policy who murders the insured cannot thereafter claim the proceeds of the policy. O.C.G.A. § 33-25-13. The practical perils confronting a life insurer among allegations of murder were recently revealed in The Prudential Ins. Co. of America v. Bailey, Case No. 6:16-cv-00060-JRH-GRS (S.D. Ga. Sept. 29, 2017). There, Sherry Bailey sought $332,000 in term life and $332,000 in accidental death benefits under a policy issued by Prudential to her husband Russell. Prudential accepted the claim and subsequently created an interest bearing account in Sherry Bailey’s name to which it credited the term life benefits. Prudential notified Sherry Bailey of the account, and provided instructions for making a total withdrawal or partial withdrawals of the funds by way of written drafts.

Sherry Bailey thereafter wrote three checks from the account totaling just under $84,000, and these amounts were paid by Prudential. In this same time period, however, a grand jury indicted Sherry Bailey for Russell Bailey’s murder, and after the roughly $84,000 in withdrawals, Prudential froze the remaining funds. Prudential then filed an interpleader complaint in Georgia federal court to deposit what the court understood was the total death benefit into the court registry, to interplead all potential beneficiaries, and to enjoin future claims against it. Prudential’s complaint did not mention the prior distributions of the term life benefits from the account, and the court entered an order for the payment of the proceeds into the court registry.

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