Supreme Court Analyzes Revocation on Divorce Statute

June 21, 2018 | Insurance Coverage

On June 11, 2018, the United States Supreme Court held, in a 8-1 decision, that applying Minnesota’s revocation-upon-divorce statute to a life insurance policy issued prior to the enactment of the statute does not violate the Contracts Clause of the Constitution. The Contracts Clause provides that “[n]o state shall . . . pass any Law impairing the Obligation of Contracts.”

In Sveen v. Melin, Metropolitan Life Insurance Company issued a life insurance policy to Mark Sveen in 1997. Sveen and Kaye Melin were married later that year. In 1998, Sveen completed a change of beneficiary form designating Melin, his spouse, as the primary beneficiary, and Ashley and Anton Sveen (the “Sveen Children”), his children from a prior marriage, as the contingent beneficiaries of the policy proceeds.

In 2002, Minnesota amended its probate statute to provide that, absent certain exceptions, “the dissolution or annulment of a marriage revokes any revocable . . . beneficiary designation . . . made by an individual to the individual’s former spouse in a governing instrument.” Minn. Stat. § 524.2-804.

Sveen and Melin divorced in 2007. The divorce decree did not mention the life insurance policy. Sveen never changed his beneficiary designation on the policy. Sveen died in 2011, at which time the policy proceeds became payable to the proper beneficiar(ies).

Faced with competing claims to the policy proceeds, Metropolitan Life Insurance Company commenced a federal interpleader action. The Sveen Children argued that Minnesota’s statute revoked the designation of Melin as the primary beneficiary, and therefore, as the contingent beneficiaries, they are entitled to the policy proceeds. Melin argued that, as the designated primary beneficiary, she is entitled to the policy proceeds and applying Minnesota’s statute, which did not exist at the time Sveen purchased the policy, violates the Contracts Clause.

The District Court granted the Sveen Children’s summary judgment motion and awarded them the insurance proceeds. The District Court determined that retroactively applying Minnesota’s statute did not unconstitutionally impair Melin’s interest in the policy. The Eighth Circuit reversed. Relying on an earlier decision interpreting Oklahoma’s revocation upon divorce statute, the Eighth Circuit held that applying Minnesota’s statute to a beneficiary designation made before the statute was enacted violates the Contracts Clause.

The Supreme Court reversed, holding that retroactive application of Minnesota’s revocation-upon-divorce statute does not violate the Contracts Clause. Justice Kagan, writing for the majority, explained, “Minnesota’s revocation-on-divorce statute does not substantially impair pre-existing contractual relationships.” Justice Kagan described three reasons why applying the statute to revoke Melin’s beneficiary designation did not substantially impair the policy. First, the statute is “designed to reflect a policyholder’s intent – and so to support, rather than impair, the contractual scheme.” Justice Kagan noted that policyholders usually do not want a former spouse to benefit from their life insurance policy after a divorce and therefore, the statute, in most situations, comports with the policyholder’s intent. Second, the statute “is unlikely to upset a policyholder’s expectations at the time of contracting.” A policyholder cannot reasonably expect that a beneficiary designation will remain unchanged at the time of divorce because, as Justice Kagan acknowledged, “divorce courts have wide discretion to divide property,” including life insurance policies. Third, the statute “supplies a mere default rule, which the policyholder can undo at any moment.” If the policyholder wants the former spouse to remain the beneficiary, the policyholder only has to submit a change of beneficiary form to the life insurance company. This “minimal paperwork burden[]”, Justice Kagan noted, does not violate the Contracts Clause.

View decision.

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