Justices Settle Brawl Over Post-Divorce Insurance Benefits

(CN) – Siding with the adult children of a deceased Minnesota man, the Supreme Court ruled Monday that a state law that automatically revokes a former spouse’s life insurance beneficiary designation does not violate the U.S. Constitution’s contracts clause.

Mark Sveen named his then-wife Kaye Melin as the primary beneficiary of his life insurance policy in 1998. The couple divorced nine years later, but Sveen never changed his policy’s beneficiary designation.

In 2002, five years before the divorce, Minnesota amended its probate law to include life insurance beneficiary designations in the revocation-upon-divorce statute. The amendment law stated, “The dissolution or annulment of a marriage revokes any revocable . . . beneficiary designation . . . made by an individual to the individual’s former spouse.”

Sveen died in 2011 and Melin was still the primary beneficiary on the policy. Melin and Sveen’s adult children both made claims for the proceeds.

A federal judge ruled for the children, but the Eighth Circuit reversed last year.

A three-judge panel found that retroactively applying the 2002 amendment to Minnesota’s revocation-upon-divorce law to Sveen’s life insurance contract is a violation of the U.S. Constitution’s contracts clause, which bars a state from interfering with contractual arrangements.

“What matters are the policyholder’s rights and expectations, not any interest of the beneficiary,” U.S. Circuit Judge William Benton wrote for the Eighth Circuit panel.

Sveen’s children appealed to the U.S. Supreme Court, arguing in a petition for a writ of certiorari that Melin was automatically removed as Sveen’s life insurance beneficiary when the 2002 law was applied to the policy.

At oral arguments in March, the Supreme Court justices appeared unlikely to strike down the Minnesota law that keeps people from collecting on their exes’ life-insurance policies.

The nation’s highest court reversed the Eighth Circuit’s decision Monday, ruling 8-1 that the retroactive application of the revocation-upon-divorce statute does not violate the contracts clause.

Writing for the majority, Justice Elena Kagan said that the law “does not substantially impair pre-existing contractual arrangements.”

“Three aspects of Minnesota’s law, taken together, defeat Melin’s argument that the change it effected ‘severely impaired’ her ex-husband’s contract,” she wrote. “First, the statute is designed to reflect a policyholder’s intent—and so to support, rather than impair, the contractual scheme. Second, the law is unlikely to disturb any policyholder’s expecta­tions because it does no more than a divorce court could always have done. And third, the statute supplies a mere default rule, which the policyholder can undo in a mo­ment.”

Citing the high court’s precedent, Kagan added, “Even supposing an insured wants his life insurance to benefit his ex-spouse, filing a change-of­-beneficiary form with an insurance company is as ‘easy’ as, say, providing a landowner with notice or recording a deed. Here too, with only ‘mini­mal’ effort, a person can ‘safeguard’ his contractual pref­erences. And here too, if he does not ‘wish to abandon his old rights and accept the new,’ he need only ‘say so in writing.’”

Justice Neil Gorsuch was the lone dissenter, writing that Minnesota’s revocation-upon-divorce law “cannot survive an encounter with even the breeziest of Contracts Clause tests.”

“Everyone agrees that the law is valid when applied prospectively to policies purchased after the statute’s enactment,” he wrote. “But Minnesota wants to apply its law retroactively to policies purchased before the statute’s adoption. The Court of Appeals held that this violated the Contracts Clause, which guarantees people the ‘right to ‘rely on the law . . . as it existed when the[ir] contracts were made.’ That judgment seems to me exactly right.”

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