The United State Supreme Court ruled that the divorced spouse of an insured under a life insurance policy had no constitutional challenge against a state statute that revoked her status as a beneficiary upon the insured's death. Sveen v. Melin, 584 U.S. ___ (2018), 2018 U.S. LEXIS 3503 (U.S. June 11, 2018).
A Minnesota statute provided that "the dissolution or annulment of a marriage revokes any revocable disposition, beneficiary designations, or appointment of property made by an individual to the individual's former spouse in a governing instrument."
In 1997, Sveen and Melin wed. Thereafter, Sveen purchased a life insurance policy naming Melin as the primary beneficiary and two children from a prior marriage as contingent beneficiaries. The marriage ended in 2007. The divorce decree made no mention of the insurance policy. Sveen took no action to revise his beneficiary designations on the policy. He died in 2011.
The Sveen children and Melin made competing claims to the life insurance proceeds. The Sveens contended that under the Minnesota statute, their father's divorce canceled Melin's beneficiary designation and left the two of them as the beneficiaries. Melin argued that the law was not in effect when her husband purchased the policy. She further contended that applying the state law to the policy would violate the Constitution's Contracts Clause, which prohibited any state "Law impairing the Obligation of Contracts." Art. I, sec. 10, Cl. 1.
The District Court rejected Melin's argument and awarded the insurance proceeds to the Sveen children. The Eighth Circuit reversed.The Supreme Court granted certiorari to resolve a conflict over whether the Contracts Clause prevented a revocation-on-divorce law from applying to a pre-existing agreement's beneficiary designation.
The Supreme Court reversed. The Minnesota law did not substantially impair pre-existing contractual arrangements. The law was unlikely to disturb any policyholder's expectations because it did no more than a divorce court could always have done. Further, the statute supplied a mere default rule, which the policyholder could easily undo. A policyholder could revise the effect of the Minnesota statute by changing the beneficiary status. The law put in place a presumption about what an insured wanted after divorcing. But if the presumption was wrong, the insured could overthrow it.
