Cheatham v. Modern Woodmen of America

Filing 17

MEMORANDUM AND ORDER granting 7 Modern Woodmen of America's Motion for Summary Judgment; denying 11 Kelly Cheatham's Cross-Motion for Summary Judgment. Judgment will be entered accordingly. Signed by Judge Susan Webber Wright on 5/4/2011. (jct)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
JONESBORO DIVISION
KELLY CHEATHAM, EXECUTRIX OF
THE ESTATE OF CHESTER BELL.
DECEASED,
Plaintiff,
vs.

MODERN WOODMEN OF AMERICA,
Defendant.

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No. 3:10cv00170 SWW

MEMORANDUM AND ORDER
Plaintiff Kelly Cheatham (Cheatham), executrix of the estate of Chester Bell (Bell),
deceased, brings this action against Modern Woodmen of America (Modern Woodmen), a
fraternal benefit society, challenging its payment to certain beneficiaries of the proceeds of an
annuity certificate owned by Bell that was on deposit with Modern Woodmen at the time of
Bell’s death.1 Before the Court are cross-motions of the parties for summary judgment [doc.#’s
7, 11]. Responses to these motions have been filed and the matter is ready for resolution. For
the reasons that follow, the Court grants Modern Woodmen’s motion for summary judgment
[doc.#7] and denies Cheatham’s motion for summary judgment [doc.#11].
I
Modern Woodmen issued an annuity certificate, Certificate No. 8134036 (Certificate), to
Bell in October 2006. Bell named his wife, Marie Bell, as beneficiary of the Certificate but he

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Ark. Code Ann. § 23-74-101 defines a fraternal benefit society as follows: “Any incorporated society, order, or
supreme lodge, without capital stock, including one exempted under § 23-74-704(a)(2), whether incorporated or not, conducted
solely for the benefit of its members and their beneficiaries and not for profit, operated on a lodge system with ritualistic form of
work, having a representative form of government, and which provides benefits in accordance with this chapter, is hereby
declared to be a fraternal benefit society.”

did not name a contingent beneficiary. Marie Bell died approximately one month later, on
November 17, 2006.
In addition to the Certificate, Modern Woodmen’s insurance contract with Bell consisted
of the application and the Articles of Incorporation and By-Laws of the Society (By-Laws) as
they existed at the time of issuance of the Certificate, or as later amended. Section 22 of Modern
Woodmen’s By-Laws controls payment of benefits in the event that the named beneficiary dies
prior to the death of the insured and a contingent beneficiary has not been named in the
Certificate:
Sec. 22. Prior Death of Beneficiary–Disposition of Benefits. If the death of any
beneficiary designated by name in any certificate heretofore or hereafter issued
shall occur prior to the death of the insured, the amount made payable to such
deceased beneficiary shall be payable in the manner prescribed in said certificate;
provided, however, that if said certificate contains no provision for such payment,
then and in that event the amount made payable to such deceased beneficiary shall
be payable in equal shares to the surviving beneficiaries entitled to take under
said certificate. Provided, further, if no beneficiary survives the insured, the
amount made payable under said certificate shall be payable to the insured’s
surviving spouse; if no spouse survives, to the insured’s children, equally, a child
or children of a deceased child taking the share of the deceased parent; if none
such, to the insured’s mother; if no mother, to the insured’s father; if no father, to
the insured’s surviving brothers and sisters, share and share alike; and if no
brothers or sisters, to the insured’s estate. The above notwithstanding, however, if
said certificate has been assigned in accordance with the provisions of Section 20
of these By-Laws, then the applicable provisions of said assignment, if any, shall
control. (Emphasis in the original)
Section 26 of Modern Woodmen’s By-Laws establishes what is required to change the
beneficiary of a Certificate:
Sec. 26. Change of Beneficiary or Method of Payment. At any time while a
certificate is in force and the insured is living, the beneficiary or the method of
payment of benefits may be changed by filing written notice in form satisfactory
to the Society at its Home Office. When acknowledged in writing by the National
Secretary the change will take effect on the date notice was signed, subject to any
payment made or other action taken by the Society before such acknowledgment.
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The Society may require that the certificate be presented for endorsement of any
such change.
Any attempt to change the method of payment or the payee of the benefits
of any certificate or rider by will or otherwise than by strict compliance with the
provisions of these By-Laws shall be absolutely null and void.
The first paragraph of Section 26 of the By-Laws is incorporated into the Certificate
issued to Bell.
On June 26, 2009, Bell executed his Last Will and Testament (Will) attempting to leave
the proceeds of the Certificate (which had an approximate value of $106,000 according to the
complaint) to Holly Crosby, Leroy Bell, and Kelly Bell Cheatham in equal shares. The Will
states: “I give, devise, and bequeath as follows: ... (c) my Modern Woodmen account to Holly
Crosby, Leroy Bell, and Kelly Bell Cheaman [sic], to share and share alike.” Last Will and
Testament of Chester Bell at ¶ IV. Bell did not, however, file written notice with Modern
Woodmen changing the beneficiary of the Certificate pursuant to Section 26 of the By-Laws.
On August 7, 2009, Bell died in Pocahontas, Randolph County, Arkansas. At the time of
his death, Bell had not followed the procedure set forth in Modern Woodmen’s By-Laws in order
to change the beneficiary of the Certificate.
By letter dated November 25, 2009, the attorney for Bell’s estate, John Troesch (Troesch)
notified Modern Woodmen of Bell’s death and the fact that his Will had been admitted into
probate by the Randolph County, Arkansas, Circuit Court for purposes of administering his
estate. Troesch stated in his letter that “[i]t is my position that the funds [of the Certificate] are
... an asset of Mr. Bell’s Estate and are to be distributed in accordance with orders of the Circuit
Court.” Subsequently, on December 9, 2009, the Circuit Court of Randolph County, Arkansas,
Probate Division, entered an order adjudicating the fact of Bell’s death and admitting the Will
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into probate.
By letter dated December 11, 2009, Laurie Nickels (Nickels) of Modern Woodmen’s
Claims Department responded to Troesch’s November 25th letter, stating as follows:
As you are aware, Mr. Bell held an annuity certificate with our Society at the time
of his death. The beneficiary designation provided for the proceeds to be paid to
Marie Bell, wife. From the information submitted, she predeceased the Insured.
The proceeds of a certificate are payable according to the Society’s By-Laws
when the designated beneficiary predeceases the Insured and a contingent
beneficiary is not named. You will find an explanation of the By-Laws at the top
of the enclosed Affidavit of Family Relationship. The proceeds of a certificate
are payable to the estate only if there are no surviving heirs. From the
information we have received, there are five daughters entitled to the proceeds.
We intend to obtain the necessary information from the daughters to pay in the
manner outlined with the Society’s By-Laws. Do not hesitate to contact me if you
have any questions.
By letter dated December 18, 2009, Troesch responded to Nickels’s letter noting that
there was no enclosure as stated, requesting a copy of the referenced enclosure, and requesting
copies of all other documentation upon which Nickels was relying in support of her contention
that the funds of Bell’s Certificate are to be distributed as determined by Modern Woodmen.
Troesch went on to reiterate his position that “[s]ince the beneficiary design[at]ed by Mr. Bell
predeceased him, the funds must, therefore, be made a part of his estate to be distributed in the
manner determined by the Court.”
By letter dated December 23, 2009, Nickels responded to Troesch’s December 18th letter,
stating as follows:
As indicated in our letter of December 11, 2009, Mr. Bell held an annuity
certificate with our Society at the time of his death naming Marie Bell, wife, as
beneficiary. From the information submitted, she predeceased the Insured.
In accordance with Section 22 of the Society’s By-Laws, if a designated
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beneficiary predeceases the Insured and a contingent beneficiary is not named, the
proceeds are payable to specified heirs in a specific order. You will find an
explanation of Section 22 of the Society’s By-Laws on the enclosed Excerpts
from By-Laws. Also enclosed is an Affidavit of Family Relationship outlining
the heirs payable under the By-Laws. The proceeds of the certificate are payable
to the estate only if there are no surviving heirs. From the information we have
received, there are five daughters entitled to the proceeds.
We intend to make payment of the proceeds in accordance with the Society’s ByLaws on January 4, 2010. Do not hesitate to contact me if you have any
questions.
As Marie Bell predeceased Bell with no contingent beneficiary having been named under
the Certificate to receive the proceeds, Modern Woodmen, contrary to the express provisions of
Bell’s Will specifying that the proceeds of the Certificate were to be left to Holly Crosby, Leroy
Bell, and Kelly Bell Cheatham in equal shares, paid the proceeds of the Certificate to the heirs
specified in Section 22 of the By-Laws who, in this case, were Bell’s surviving children—Kelly
Arlene Cheatham, Janie Ann Clevenger (f/k/a Janie Bell), Judy Louise Broe (f/k/a Judy Bell),
Tina Marie Wheeler (f/k/a Tina Bell), and Bonny Lynn Verello (f/k/a Bonny Bell).2 This action
followed.
II
Modern Woodmen moves for summary judgment on grounds, inter alia, that Bell failed
to comply with Modern Woodmen’s By-Laws when he attempted to change the beneficiary of
the Certificate by Will and that Modern Woodmen fulfilled it contractual obligations to Bell
when it paid the proceeds of the Certificate to the heirs specified in Section 22 of its By-Laws.
Cheatham, in turn, moves for summary judgment on the following grounds: (1) Arkansas

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Bell noted in his Will that he had five surviving children – all daughters – but that he has had no contact or
communication with four of his five daughters and that “[a]lthough I am not unmindful that Bonnie Bell, Tina Bell, Judy Bell,
and Janie Bell are my natural heirs, I decline to give, devise, or bequeath to any one or all of them any part of my estate.” Last
Will and Testament of Chester Bell at ¶¶ I, VI.

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law recognizes and enforces the right of an insured individual to change a beneficiary designee
by one’s Will, even when the insurer dictates a specific manner in which to designate a
beneficiary, and Bell substantially complied with the terms of the policy regarding changing a
beneficiary which is all that is required in accordance with Arkansas law; (2) even if Bell’s Will
is not recognized as effectively designating a beneficiary, Bell still complied with the terms of
the policy regarding the method by which the insured may designate a beneficiary by notifying
Modern Woodmen at its home office of the change by letter dated November 25, 2009; and (3)
notwithstanding that Bell complied with the terms of the policy for changing his beneficiary,
Arkansas Code Ann. § 23-74-402 (regarding benefit contracts of fraternal benefit societies)
specifically provides that the benefits of the Certificate are payable to the estate.
A
Summary judgment is appropriate when “the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). As a
prerequisite to summary judgment, a moving party must demonstrate “an absence of evidence to
support the non-moving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
Once the moving party has properly supported its motion for summary judgment, the nonmoving
party must “do more than simply show there is some metaphysical doubt as to the material
facts.” Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586 (1986). The nonmoving
party may not rest on mere allegations or denials of his pleading, but “must come forward with
‘specific facts showing ... a genuine issue for trial.’” Id. at 587 (quoting Fed.R.Civ.P. 56(e) and
adding emphasis). See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). The

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inferences to be drawn from the underlying facts must be viewed in the light most favorable to
the party opposing the motion. Matsushita, 475 U.S. at 587 (citations omitted). However,
“[w]here the record taken as a whole could not lead a rational trier of fact to find for the
nonmoving party, there is no ‘genuine issue for trial.’” Id. (citation omitted). “Only disputes
over facts that might affect the outcome of the suit under the governing law will properly
preclude the entry of summary judgment.” Anderson, 477 U.S. at 248. “Factual disputes that are
irrelevant or unnecessary will not be counted.” Id.
B
The Court first addresses Cheatham’s argument that Arkansas law recognizes and
enforces the right of an insured individual to change a beneficiary designee by one’s will, even
when the insurer dictates a specific manner in which to designate a beneficiary, and that Bell
substantially complied with the terms of the policy regarding changing a beneficiary.3 Cheatham
is certainly correct that under Arkansas law an insured generally may change the beneficiary of
an insurance policy by Will and Testament, even when the insurance policy specifies the manner
in which the change of beneficiary must be made:
It is generally held that, where a life insurance policy reserves to the insured the
right to change the beneficiary but specifies the manner in which the change may
be made, the change must be made in the manner and mode prescribed by the
policy, and according to most courts any attempt to make such change by will is
ineffectual. See generally Wanda Ellen Wakefield, Annotation, Effectiveness of
Change of Named Beneficiary of Life or Accident Insurance Policy By Will, 25
A.L.R.4th 1164 (1992). However, Arkansas law is contrary to the general rule:
Arkansas holds that a change of beneficiary can in fact be accomplished in a will
so long as the language of the will is sufficient to identify the insurance policy
involved and an intent to change the beneficiary. Pedron v. Olds, 193 Ark. 1026,
105 S.W.2d 70 (1937); see also Allen v. First National Bank, 261 Ark. 230, 547
3

The Court assumes for purposes of today’s decision that Bell’s Will was validly executed and that it represented his
intent to change the beneficiary of his Certificate with Modern Woodmen.

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S.W.2d 118 (1977).
Nunnenman v. Estate of Grubbs, 2010 Ark.App. 75, — S.W.3d — , 2010 WL 307025 (Ark.App.
Jan. 27, 2010). However, the Arkansas Supreme Court considers annuity certificates issued by
fraternal benefit societies to be in a different class from ordinary life insurance policies:
While the benefit certificates of fraternal benefit and mutual benefit associations
insuring the lives of their members are contracts of insurance upon which such
societies or associations are liable to the holders and beneficiaries of such
certificates, nevertheless, the character of the contracts are wholly different from
those of old line standard life insurance companies. The fraternal, mutual, benefit
associations are what their names imply. Their policy holders are the only
members of the society. The obligations of their policies are discharged by
assessments upon their members and all of the members are mutually and
reciprocally interested in the conduct and management of the society according to
the constitution and by-laws which they have framed and adopted for the
government and conduct of the association to which they belong.
Mr. Niblack, speaking of mutual benefit societies, says:
“A society may provide that its contract of insurance may be assigned and
transferred only with the consent of the society indorsed thereon. * * * The right
of the contracting parties to thus prohibit an assignment of the certificate without
the consent of the society cannot be seriously doubted, and in view of the
restricted nature of the mutual benefit insurance, the propriety, if not the
necessity, of such a condition is equally clear. The personal character of each
holder of a certificate and the interest he may have in the life of the person
thereby insured are essential elements in the contract of mutual indemnity.”
Niblack, Accident Insurance and Benefit Societies, p. 329, § 169.
See, also, Vance on Insurance, p. 400, where the author, after setting forth
the relation existing between mutual benefit societies and their members, says:
“From this statement of the relation between the mutual association and its
members, it is apparent that the contractual relation strikingly differs from that
existing between regular insurance companies and their policy holders.”
Webster v. Telle, 176 Ark. 1149, 6 S.W.2d 28, 32-33 (1928). Based on the difference in the
contractual relationship between fraternal benefit societies and regular insurance companies, a
more formal process for members and policy holders is required to change the beneficiary of an
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annuity certificate issued by a fraternal benefit society:
“Manifestly, however, such a transaction requires some formalities for the
protection of the company, the member and the beneficiary, and these formalities
must be substantially complied with before the change of beneficiary becomes
effective.”
Id. (quoting Robinson v. Robinson, 121 Ark. 276, 181 S.W. 300 (1915)). In this respect, “[t]he
established rule and the one adopted in this state is that the change of the beneficiary cannot be
made by the insured unless there is substantial compliance with the by-laws and regulations of
the society.” Robinson, 121 Ark. 276, 181 S.W. at 301 (citations omitted). See also Gibson v.
Moore, 187 Ark. 897, 63 S.W.2d 344 (1933) (“It is perfectly evident that any change of
beneficiary in a policy of insurance issued by a fraternal benefit society must be done in
substantial compliance with the constitution and by-laws of such society.”). Arkansas likewise
provides by statute that “[t]he owner of a benefit contract shall have the right at all times to
change the beneficiary or beneficiaries in accordance with the laws or rules of the society unless
the owner waives this right by specifically requesting in writing that the beneficiary designation
be irrevocable” and that “[t]hrough its laws or rules, a society may limit the scope of beneficiary
designations and shall provide that no revocable beneficiary shall have or obtain any vested
interest in the proceeds of any certificate until the certificate has become due and payable in
conformity with the provisions of the benefit contract.” Ark. Code Ann. § 23-74-402(a)(1)(2)
(emphasis added).
There is no question, then, that under Arkansas law, Bell was required to comply
substantially with Modern Woodmen’s By-Laws to change the beneficiary of his Certificate.
Bell, however, took no steps to comply with Modern Woodmen’s By-Laws to change the
beneficiary of his Certificate during his lifetime but instead attempted to effectuate a change of
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beneficiary by his Will some six weeks before his death. Bell’s attempt to change the
beneficiary of the Certificate by Will shortly before his death simply did not in these
circumstances constitute substantial compliance with Section 26 of Modern Woodmen’s ByLaws, which provides that “[a]t any time while a certificate is in force and the insured is living,
the beneficiary or the method of payment of benefits may be changed by filing written notice in
form satisfactory to the Society at its Home Office” but that “[a]ny attempt to change ... the
payee of the benefits of any certificate ... by will or otherwise than by strict compliance with the
provisions of these By-Laws shall be absolutely null and void.”
Cheatham, however, argues that Troesch’s November 25, 2009 letter to Modern
Woodmen notifying Modern Woodmen of Bell’s death, that his Will [representing Bell’s intent
to leave his “Modern Woodmen account to Holly Crosby, Leroy Bell, and Kelly Bell Cheaman
[sic]”] had been admitted into probate for purposes of administering Bell’s estate, and that “[i]t is
[his] position that the funds [of the Certificate] are ... an asset of Mr. Bell’s Estate and are to be
distributed in accordance with orders of the Circuit Court,” constituted sufficient written notice
of a change of beneficiary under Section 26 of Modern Woodmen’s By-Laws. To the contrary,
Section 26 required that written notice to Modern Woodmen’s home office of a change in
beneficiary be made while Bell was living. Troecsh’s November 25, 2009 letter to Modern
Woodmen was some six weeks after Bell’s death and, thus, did not provide proper written notice
under Section 26. Moreover, the letter provided no notice that Bell was intending to change the
beneficiary of the Certificate but simply notified Modern Woodmen that it was Troesch’s
opinion that the proceeds of the Certificate were payable to Bell’s estate because there was no

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living beneficiary to the proceeds of the policy, the named beneficiary having predeceased Bell.4
Finally, Cheatham argues that Arkansas Code Ann. § 23-74-402(c) (regarding benefit
contracts of fraternal benefit societies) specifically provides that the benefits of the Certificate
are payable to the Estate. Section 23-74-402(c) provides:
If, at the death of any member, there is no lawful beneficiary to whom the
insurance benefits are payable, the amount of such benefits, except to the extent
that funeral benefits may be paid as provided in subsection (b) of this section,
shall be payable to the personal representative of the deceased insured. However,
if the owner of the certificate is other than the insured, the proceeds shall be
payable to such an owner.
As is evident from the language of this statute, Bell’s estate would be entitled to the proceeds of
the Certificate if there was no “lawful beneficiary” to whom the proceeds of the Certificate could
be paid. Here, however, there were “lawful beneficiaries” to the proceeds of the Certificate. In
this respect, Section 22 of Modern Woodmen’s By-Laws specifies the heirs, relationships, or
beneficiaries who are entitled to the proceeds of the Certificate if the designated beneficiary dies
prior to the insured and the insured has not named a contingent beneficiary:
[I]f no beneficiary survives the insured, the amount made payable under said
certificate shall be payable to the insured’s surviving spouse; if no spouse
survives, to the insured’s children, equally, a child or children of a deceased child
taking the share of the deceased parent; if none such, to the insured’s mother; if
no mother, to the insured’s father; if no father, to the insured’s surviving brothers
and sisters, share and share alike; and if no brothers or sisters, to the insured’s
estate.
This list of beneficiaries includes the “insured’s children,” which in this case were Bell’s five
living daughters at the time of his death – Kelly Arlene Cheatham, Janie Ann Clevenger, Judy
Louise Broe, Tina Marie Wheeler, and Bonny Lynn Verello. These five daughters were the
4

Of course, it remains that Section 26 of Modern Woodmen’s By-Laws provides that any attempt to change the payee
of the benefits of any certificate “by will or otherwise than by strict compliance with the provisions of these By-Laws shall be
absolutely null and void.”

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“lawful beneficiaries” of the proceeds of the Certificate pursuant to Section 22 of the By-Laws
and Ark. Code Ann. § 23-74-402(c) accordingly does not apply.
III
For the foregoing reasons, the Court grants Modern Woodmen’s motion for summary
judgment [doc.#7] and denies Cheatham’s cross-motion for summary judgment [doc.#11].
Judgment will be entered accordingly.

IT IS SO ORDERED this 4th day of May, 2011.
/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE

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