Statute Requiring Automatic Revocation of Ex-Spouse’s Primary Beneficiary Designation In Life Insurance Policy Does Not Violate Contracts Clause Of The Constitution

In Sveen v. Melin (No. 16-1432, filed June 11, 2018) (“Sveen”), the United States Supreme Court held that a statute which automatically revoked life insurance beneficiary designations following the policyholder’s divorce did not violate the Contracts Clause of the United States Constitution. (U.S. Const. Art. I § 10, cl. 1.)

In 2002, the Minnesota Legislature passed a statute that automatically revokes the designation of a spouse as the beneficiary of life insurance policy if the policy is purchased during marriage and the couple later divorces. (Minn. Stat. § 524.2-804.)

In 1998, Mark Sveen purchased a life insurance policy designating his then-wife Kaye Melin as the primary beneficiary. In 2007, Sveen and Melin divorced, but the divorce decree did not mention the life insurance policy. Sveen never changed his original designation of Melin as the primary beneficiary of the policy.

Following Sveen’s death in 2011, his adult children from a prior marriage and Melin made competing claims for the life insurance benefits. Melin argued that she was entitled to the policy proceeds because Minnesota’s statute impaired the policy and thus violated the Contracts Clause. The trial court held that the statute did not violate the Contracts Clause, but Melin successfully appealed that ruling to the Eighth Circuit.

According to the Supreme Court, the Contracts Clause only forbids states from passing laws which substantially impair contracts. A statute substantially impairs a contract when it undermines a parties’ intent, interferes with a party’s expectations, or prevents a party from safeguarding its rights.

The Supreme Court held that the Minnesota statute did none of these things. First, the court held that Section 524.2-804 supports rather than undermines a policyholder’s true intent. People purchase life insurance policies with the intent of protecting their family, not to enrich their ex-spouses. Second, the court stated that Section 524.2-804 does not interfere with a policyholder’s expectations in the context of a divorce, because it is well known that divorce courts have broad authority to divide property when a marriage ends. Third, the Court noted that Section 524.2-804 does not prevent parties from safeguarding contractual rights, because a policyholder merely has to fill out a change-of-beneficiary form and send the form to the insurance company to keep a former spouse as a beneficiary.

In sum, Sveen confirms that state statutes affecting beneficiary designations in insurance policies do not substantially impair contracts and therefore are constitutional.

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June 28, 2018