The recent Illinois case of Allton v. Hintzhse provides yet another example of the importance of precise drafting of contracts; in this case, a marital settlement agreement.
In Allton, Guy Allton purchased a life insurance policy in the amount of $100,000 shortly after he was married. Allton designated his wife as the beneficiary of the policy. Three years later, when he was getting divorced, Allton and his wife agreed in their marital settlement agreement that they each would:
. . . maintain a life insurance policy upon his or her life, such that upon the death of said party, each child of the parties shall be entitled to receive death benefits, in an amount of not less than $50,000 per child. Each party shall be obligated to maintain said policies so long as the parties have an obligation to support the children or contribute to their post-secondary education.
The marital settlement agreement also provided that Allton would “execute any and all instruments and documents as may be designated herein or as may be reasonably necessary to make effective the provisions of this agreement."
When Allton died in an automobile accident without having changed the beneficiary on the existing $100,000 policy, Allton’s former wife filed a declaratory judgment proceeding claiming she was entitled to the proceeds of the policy as the beneficiary. The administrator of Allton’s estate, however, responded that the insurance proceeds should be paid to Allton’s children pursuant to the marital settlement agreement. The trial court agreed with Allton’s former wife, awarding her the proceeds, and the administrator appealed.
On appeal, the Appellate Court ruled that the marital settlement agreement was ambiguous because it was subject to two reasonable interpretations. Under one interpretation, Allton was required to change the beneficiary on his existing policy to his children in order to comply with the requirements of the marital settlement agreement. Under the alternative interpretation, Allton was required to obtain new insurance with the proceeds to be paid to each of his children. Since there were two equally plausible interpretations of the marital settlement agreement, the Appellate Court found that the trial court must hear extrinsic evidence to determine the intent of the parties. Hence, more delay and more legal expense.
The outcome in the Allton case was avoidable had the parties drafted the insurance provision with more precision. A properly drafted insurance provision would have clearly stated whether Allton was required to change the beneficiary on the existing insurance policy to his children or obtain new policies in which the children were designated as beneficiaries.
Whether you are drafting a business agreement or any other memorandum of understanding, attention to wording will avoid disputes, delays and unnecessary legal expense. Please telephone us if you need assistance in preparing any document with legal implications.