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Graves v. Norred, 510 So.2d 816 (Ala. 1987) Proceeds to the Surviving Partner or the Deceased Partner's Wife? Jewell Norred's husband, James Norred, was the

Graves v. Norred, 510 So.2d 816 (Ala. 1987)

Proceeds to the Surviving Partner or the Deceased Partner's Wife?

Jewell Norred's husband, James Norred, was the business partner of Clyde Graves for about 10 years. On May 7, 1979, Graves and Norred took out term life insurance policies, with Graves being the beneficiary of Norred's policy and Norred being the beneficiary of Graves's policy. Premiums were paid out of partnership funds. On February 28, 1983, Graves and Norred divided the partnership assets but did not perform the customary steps of dissolving the partnership.

Graves became the sole owner of the business and continued to pay the premiums on both insurance policies until James Norred died on December 5, 1983. Jewell Norred sued Graves to obtain the proceeds of the insurance policy for herself, alleging that Graves had no insurable interest in the life of James Norred at the time of his death. She also contended that the proceeds should go to the estate as a payment for Norred's interest in the partnership. From a judgment on behalf of the estate, Graves appealed.

JUDICIAL OPINION

ADAMS, J.... Jewell Norred argues that she should receive the benefits of the insurance policy because she alone had an insurable interest in the insurance contract.... The prevailing rule among the states is that a partner or partnership has an insurable interest in the life of one of the partners. ... It is not the mere existence of the partnership which provides the basis for the insurable interest. It is the insuring partner's "reasonable expectation of pecuniary benefit from the continuance of the insured's life."... This interest continues even if the partnership is discontinued prior to death of one of the partners....

In the instant case each partner took out a life insurance policy on the other. Both sides testified that the purpose was to provide for one partner at the other partner's death....There is not legal uncertainty that both partners had an insurable interest in the life of the other partner.

We next turn our analysis to the designation of the beneficiary in order to determine who should be entitled to the proceeds of the life insurance policy. In the case of Williams v. Williams, 438 So. 2d 735 (Ala. 1983), a partner designated the other partners (his brothers) as the beneficiaries of his life insurance policy. Pursuant to the partnership's dissolution agreement, the surviving partners were to receive the insurance proceeds and then use those proceeds to purchase the deceased partner's interest.... Unlike the present case, in Williams a written partnership agreement and a dissolution agreement existed. However, both agreements involved the designation of the partners as beneficiaries instead of the spouse or estate. As stated by Chief Justice Torbert, "The fact that the decedent selected his partners, as opposed to his spouse or estate, as beneficiaries of the life insurance ... is unquestionably permissible. Partners continue to be free to select whomever they wish to benefit from insurance on their lives." Williams, 438 So. 2d at 739. In this case, the plaintiffs evidence that the decedent intended for the proceeds to go to his estate consisted solely of oral testimony from the plaintiffs brother (the insurance agent) and an ambiguous statement from a mutual friend of both partners. No ambiguity existed in the designation of the beneficiary. There was no written agreement like the dissolution agreement in Williams, supra, which provided that the surviving partners were to use the proceeds to purchase the deceased partner's interest. We require more than oral testimony, like the testimony presented here, in order to show that it was not the intention of the decedent that the designated beneficiary retain the proceeds. Therefore, we reverse the trial court's judgment designating Norred's estate as the rightful recipient of the proceeds instead of the designated beneficiary.

Reversed and remanded.

Did Graves have an insurable interest in the life of Norred following the discontinuance of the partnership?

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