Case Name: LIFE INSURANCE COMPANY OF NORTH AMERICA, a Pennsylvania corporation, Plaintiff, v. Gloria Irene ORTIZ, an individual, Defendant-Appellant, Graciela Elena Ortiz, an individual, Defendant-Appellee; Life Insurance Company Of North America, a Pennsylvania corporation; Reliance Standard Life Insurance Company, Plaintiffs, v. Gloria Irene Ortiz, an individual, Defendant-Appellant, Graciela Elena Ortiz, an individual, Defendant-Appellee, and J.J.O., a minor; Javier A. Ortiz, Sr.; Graciela Castano Ortiz, Defendants
Court: United States Court of Appeals for the Ninth Circuit
Jurisdiction: United States
Decision Date: 2008-08-01
Citations: 535 F.3d 990
Docket Number: Nos. 07-55308, 07-55331
Parties: LIFE INSURANCE COMPANY OF NORTH AMERICA, a Pennsylvania corporation, Plaintiff, v. Gloria Irene ORTIZ, an individual, Defendant-Appellant, Graciela Elena Ortiz, an individual, Defendant-Appellee. Life Insurance Company Of North America, a Pennsylvania corporation; Reliance Standard Life Insurance Company, Plaintiffs, v. Gloria Irene Ortiz, an individual, Defendant-Appellant, Graciela Elena Ortiz, an individual, Defendant-Appellee, and J.J.O., a minor; Javier A. Ortiz, Sr.; Graciela Castano Ortiz, Defendants.
Judges: Before: ALEX KOZINSKI, Chief Judge, RUGGERO J. ALDISERT, and D.W. NELSON, Circuit Judges.
Reporter: Federal Reporter 3d Series
Volume: 535
Pages: 990–999

Head Matter:
LIFE INSURANCE COMPANY OF NORTH AMERICA, a Pennsylvania corporation, Plaintiff, v. Gloria Irene ORTIZ, an individual, Defendant-Appellant, Graciela Elena Ortiz, an individual, Defendant-Appellee. Life Insurance Company Of North America, a Pennsylvania corporation; Reliance Standard Life Insurance Company, Plaintiffs, v. Gloria Irene Ortiz, an individual, Defendant-Appellant, Graciela Elena Ortiz, an individual, Defendant-Appellee, and J.J.O., a minor; Javier A. Ortiz, Sr.; Graciela Castano Ortiz, Defendants.
Nos. 07-55308, 07-55331.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted June 4, 2008.
Filed Aug. 1, 2008.
Robert A. Foster, II, Robert A. Foster II Law Offices, Irvine, CA, for the defendant-appellant.
John V. Gaule, Oddenino & Gaule, Arcadia, CA, for the defendant-appellee.
Before: ALEX KOZINSKI, Chief Judge, RUGGERO J. ALDISERT, and D.W. NELSON, Circuit Judges.
The Honorable Ruggero J. Aldisert, Senior United States Circuit Judge for the Third Circuit, sitting by designation.

Opinion:
Per Curiam Opinion; Dissent by Judge KOZINSKI.
PER CURIAM:
This case involves an interpleader action over the life insurance proceeds for an officer killed in the line of duty. Although Luis Gerardo Ortiz's ex-wife, Gloria Ortiz, was designated as beneficiary, Graciela Ortiz argues that divorce extinguished Gloria Ortiz's expectancy interest. The district court awarded the life insurance proceeds to the estate for intestate division among Graciela Ortiz and the decedent's two sons. We reverse and remand.
FACTUAL AND PROCEDURAL BACKGROUND
On August 2, 1998, Luis Gerardo Ortiz ("Jerry") designated his wife, Gloria Ortiz ("Gloria"), as the beneficiary of his life insurance policies with Life Insurance Company of North America and Reliance Standard. Jerry and Gloria separated in March 2002, and the Superior Court of California entered a Judgment on Reserved Issues in their divorce on December 15, 2004. The Judgment on Reserved Issues awarded "[a]ll right, title and interest in any and all of Petitioner's retirement/pension, 457(b) plans, 401(k) plans or other deferred benefits in [Jerry]'s name" to Jerry. The document also included a pre-printed notice indicating that "[i]t does not automatically cancel the rights of a spouse as beneficiary on the other spouse's life insurance policy."
In February of 2005, Jerry's divorce attorney sent an exit letter advising him to "reaffirm and/or change any beneficiaries on any . insurance policies." The attorney also spoke with Jerry after the divorce judgment issued and urged him to change the beneficiaries of his life insurance policies immediately. Jerry indicated that "he intended to go and look into those policies" and "again assured [her] that he would." Despite these assurances, Jerry did not attempt to change the written beneficiary designations on file with Life Insurance Company of North America and Reliance Standard.
Jerry married Graciela Ortiz ("Graciela") on May 28, 2005. Jerry did not work May 28-31 because of the marriage and the honeymoon. On June 24, 2005, Jerry died as a result of a gunshot wound to the head while on duty. The term life insurance payment that funded Jerry's coverage at the time of death was withdrawn from his May paycheck. The life insurance companies deposited life insurance and accidental death benefits totaling $518,483.13 with the clerk of the court.
The life insurance companies instituted an interpleader action naming Gloria and Graciela as defendants. The district court judge found that the life insurance policies became Jerry's separate property at the time of his divorce from Gloria. The judge also found that Jerry expressed an intent to name Graciela as his beneficiary, but he died intestate before he could make that change. Accordingly, the judge' awarded the proceeds of the policies to the estate to be split equally between Graciela and Jer ry's two sons. The district court denied a motion to stay the judgment pending appeal, but this court granted an unopposed application for an emergency stay order.
JURISDICTION AND STANDARD OF REVIEW
The district court derived jurisdiction from 28 U.S.C. § 1332 because the parties are diverse and the amount in controversy exceeds $75,000 exclusive of interest and costs. We find jurisdiction over this appeal of the final judgment pursuant to 28 U.S.C. § 1291.
The interpretation of a divorce judgment is a matter of law, which we review de novo. Lowenschuss v. Selnick, 170 F.3d 923, 929 (9th Cir.1999).
DISCUSSION
I. DIVORCE JUDGMENT
Under California law, we look to the language of the property settlement agreement to determine whether the agreement extinguishes the expectancy interests of life insurance beneficiaries. Life Ins. Co. of N. Am. v. Cassidy, 35 Cal.3d 599, 200 Cal.Rptr. 28, 676 P.2d 1050, 1053 (1984). "[G]eneral language in a marital settlement agreement will not be construed to include an assignment or renunciation of the expectancy interest conferred on the named beneficiary of an insurance policy or a will unless it clearly appears that the agreement was intended to deprive either spouse of such a right." Id. A property settlement covering all property and releasing all claims may be found to include a life insurance expectancy interest, "but where the language is not broad enough to encompass such an expectancy . the wife may still take as beneficiary if the policy so provides." Thorp v. Randazzo, 41 Cal.2d 770, 264 P.2d 38, 40 (1953).
We find that the language of the divorce judgment between Jerry and Gloria Ortiz did not extinguish Gloria's expectancy interest in Jerry's life insurance proceeds. The text of the relevant Judgment on Reserved Issues did not contain a single direct reference to life insurance policies. Although one could read the provision awarding "[a]ll right, title and interest in any and all of Petitioner's retirement/pension, 457(b) plans, 401(k) plans or other deferred benefits" to encompass life insurance policies, it was not clearly apparent that the provision encompassed beneficiary status. Unlike in Thorp, the judgment did not "clearly indicate[] that the parties' attention had been directed to the expectancy of the insurance proceeds, and that it was intended that plaintiff waive all interest therein, present and future." 264 P.2d at 41. Thus the divorce judgment was insufficient to waive beneficiary status because it is not clear from the text of the agreement that such status was contemplated and intentionally waived.
Additionally, the context of the Judgment on Reserved Issues suggests that the parties did not extinguish beneficiary status. The document contained a pre-printed notice that "[i]t does not automatically cancel the rights of a spouse as beneficiary on the other spouse's life insurance policy." This notice, while not dispositive, provided information regarding the additional steps required to alter life insurance beneficiaries. We can infer that Jerry and his attorney did not expect the judgment to terminate Gloria's beneficiary status because Jerry's attorney advised him to "reaffirm and/or change any beneficiaries on any . insurance policies" in her exit letter. Jerry also indicated that he understood the necessity of changing his named beneficiary when he spoke with his attorney in February. The pre-printed notice on the judgment form and the record evidence regarding Jerry's state of mind support our conclusion that the di vorce judgment did not extinguish Gloria's expectancy interest.
We distinguish this case from Meherin v. Meherin, 99 Cal.App.2d 596, 222 P.2d 305 (1950). In Meherin, a property settlement agreement terminated a wife's expectancy interests by assigning "all of her right, title and interest in and to said policy" and further requiring her "to execute any instrument or documents required by the husband or the [ ] Insurance Company to carry out the intention of this paragraph." Id. at 306. Unlike the Ortiz divorce judgment, the agreement in Mehe-rin specifically referenced the insurance policy. Id. The agreement also referenced the documentation required by the husband or the insurance company to change the beneficiary and the wife's interests in post-death recovery. Id. Finally, the agreement in Meherin was a complete settlement whereas the Ortiz document was only a Judgment on Reserved Issues. The Meherin agreement clearly indicated that the parties directed their attention to expectancy interests and intended to waive those interests; the Ortiz judgment did not.
For the foregoing reasons, we find that Gloria's expectancy interest survived the divorce. In light of this finding, we hold that the district court erred when it relied on Jerry's postdivorce intent to terminate Gloria's expectancy interests. In both Cassidy and Thorp, the court only looked to the decedent's post-divorce intent after it determined that the language of the divorce decree terminated the expectancy interest. In Cassidy, the agreement "waive[d] and relinquish[ed] any expectancy that was not thereafter reaffirmed," and the court looked to evidence of post-divorce intent to determine whether the failure to change the beneficiary designation constituted a reaffirmation of the expectancy interest. 200 Cal.Rptr. 28, 676 P.2d at 1055-56. In Thorp, the waiver of future interests in life insurance policies and post-death benefits was explicit, and the court considered intent for the limited question of whether the failure to change the beneficiary amounted to a post-divorce confirmation of the designation. 264 P.2d at 41-42. This case is distinguishable from both Cassidy and Thorp, thus the district court's reliance on post-divorce intent was misplaced.
II. CHANGE OF BENEFICIARY
As a general rule, California requires a change to a beneficiary designation to be made in accordance with the terms of the policy. "[I]f it is not, no change is accomplished, unless whatever occurred in that respect comes within one of more of the three exceptions to the rule." Cook v. Cook, 17 Cal.2d 639, 111 P.2d 322, 328 (1941). The three exceptions are (1) when the insurer waives strict compliance with its own rules regarding the change; (2) when it is beyond the insured's power to comply literally with the insurer's requirement; or (3) when the insured has done all that he could to effect the change but dies before the change is actually made. Id.
Only the third exception is potentially applicable to this case. The Supreme Court of California interpreted this third exception, stating:
We think that where the insurer is not contesting the change the rule is not to [be] applied rigorously and where the insured makes every reasonable effort under the circumstances, complying as far as he is able with the rules, and there is a clear manifestation of intent to make the change, which the insured has put into execution as best he can, equity should regard the change as effected.
Pimentel v. Conselho Supremo De Uniao Portugueza Do Estado Da California, 6 Cal.2d 182, 57 P.2d 131, 134 (1936). Thus, one's intent to change a beneficiary designation must be clearly manifested and put into motion as much as practicable. See Manhattan Life Ins. Co. v. Barnes, 462 F.2d 629, 633 (9th Cir.1972) ("California demands that substantial steps be taken to actually change a beneficiary before the formal requirements of the contract may be ignored.").
In this case, both insurance companies required written notification of change of beneficiary and Jerry took no steps toward providing such notification. Jerry's lawyer stressed the necessity of changing the designation in both her exit letter and an informal meeting. Jerry indicated that he understood and intended to change the designation; however, he took no action in the four months between the finalization of the divorce and his death. At any point following the finalization of his divorce, Jerry could have named Graciela, his two sons, or anyone else as the beneficiary of his policies. Jerry's inaction does not amount to substantial steps to change his beneficiary; therefore we find that the original designation of Gloria Ortiz remained valid. Thus the district court erred by relying on intent to circumvent a valid beneficiary designation.
III. COMMUNITY PROPERTY SHARE
Although we find that the beneficiary designation naming Gloria was valid, we note that Graciela retains a community property interest of 6.45% of the life insurance proceeds. This percentage represents a one-half interest in the four days' earnings that funded the final thirty-one day term of Luis's term life insurance.
CONCLUSION
We REVERSE and REMAND for the district court to award 93.55% of the disputed life insurance proceeds to Gloria Ortiz and 6.45% to Graciela Ortiz.
. Both companies required written notice to change the designated beneficiary.
. Gloria conceded this issue at oral argument, so we do not analyze it further.