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Illinois: Beneficiary Disputes and Interpleader Under Illinois Law

Illinois cancels an ex-spouse life insurance designation through its divorce statute, bars a killer from any benefit, and charges 10% interest on slow death-claim payments.

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On this page
  1. When Illinois law decides the dispute
  2. Divorce and ex-spouse beneficiaries
  3. Changing a beneficiary: substantial compliance
  4. Slayer rule
  5. Simultaneous death
  6. Payment and interest
  7. Interpleader in Illinois courts
  8. Decisions
  9. Related guides

When Illinois law decides the dispute

Illinois law usually governs an individual policy owned by an Illinois resident. Federal law controls ERISA employer plans and federal programs, and the Illinois divorce provision expressly does not apply to policies governed by ERISA, the Federal Employees’ Group Life Insurance Act, or other preempting federal law.1 See federal programs.

Divorce and ex-spouse beneficiaries

Illinois addresses life insurance in its divorce statute, the Illinois Marriage and Dissolution of Marriage Act. In a divorce, the court must allocate a life insurance policy that is marital property, including its death benefits and the obligation to pay premiums, equitably between the parties.1

If a judgment of dissolution is entered after the insured named the spouse as beneficiary of a policy in force at that time, “the designation of the insured’s former spouse as beneficiary is not effective unless”:

  • the judgment designates the former spouse as the beneficiary;
  • the insured re-designates the former spouse after the judgment; or
  • the former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse.

If the designation is not effective, the proceeds go to the named alternative beneficiary or, if none, to the insured’s estate.1

Insurers. An insurer that pays the former spouse anyway is liable to the alternative beneficiary or estate only if, before paying, it received written notice at its home office that the designation is not effective, and it has not filed an interpleader.1 See Divorce.

Older divorces

In American General v. Martin (N.D. Ill. 2024), a federal court held that this provision, which the court said became effective in 2019, is substantive and does not apply retroactively, so it did not revoke a designation where the divorce was entered in 2006. Alabama courts have reached a similar result under Alabama's statute; see Alabama. Check the dates in your case.

Sources:2

Changing a beneficiary: substantial compliance

Illinois recognizes substantial compliance. In Minnesota Life v. Kagan, the Seventh Circuit, applying Illinois law, explained that proving it requires “a clear expression of the insured’s intention to change beneficiaries” and a “concrete attempt [by the insured] to carry out his intention as far as was reasonably in his power,” quoting the Illinois Supreme Court’s decision in Dooley.3 See change of beneficiary.

Slayer rule

“A person who intentionally and unjustifiably causes the death of another shall not receive any property, benefit, or other interest by reason of the death, whether as heir, legatee, beneficiary, joint tenant, survivor, appointee or in any other capacity.” The property passes as if that person died first.4

  • Civil determination. Any court of competent jurisdiction may decide the question separately from a criminal case, but the civil case cannot go to trial, and the person cannot be required to submit to discovery, until any criminal case has been finally determined by the trial court or, if no charge has been brought, until one year after the death.
  • Conviction. A person convicted of first or second degree murder of the decedent “is conclusively presumed” to have caused the death intentionally and unjustifiably.
  • Payors. A holder that pays the killer before a determination under the section is not liable for doing so.4

See the slayer rule guide.

Simultaneous death

Unless a will, trust, deed, contract of insurance or other governing instrument provides otherwise:

  • Life insurance. If the insured and the beneficiary have died and “there is no sufficient evidence that the persons have died otherwise than simultaneously,” the proceeds are distributed as if the insured survived the beneficiary.
  • General rule. Each person’s property is disposed of as if that person survived.
  • Joint tenants. The property is split one-half as if each had survived.5

See simultaneous death.

Payment and interest

Illinois requires interest on death proceeds “from date of death, at the rate of 10% annually,” unless payment is made within 31 days from the latest of:

  1. the date the insurer receives due proof of death;
  2. the date it receives enough information to determine its liability, the extent of the liability, and “the appropriate payee legally entitled to the proceeds”; or
  3. the date that legal impediments depending on others, such as guardianships, conservatorships or the appointment of executors and trustees, are resolved and the insurer has sufficient evidence of that.

The insurer must tell the beneficiary about this provision when the claim is made.6 See discharge, fees, and interest.

Interpleader in Illinois courts

Section 2-409 of the Code of Civil Procedure allows persons with claims against the plaintiff “arising out of the same or related subject matter” to be joined as defendants and required to interplead when their claims “may expose plaintiff to double or multiple liability.” The claims need not have a common origin, the plaintiff may deny liability to any or all of them, and a defendant may obtain the same relief by counterclaim.7 See interpleader in state court.

Decisions

Minnesota Life Ins. Co. v. Kagan (7th Cir. 2013)

  • U.S. Court of Appeals, Seventh Circuit
  • No. 12-1840
  • July 31, 2013
  • Illinois law
  • Change not effective
Facts
The insured's wife was the named beneficiary of a life insurance policy. About fifteen months before he died, he filled out a beneficiary change form naming his adult children from an earlier marriage. The form told policyholders to return it to the insurer, but the court found no evidence he ever did, although he had returned change forms for his other insurance and retirement policies. The insurer filed an interpleader.
Holding
Applying Illinois law, the court held that he did not exactly comply with the policy and did not substantially comply either, because he never made a concrete attempt to carry out the change as far as was reasonably in his power. It affirmed the judgment for his wife.
Why it matters
Under Illinois's substantial-compliance rule, a completed form that never reaches the insurer usually will not change the beneficiary when the insured had time and ability to send it.

Opinion: govinfo.gov (PDF).

American General Life Ins. Co. v. Martin (N.D. Ill. 2024)

  • U.S. District Court, N.D. Ill.
  • No. 1:22-cv-04422
  • December 3, 2024
  • Former spouse kept the proceeds
Facts
In 2005 the insured bought a life insurance policy with a $100,000 death benefit, naming his then-wife as beneficiary. They divorced in 2006, and he never removed her. He died in 2022 without naming an alternative beneficiary. His former wife and his children from other relationships all claimed the death benefit. The insurer filed an interpleader, explaining that it could not tell whether Illinois's revocation-on-divorce provision, which the court noted became effective in 2019, applied to a 2006 divorce.
Holding
Under Illinois law, a statute that says nothing about retroactivity applies to earlier events only if it is procedural. The court held that 750 ILCS 5/503(b-5) is substantive, because it strips former spouses of contractual and property rights to death benefits and overrides policyholders' own choices, so it did not apply to the 2006 divorce. The court found Sveen v. Melin inapplicable, because it decided only that retroactive application of such a statute is constitutional, not whether Illinois's statute applies retroactively. The children's separate challenge to the validity of the marriage failed for lack of any supporting evidence, even though discovery had been open. The former wife was entitled to the interpleaded funds.
Why it matters
A revocation-on-divorce statute may not reach a divorce entered before the statute took effect. Check the dates before assuming a statute removed a former spouse.

American General Life Ins. Co. v. Martin, No. 1:22-cv-04422 (N.D. Ill.): corrected deposit order (Sept. 9, 2022, ECF No. 11); discharge order (May 5, 2023, ECF No. 58); memorandum opinion and order (Dec. 3, 2024, ECF No. 75), court order (PDF) (also on Justia); judgment (ECF No. 76), court judgment (PDF). The ruling came about 19 months after the court set the summary judgment briefing schedule. Full summary.

Footnotes

  1. 750 ILCS 5/503(b-5). Illinois General Assembly. ↩ ↩2 ↩3 ↩4

  2. American General Life Ins. Co. v. Martin, No. 1:22-cv-04422 (N.D. Ill. Dec. 3, 2024), ECF No. 75, court order (PDF). Also on Justia (unofficial). ↩

  3. Minnesota Life Ins. Co. v. Kagan, No. 12-1840 (7th Cir. July 31, 2013), quoting Dooley v. James A. Dooley Assocs. Emps. Ret. Plan, 442 N.E.2d 222, 227 (Ill. 1982). govinfo.gov (PDF). The Dooley language was read as quoted in Kagan. ↩

  4. 755 ILCS 5/2-6. Illinois General Assembly. ↩ ↩2

  5. 755 ILCS 5/3-1. Illinois General Assembly. ↩

  6. 215 ILCS 5/224(1)(l). Illinois General Assembly. ↩

  7. 735 ILCS 5/2-409. Illinois General Assembly. ↩