SCOTUS Upholds Minnesota Life Insurance Beneficiary Law

by Bamidele Ogunberu Posted on June 12th, 2018

Washington, D.C., USA: The U.S. Supreme Court ruled 8-1 on Monday that a Minnesota law that invalidated beneficiary designations to spouses after a divorce does not violate the contracts clause when applied to a policy purchased before the law’s enactment. The Minnesota revocation-on-divorce law automatically redirects life insurance payments to secondary beneficiaries, such as children, if the primary is an ex-spouse.

Sveen v. Melin questioned whether a man’s ex-wife or his adult children were the rightful beneficiaries of the proceeds of his life insurance policy, and whether the Minnesota law would work retroactively, as the Minnesota statute was passed after the life insurance beneficiaries were established in this case, or if it was a violation of the contracts clause.

The court held that the result of this law “is only that the insurance money is redirected to his contingent beneficiaries, not that his contractual rights are extinguished.”

For the majority Justice Elena Kagan wrote:

[The Contracts] Clause restricts the power of States to disrupt contractual arrangements, but it does not prohibit all laws affecting pre-existing contracts. … The Minnesota statute places no greater obligation on a contracting party—while imposing a lesser penalty for noncompliance. 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.
The contracts clause provides, “[n]o state shall … pass any … Law impairing the Obligation of Contracts.”

The court held Monday that a retroactive application of Minnesota’s statute does not violate this clause. The Supreme Court reversed the decision of the US Court of Appeals for the Eighth Circuit.

Minnesota is among 26 states that have adopted “revocation on divorce” laws that revoke beneficiary designations to former spouses. The laws are based on a 1990 amendment to the Uniform Probate Code adopted on the assumption that failing to change a beneficiary after divorce likely stemmed from “inattention” not “intention,” Kagan said.

Under Minnesota law, a policyholder or court could override the revocation of the beneficiary. There was no such override in the divorce of Kaye Melin and Mark Sveen. Sveen’s life insurance policy had designated Melin as a primary beneficiary and his two children from a prior marriage as contingent beneficiaries.

When Sveen died, the children claimed they were the rightful recipients of the life insurance proceeds. Melin argued the Minnesota law violated the contracts clause because the life insurance policy was purchased before the law’s enactment. The clause bars states from passing laws “impairing the obligation of contracts.”

The case resolves a split of authority on whether such revocation laws can apply to pre-existing beneficiary designations.

Leave a Reply