The Georgia Supreme Court has ruled that disability benefits issued pursuant to an insurance policy after the insured had been catastrophically injured were non-marital property and were not subject to equitable division when the insured and his wife divorced. 

The Case

Tracy and John Hardin were married in 1989. AMEX Assurance Company issued an accident protection plan insurance policy to Mr. Hardin in 2006 that included an accidental permanent total disability benefit of $1,500,000 that would be paid if an accidental bodily injury directly caused Mr. Hardin to be permanently totally disabled. 

The Hardins paid the policy premiums out of marital funds until Mr. Hardin was catastrophically injured on March 24, 2011. Mr. Hardin was paralyzed from the chest down due to a 23-foot fall from a platform and required a semi-skilled caretaker to prepare his meals, bathe him, roll him on his side once during the night, and assist him with a bowel program and other physical needs.

At that time, he was 42 years old.

One year after Mr. Hardin's injury, AMEX determined that he was permanently and totally disabled, and it paid him the full policy benefit. The money was deposited into the Hardins' joint checking account and then transferred to two of the Hardins' joint investment accounts. 

The Hardins separated in 2015, and Mr. Hardin filed a complaint for divorce six weeks later.

Ms. Hardin answered the complaint and counterclaimed, and in a temporary order, the trial court required the parties to keep detailed lists of all expenditures from their financial accounts so that they could determine the purpose of those expenditures and have the opportunity to argue their claims on the funds in their accounts.

Mr. Hardin moved for partial summary judgment, claiming that the purpose of the insurance proceeds had been to compensate him for his total disability and, therefore, that they were not marital assets and were not subject to equitable division.

The trial court granted Mr. Hardin's motion, ruling that the insurance proceeds were non-marital property because they compensated Mr. Hardin solely for his pain and suffering, disability, and disfigurement, and not for lost wages, lost earning capacity, or medical and hospital expenses.

The dispute reached the Georgia Supreme Court. 

The AMEX Assurance Policy

The AMEX Assurance policy specified that it would: 

provide[ ] limited benefits which are supplemental and [would] not provide basic hospital, basic medical, or major medical coverage

and that it was: 

not in lieu of and [would] not affect any requirements for coverage by any Workers' Compensation Act or similar law. 

The policy defined: 

injury 

as: 

bodily injury … which is sustained as a direct result of an unintended, unanticipated accident that is external to the body … and which directly (independent of sickness, disease, mental incapacity, bodily infirmity, or any other cause) causes a covered loss. 

The policy also defined: 

Permanently Totally Disabled/Permanent Total Disability 

to include, among other things 

Paraplegia 

or 

Quadriplegia 

and provided that: 

If, as a result of an Injury, the Insured Person is rendered Permanently Totally Disabled within 365 days of the accident that caused the Injury, the Company will pay 100% of the [$1,500,000] at the end of 12 consecutive months of such Permanent Total Disability. 

The Georgia Supreme Court's Decision

The court affirmed.

In its decision, the court relied on an “analytical approach” to determine whether the disability insurance proceeds were marital or separate property. Under the analytical approach, it said:

[W]hether the award is marital property does not depend on a formalistic view which looks only to the timing of the acquisition of the award…. Instead, the inquiry focuses on the elements of damages the particular award was intended to remedy or, stated another way, the purpose of the award. States subscribing to this approach acknowledge that damage awards may be separated into three different components: (1) compensation for the injured spouse for pain and suffering, disability, and disfigurement, (2) compensation for the injured spouse for lost wages, lost earning capacity, and medical and hospital expenses, and (3) compensation for the uninjured spouse for loss of consortium. Compensation paid to a spouse for non-economic and strictly personal loss under (1) and (3) is considered that spouse's personal property, while the portion of damages paid to the injured spouse under (2) as compensation for economic loss during the marriage is marital property.

The court rejected Ms. Hardin's contention that a majority of the disability insurance proceeds should be classified as retirement income based on her expectation that Mr. Hardin would have retired at age 65 and that they “did not have any retirement accounts or investment plans.” The court reasoned that, generally speaking, disability benefits replaced income lost before retirement, and disability benefits considered to include retirement benefits as a component normally resulted from employee benefit plans that required employees to waive all or part of their entitlement to retirement benefits in order to receive the disability benefits.

Here, the court noted, the insurance policy had been privately purchased and not received through an employer, nor was it dependent on any waiver of retirement benefits. Therefore, the court decided, Mr. Hardin's disability insurance policy “was simply not an appropriate vehicle to provide for retirement,” and the disability insurance proceeds did not have a retirement component.

The court next considered the nature and purpose of the non-retirement disability benefits. In Georgia, according to the court, disability benefits that did not include retirement benefits “must be divided into two portions: that given as compensation for lost marital wages and the portion given as compensation for lost postmarital wages or personal pain and suffering. The former portion is marital property, but the latter portion is separate property.”

The policy that had been issued to Mr. Hardin, the court said, specifically disclaimed any “basic hospital, basic medical, or major medical coverage,” and the payment of $1,500,000 was the maximum amount of the “Accidental Permanent Total Disability” benefit, an amount unrelated to the separate, much smaller “Emergency Accident and Sickness Medical Expense” benefit.

The court found no authority that non-retirement disability benefits “ever extend[ed] beyond lost wages and pain and suffering to include loss of consortium.” In any event, the court said, the purpose of Mr. Hardin's disability insurance policy was “not to compensate his spouse for loss of consortium.” Mr. Hardin was the sole insured person under the policy, its definition of “injury” did not include any non-bodily injury to someone other than the insured person, and the only person other than Mr. Hardin who could receive benefit payments was his beneficiary after his death, the court said.

The court agreed with Ms. Hardin that the disability insurance proceeds included lost wages and lost earning capacity. As the court noted, Ms. Hardin had stated in her affidavit that, “[f]or the previous few years prior to his injury, [Mr. Hardin's]'s reported taxable income was consistently less than $35,000.00.” Thus, the court said, assuming that one purpose of the disability insurance proceeds was to compensate the marital estate for all lost wages attributable to Mr. Hardin's disability during the remaining years of the marriage, such compensation would have amounted to less than $200,000. The court then pointed out that Ms. Hardin also had stated that, “[d]ue to [Mr. Hardin's]'s spending habits, only approximately $860,000 of the disability benefits remain[ed].” Because $640,000 of the disability insurance proceeds was consumed during the marriage, the “lump-sum payment during the marriage more than compensated the marital estate for its losses during the marriage.” 

The court noted that Ms. Hardin had not claimed that some portion of the $640,000 should be awarded to her as a result of any dissipation, and it rejected her claim that the $860,000 of remaining funds should be characterized as marital assets subject to equitable division, declaring that: 

none of those remaining funds represent[ed] any compensation for lost wages during the marriage, and all of the remaining funds must be attributed to [Mr. Hardin's] expected post-marital wages and his pain and suffering. 

The remaining benefits were Mr. Hardin's separate, non-marital property as a matter of law, the court concluded.