The U.S. Court of Appeals for the Eighth Circuit, reversing a Minnesota district court's decision, has ruled that the retroactive application of a “revocation-upon-divorce” statute to life insurance policies amounted to an impermissible impairment under the Contract Clause of the U.S. Constitution.
The Case
Mark A. Sveen purchased a life insurance policy from Metropolitan Life Insurance Company (“MetLife”) in 1997 and married Kaye L. Melin later that year.
The following year, he named Ms. Melin as the primary beneficiary and his two adult children as contingent beneficiaries.
Ms. Melin and Mr. Sveen divorced in 2007.
When Mr. Sveen died in 2011, Ms. Melin still was the primary beneficiary on the policy. MetLife filed an interpleader to determine whether Minnesota's 2002 revocation-upon-divorce statute had revoked Ms. Melin's beneficiary designation.
Mr. Sveen's children – the contingent beneficiaries – and Ms. Melin cross-claimed for the proceeds.
The U.S. District Court for the District of Minnesota granted summary judgment to the Sveens, and the dispute reached the Eighth Circuit.
Minnesota Law
In 2002, Minnesota amended its probate code to apply the Minnesota revocation-upon-divorce statute to life insurance beneficiary designations:
the dissolution or annulment of a marriage revokes any revocable … beneficiary designation … made by an individual to the individual's former spouse.
Minn. Stat. Ann. § 524.2-804.
The Contract Clause
The Contract Clause prohibits a state law from:
impairing the Obligation of Contracts.
U.S. Const. art. I, § 10, cl. 1.
The Eighth Circuit's Decision
The circuit court reversed.
In its decision, the circuit court explained that the Contract Clause's prohibition, although not absolute, encompassed laws that operated “as a substantial impairment of a contractual relationship” and that did not serve a legitimate public purpose or that were not “based upon reasonable conditions and [ ] of a character appropriate to the public purpose.”
The circuit court pointed out that, in 1991, it had ruled, in Whirlpool Corp. v. Ritter, 929 F.2d 1318 (8th Cir. 1991), that retroactive application of Oklahoma's revocation-upon-divorce law violated the Contract Clause, and that its unconstitutionality turned on the policyholder's rights and expectations. The Constitution required “maintaining the policyholder's expectations under the law that existed at the time of contracting,” the circuit court declared.
Finding that Whirlpool was not distinguishable, the circuit court concluded that the proceeds of the MetLife policy should be paid to Ms. Melin.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].