The constitutionality of revocation-upon-divorce statutes

I’m teaching insurance law this semester and yesterday the United States Supreme Court heard oral argument in a very interesting insurance case out of Minnesota, Sveen v. Melin.  The case arose from Minnesota’s revocation-upon-divorce statute.  Under Minnesota law, the dissolution of a marriage automatically revokes an individual’s designation of a former spouse as a life insurance beneficiary. Minnesota’s law is not unusual--about 25 other states also have revocation-upon-divorce statutes.  The constitutional issue raised by the case is whether retroactive application of the Minnesota statute violates Article I’s Contract Clause, which prohibits state laws from “impairing the Obligation of Contracts.”

The facts of the Sveen case are straightforward. Mark Sveen (the deceased policyholder) and Kaye Melin (the former spouse) married in 1997. The next year Sveen designated Melin as his primary beneficiary under a life insurance policy issued to Sveen by Met Life. In 2002 Minnesota adopted its revocation-upon-divorce statute. The couple divorced in 2007 and Sveen died four years later, never having changed his designation of Melin as primary beneficiary under the life insurance policy. But as a result of the 2002 Minnesota law, the 2007 divorce automatically revoked the ex-wife’s beneficiary status, which meant that Sveen’s adult children from a prior marriage became the new primary beneficiaries under the policy.

Unsurprisingly, the matter ended up in court. A Minnesota district court ruled for the children, but the 8th Circuit reversed, holding that the retroactive application of the Minnesota statute violated the Contract Clause because Sveen's designation of Melin in 1998 remained a valid contract when the 2002 law went into effect. 

Now it's in the hands of the Supreme Court. There are good arguments on both sides. The policy rationale for revocation-upon-divorce statutes makes sense. A divorced policyholder may forget to change the beneficiary designation on his or her life insurance policy, even though a former spouse may be the last person most policyholders would want to receive benefits under the policy. But on the other hand, it is certainly conceivable that in an amicable divorce a policyholder may want an ex-spouse to receive the policy benefits. Thus, it is understandable why the 8th Circuit concluded that the Contract Clause prohibits the states from retroactively voiding and rewriting life insurance contracts in such automatic and undiscriminating fashion.  

The justices heard oral argument in the case on Tuesday, and they did not send a clear signal one way or the other. But there was one fascinating moment during the first 20 seconds of the oral argument that is worth noting. It occurred when Justice Anthony Kennedy asked a question right off the bat of Adam Unikowsky, a highly-regarded Supreme Court litigator who appeared on behalf of Sveen’s adult children. Here’s an excerpt from the transcript on the Supreme Court's website:

CHIEF JUSTICE ROBERTS: We’ll hear argument today in Case 16-1432, Sveen versus Melin. Mr. Unikowsky.

MR. UNIKOWSKY: Mr. Chief Justice, and may it please the Court: The question before the Court today is whether the application of a revocation-on-divorce statute to a life insurance policy purchased before the enactment of that statute violates the Contracts Clause.

JUSTICE KENNEDY: Could you just – as a preliminary matter, after the divorce but before the owner of the policy died, did he pay premiums?

MR. UNIKOWSKY: I – I’d have to check. I’m not – I’m not sure if he did. He did pay them before the divorce.  I’m not sure if the – I – I – the policy was live at the time of his death.  I’m not sure – I think it may have been funded by the premiums that had been already paid on the policy.

JUSTICE KENNEDY: That – that was just a factual question.  You may want to introduce your argument. . . .

From the transcript, it’s clear that Unikowsky was caught off guard by Justice Kennedy’s question.

But he had good reason to be surprised because Justice Kennedy’s question came out of left field. Perhaps Kennedy thought an unpaid premium might have rendered the case moot by cancelling the policy, but the insurance company—Met Life—did not dispute the validity of the policy. The only issue from the insurance company’s point of view was that it did not want to get caught between rival claimants. Accordingly, after Sveen died and the policy proceeds became payable to the beneficiary, Met Life filed an interpleader action whereby it deposited the $180,000 policy proceeds with the district court, leaving it to the judge to decide who should receive the proceeds.

So the fact that Unikowsky did not have an immediate answer for Justice Kennedy is understandable. The premium issue wasn't quite on point.

But what’s really impressive, I think, is how Unikowsky handled the question. He did not avoid it through obfuscation, redirection, or delaying tactics. He answered honestly and directly that he did not know the answer to Justice Kennedy's question. Unikowsky went on to do an excellent job of answering the rest of the Court’s questions, as one would expect from a top Supreme Court advocate. 

Unikowsky’s response to Justice Kennedy’s unexpected question sets a great example for law students, particularly now that 1L oral argument season is in full swing at many law schools around the country. Television and movies give the false impression that attorneys should have an answer for every question a judge asks. But “I don’t know” is the right answer when it’s the accurate answer. That is a good lesson for law students to learn early in their careers. 

In any event, it will be very interesting to see how the Supreme Court ultimately rules on the Sveen case. Tens of millions of Americans have some form of life insurance coverage, and there are about 800,000 divorces annually in the United States.  Whichever way the court comes down, the Sveen ruling will impact many thousands of Americans who have never heard of a “revocation-upon-divorce” statute.      

Comments

[Jennifer Hendricks]

Isn't the point of Kennedy's question that paying regular premiums after the divorce would mean the policy owner was reminded/aware of the policy, suggesting that he meant to keep it in effect for the benefit of the ex-spouse? (As opposed to a policy on which the premiums had all been paid up-front, so it's possible the owner just forgot entirely.) It's one thing to forget to change the beneficiary on a retirement account, which you expect to use yourself; it's another to keep paying for a policy that exists only to benefit that other person.

The difference is probably not dispositive of the constitutional question, but it's the sort of factual context that ought to bear on the reasoning of a common law judge and that the lawyer should have known.

[Anthony Gaughan]

That's a great point, Jennifer. I think you are absolutely right. My apologies to Justice Kennedy! The question was a good one. Thanks so much for pointing that out.

[Anthony Gaughan]

One other interesting point I should add is that in the trial pleadings, Melin (the former spouse) alleged that Sveen (the policyholder) made an oral promise to continue to designate Melin as the primary beneficiary on the policy after their divorce, and to continue paying the premiums. Here's the relevant passage from paragraph 21 of Melin's Cross Claim in the district court interpleader action:

"[A]fter the dissolution of their marriage, Mark Sveen and Kaye Melin entered into an oral contract relating to the division of marital property. They expressly agreed that Mark Sveen would continue to pay all of the Policy's premiums and Kaye Melin would maintain her status as her primary beneficiary in return for agreement to the property division as stated in the divorce decree."

Nevertheless, the district court ruled for the children (citing Minnesota's revocation-upon-divorce statute and holding that Melin's allegation of an oral agreement was legally insufficient to overcome the statute). Also, despite Justice Kennedy's question at the beginning of oral argument, no one else pursued the issue, and the word "premium" does not appear again in the rest of the transcript.

Anyhow, it's quite interesting. Thanks again so much for your comment, Jennifer!

[Jack Chin]

Jennifer,

I might argue, if I were counsel to the right party, that as all persons are presumed to know the law, continued payment of premiums after the law had changed, that is, payments under the new regime, demonstrates that there is no retroactivity issue. The policyholder made an election. And of course all people can protect themselves, if they actually have an agreement, by filing new beneficiary designations favoring the former spouse, or by putting agreements to continue insurance in writing.

This is partially tongue in cheek, because I do not endorse the ignorance of the law is no excuse maxim, but given that it lives, this seems a reasonable application.

Jack