Sveen v. Melin
Case Year: 2018
Case Ruling: 8-1
Opinion Justice: Kagan
FACTS
Under the 2002 Minnesota law challenged here the designation of a spouse as a beneficiary on an insurance policy is automatically revoked upon the dissolution of the marriage unless the divorce decree mandates otherwise. As a consequence, the proceeds of the policy go to a contingent beneficiary or the policy owner’s estate. The law is based on the assumption that such action is consistent with the policy owner’s intent. A policy owner who does not wish this result must rename the former spouse as beneficiary. Twenty-six states have adopted similar default revocation laws. Prior to the law’s passage, the end of a marriage did not automatically revoke such beneficiary designations.
Mark Sveen and Kaye Melin married in 1997. The next year Sveen purchased a life insurance policy. He named his wife as beneficiary and his two children from a previous marriage as contingent beneficiaries. Sveen held other life insurance coverage naming his children as primary beneficiaries. In return Melin owned insurance coverage with Sveen as beneficiary. The marriage ended in 2007, and the divorce decree included no provisions for the insurance policy. Following the divorce, Sveen took no action to change the policy’s designated beneficiary. He died in 2011.
Sveen’s children, Ashley and Antoine, claimed the insurance proceeds. So too did former spouse Kaye Melin. The Sveen children argue that the divorce automatically revoked Kaye Melin as the policy’s beneficiary making them the rightful recipients. Melin claims that her husband’s designation of a beneficiary occurred prior to the passage of the Minnesota default law and therefore any retroactive application of that law to Sveen’s insurance policy would be an impairment of contracts in violation of the Constitution’s contract clause.
The federal district court ruled in favor of the Sveen children, but the court of appeals reversed.
OPINION
Justice Kagan delivered the opinion of the Court
The Contracts Clause restricts the power of States to disrupt contractual arrangements … The origins of the Clause lie in legislation enacted after the Revolutionary War to relieve debtors of their obligations to creditors. But the Clause applies to any kind of contract. See Allied Structural Steel Co. v. Spannaus (1978). That includes, as here, an insurance policy.
At the same time, not all laws affecting pre-existing contracts violate the Clause. See El Paso v. Simmons (1965). To determine when such a law crosses the constitutional line, this Court has long applied a two-step test. The threshold issue is whether the state law has “operated as a substantial impairment of a contractual relationship.” Allied Structural Steel Co. 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. If such factors show a substantial impairment, the inquiry turns to the means and ends of the legislation. In particular, the Court has asked whether the state law is drawn in an “appropriate” and “reasonable” way to advance “a significant and legitimate public purpose.” Energy Reserves Group, Inc. v. Kansas Power & Light Co. (1983).
Here, we may stop after step one because Minnesota’s revocation-on-divorce statute does not substantially impair pre-existing contractual arrangements. True enough that in revoking a beneficiary designation, the law makes a significant change. As Melin says, the “whole point” of buying life insurance is to provide the proceeds to the named beneficiary. But three aspects of Minnesota’s law, taken together, defeat Melin’s argument that the change it effected “severely impaired” her ex-husband’s contract. First, the statute is designed to reflect a policyholder’s intent—and so to support, rather than impair, the contractual scheme. Second, the law is unlikely to disturb any policyholder’s expectations because it does no more than a divorce court could always have done. And third, the statute supplies a mere default rule, which the policyholder can undo in a moment. Indeed, Minnesota’s revocation statute stacks up well against laws that this Court upheld against Contracts Clause challenges as far back as the early 1800s. We now consider in detail each of the features that make this so.
To begin, the Minnesota statute furthers the policyholder’s intent in many cases—indeed, the drafters reasonably thought in the typical one … [L]egislatures have long made judgments about a decedent’s likely testamentary intent after large life changes—a marriage, a birth, or a divorce. And on that basis, they have long enacted statutes revoking earlier-made wills by operation of law. Legislative presumptions about divorce are now especially prevalent—probably because they accurately reflect the intent of most divorcing parties. Although there are exceptions, most divorcees do not aspire to enrich their former partners …
And even when presumed and actual intent diverge, the Minnesota law is unlikely to upset a policyholder’s expectations at the time of contracting. That is because an insured cannot reasonably rely on a beneficiary designation remaining in place after a divorce … [D]ivorce courts have wide discretion to divide property between spouses when a marriage ends. The house, the cars, the sporting equipment are all up for grabs. And (what matters here) so too are the spouses’ life insurance policies, with their beneficiary provisions. Although not part of the Sveen-Melin divorce decree, they could have been; as Melin acknowledges, they sometimes are. Melin counters that the Contracts Clause applies only to legislation, not to judicial decisions. That is true, but of no moment. The power of divorce courts over insurance policies is relevant here because it affects whether a party can reasonably expect a beneficiary designation to survive a marital breakdown …
Finally, a policyholder can reverse the effect of the Minnesota statute with the stroke of a pen. The law puts in place a presumption about what an insured wants after divorcing. But if the presumption is wrong, the insured may overthrow it. And he may do so by the simple act of sending a change-of-beneficiary form to his insurer. That action restores his former spouse to the position she held before the divorce—and in so doing, cancels the state law’s operation …
In cases going back to the 1800s, this Court has held that laws imposing such minimal paperwork burdens do not violate the Contracts Clause …
For those reasons, we reverse the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.
It is so ordered.
Justice Gorsuch, dissenting
Minnesota’s statute automatically alters life insurance policies upon divorce to remove a former spouse as beneficiary. Everyone agrees that the law is valid when applied prospectively to policies purchased after the statute’s enactment. But Minnesota wants to apply its law retroactively to policies purchased before the statute’s adoption. The Court of Appeals held that this violated the Contracts Clause, which guarantees people the “right to ‘rely on the law … as it existed when the[ir] contracts were made.’” That judgment seems to me exactly right.
Because legislation often disrupts existing social arrangements, it usually applies only prospectively. This longstanding and “sacred” principle ensures that people have fair warning of the law’s demands …
When it comes to legislation affecting contracts, the Constitution hardens the presumption of prospectivity into a mandate. The Contracts Clause categorically prohibits states from passing “any … Law impairing the Obligation of Contracts.” … [T]he framers were absolute. They took the view that treating existing contracts as “inviolable” would benefit society by ensuring that all persons could count on the ability to enforce promises lawfully made to them—even if they or their agreements later prove unpopular with some passing majority. Sturges v. Crowninshield (1819).
The categorical nature of the Contracts Clause was not lost on anyone, either. When some delegates at the Constitutional Convention sought softer language, James Madison acknowledged the “inconvenience” a categorical rule could sometimes entail “but thought on the whole it would be overbalanced by the utility of it.” During the ratification debates, these competing positions were again amply aired. Antifederalists argued that the proposed Clause would prevent states from passing valuable legislation. Federalists like Madison countered that the rule of law permitted “property rights and liberty interests [to] be dissolved only by prospective laws of general applicability.” And, of course, the people chose to ratify the Constitution—categorical Clause and all.
For much of its history, this Court construed the Contracts Clause in this light. The Court explained that any legislative deviation from a contract’s obligations, “however minute, or apparently immaterial,” violates the Constitution. Green v. Biddle (1823) …
More recently, though, the Court has charted a different course. Our modern cases permit a state to “substantial[ly] impai[r]” a contractual obligation in pursuit of “a significant and legitimate public purpose” so long as the impairment is “reasonable.” Energy Reserves Group, Inc. v. Kansas Power & Light Co. (1983). That test seems hard to square with the Constitution’s original public meaning. After all, the Constitution does not speak of “substantial” impairments—it bars “any” impairment …
Even under our modern precedents, though, I still do not see how the statute before us might survive unscathed …
Start with the substantial impairment question. No one pays life insurance premiums for the joy of it. Or even for the pleasure of knowing that the insurance company will eventually have to cough up money to someone. As the Court concedes, the choice of beneficiary is the “whole point.” So when a state alters life insurance contracts by undoing their beneficiary designations it surely “substantially impairs” them …
Cases like ours illustrate the point. Kaye Melin testified that, despite their divorce, she and the decedent, Mark Sveen, agreed (repeatedly) to keep each other as the primary beneficiaries in their respective life insurance policies. Ms. Melin noted that they adopted this arrangement not only because they remained friends but because they paid the policy premiums from their joint checking account. Of course, we don’t know for sure whether removing Ms. Melin as beneficiary undid Mr. Sveen’s true wishes … But what we do know is the retroactive removal of Ms. Melin undid the central term of the contract Mr. Sveen signed and left in place for years, even after his divorce, until the day he died …
The judicial power to declare a law unconstitutional should never be lightly invoked. But the law before us cannot survive an encounter with even the breeziest of Contracts Clause tests. It substantially impairs life insurance contracts by retroactively revising their key term. No one can offer any reasonable justification for this impairment in light of readily available alternatives. Acknowledging this much doesn’t even require us to hold the statute invalid in all applications, only that it cannot be applied to contracts formed before its enactment. I respectfully dissent.