The area of presumed intent in the designation of life insurance policies has long been a source of dispute and litigation. When a state legislature enacts statutes that address an automatic revocation of insurance beneficiary status under particular circumstances, additional litigation is likely to result. Such was the case in Sveen v. Melin, 138 S. Ct. 1815, 1817 (2018). There, a couple were married in 1997 and the following year the named insured designated his wife as the primary beneficiary under his life insurance policy, and his two children from a prior marriage as contingent beneficiaries. The couple divorced in 2007, and the divorce decree never addressed the disposition of the life insurance policy or the rights of the contingent beneficiaries. Upon the named insured's death in 2011, both the wife and the two children made competing claims for the entire proceeds. The children of the named insured relied on Minnesota Statutes § 524.2-804, subd. 1, which provided that divorce revoked the beneficiary designation of any former spouse. The former spouse asserted that the statute, which was not in effect at the time the policy was purchased and the time she was designated as a beneficiary, violated the Contract Clause, U.S. Const. art. 1, § 10, cl. 1.
The former wife argued that the retroactive application of the statute unconstitutionally impaired the obligation of the insurance contract, as recognized in Parsonese v. Midland National Insurance Co., 550 Pa. 423, 706 A.2d 814 (1998), abrogated by Sveen, 138 S. Ct. 1815. The Supreme Court rejected that assertion. In determining when a statute may improperly impair a contractual right, the Court applied a two-step analysis:
The two-step test for determining when such a law crosses the constitutional line first asks whether the state law has “operated as a substantial impairment of a contractual relationship.” Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98 S. Ct. 2716, 57 L.Ed.2d 727. In answering that question, the Court has considered the extent to which the law undermines the contractual bargain, interferes with a party's reasonable expectations, and prevents the party from safeguarding or reinstating his rights.
Sveen,138 S. Ct. at 1817.
By applying a legislative presumption that a divorcee would not want a former spouse to benefit from a life insurance policy, the Minnesota law actually protects the presumed intent of the named insured. No reasonable expectations of the policyholder were undermined since it presumes that a beneficiary designation would not remain after a divorce. Further, the expectations upon issuance of the policy would not remain after the divorce proceedings since the divorce court would have the authority to distribute the asset as part of the divorce settlement. Finally, the policyholder is given the opportunity to undo the presumed intent evidenced in the statute by completing a redesignation after divorce. The minimal paperwork needed to alter the impact of the Minnesota law was legally insufficient to constitute an impairment of the right to contract. Finally, the court pointed out that if the insured fails to complete a new beneficiary designation form, the named contingent beneficiaries would continue to recover under the contract.