Metropolitan Life Insurance Co. v. Melin

United States Court of Appeals
For the Eighth Circuit
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No. 16-1172
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Metropolitan Life Insurance Company
lllllllllllllllllllll Plaintiff
v.
Kaye Melin
lllllllllllllllllllll Defendant - Appellant
Ashley Sveen; Antone Sveen
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: November 17, 2016
Filed: April 3, 2017
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Before BENTON and SHEPHERD, Circuit Judges, and EBINGER,1 District
Judge.
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1
The Honorable Rebecca Goodgame Ebinger, United States District Judge for
the Southern District of Iowa, sitting by designation.
BENTON, Circuit Judge.
Mark A. Sveen designated his then-wife, Kaye L. Melin, as the primary
beneficiary of his life insurance policy, and his children as contingent beneficiaries.
Later, Minnesota extended its revocation-upon-divorce statute to life insurance
policies. The district court awarded the proceeds to the children, rejecting Melin’s
argument that applying the statute retroactively is an impermissible impairment under
the Contract Clause. Having jurisdiction under 28 U.S.C. § 1291, this court reverses
and remands.
I.
Sveen purchased the life insurance policy in 1997 and married Melin later that
year. The following year, he named her as the primary beneficiary and his two adult
children as contingent beneficiaries. Sveen had additional life insurance with his
children as primary beneficiaries. Melin and Sveen divorced in 2007. Sveen never
changed the beneficiary designation on the policy.
In 2002, Minnesota amended its probate code to apply the 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.
When Sveen died in 2011, Melin was still the primary beneficiary on the
policy. The insurance company filed an interpleader to determine whether the
revocation-upon-divorce statute revoked this beneficiary designation. Sveen’s
children—the contingent beneficiaries—and Melin cross-claimed for the proceeds.
The district court granted summary judgment to the Sveens. This court reviews
constitutional claims de novo. Walker v. Hartford Life & Accident Ins. Co., 831
F.3d 968, 973 (8th Cir. 2016).
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II.
A.
The Sveens argue that Melin lacks standing to assert a constitutional challenge
to the revocation-upon-divorce statute.
A non-party may assert a claim under a contract if the individual is a third-party
beneficiary. See Dayton Dev. Co. v. Gilman Fin. Servs., Inc., 419 F.3d 852, 855 (8th
Cir. 2005). Third-party standing is appropriate where: (1) the litigant “suffered an
‘injury in fact,’ [ ] giving him or her a ‘sufficiently concrete interest’ in the outcome
of the issue in dispute”; (2) what the litigant seeks has a “close relation” to the rights
of the absent party; and (3) there is “some hindrance to the [absent] party’s ability to
protect his or her own interests.” Powers v. Ohio, 499 U.S. 400, 411 (1991), quoting
Singleton v. Wulff, 428 U.S. 106, 112 (1976).
A contested beneficiary like Melin has standing because: (1) she would suffer
the loss of policy proceeds, a concrete injury, if the statute were applied; (2) she seeks
to enforce the contract as written, vindicating Sveen’s written intent; and (3) Sveen’s
death hinders his ability to protect his interest to enforce the contract. See, e.g.,
Mearns v. Scharbach, 12 P.3d 1048, 1055 (Wash. Ct. App. 2000) (holding former
spouse had third-party standing to assert constitutional challenge to retroactive
application of revocation-upon-divorce statute where policyholder’s children were
contingent beneficiaries).
B.
The Contract Clause prohibits a state law from “impairing the Obligation of
Contracts.” U.S. Const. art. I, § 10, cl. 1. The prohibition, though not absolute,
encompasses laws that “operate[ ] as a substantial impairment of a contractual
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relationship” and do not serve a legitimate public purpose or are not “based upon
reasonable conditions and [ ] of a character appropriate to the public purpose.”
Energy Reserves Grp., Inc. v. Kan. Power & Light Co., 459 U.S. 400, 410-12
(1983), quoting first Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244
(1978), then quoting U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1, 22 (1977).
This court has held that a revocation-upon-divorce statute like the one here
violates the Contract Clause when applied retroactively. Whirlpool Corp. v. Ritter,
929 F.2d 1318, 1324 (8th Cir. 1991). There, the husband had designated his then-
wife as his beneficiary before Oklahoma passed its revocation-upon-divorce statute.
Id. at 1319-20. Two years after the statute was passed, they divorced. Id. The
husband never updated the beneficiary designation. Id. This court held that
automatically revoking an ex-spouse’s beneficiary designation made before
enactment of the statute would violate the Contract Clause. Id. at 1322. The
unconstitutionality turned on the policyholder’s rights and expectations:
[A]t the time James designated Darlene as his beneficiary, Oklahoma
law provided that she would remain the beneficiary unless and until he
designated someone else; thus, when James attempted to order his
personal affairs, this rule of insurance contract construction became a
part of the insurance contract’s obligations. James was entitled to
expect that his wishes regarding the insurance proceeds, as ascertained
pursuant to this then-existing law, would be effectuated. By reaching
back in time and disrupting this expectation, the Oklahoma legislature
impaired James’ contract.
Id.
“It is a cardinal rule in our circuit that one panel is bound by the decision of a
prior panel.” Owsley v. Luebbers, 281 F.3d 687, 690 (8th Cir. 2002). The Whirlpool
case controls this case. The Sveens argue that Whirlpool is distinguishable or,
alternatively, should not be followed.
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Though Whirlpool addressed an Oklahoma statute, both it and the Minnesota
statute have the same effect: to disrupt the policyholder’s expectations and right to
“rely on the law governing insurance contracts as it existed when the contracts were
made.” Whirlpool, 929 F.2d at 1323. The Sveens argue that Whirlpool is
distinguishable in several ways.
First, factually: The beneficiary in Whirlpool was the mother of the
policyholder’s four minor children, while Melin and Sveen had no children together.
Id. Though the Whirlpool court noted it was “plausible” that the policyholder would
want to provide financial security for his children by designating their caregiver (not
his new wife) as the beneficiary, this court was explaining that the statute was just as
likely to “either effectuate or frustrate his intent.” Id. The holding rested on the
policyholder’s right to “rely on the law governing insurance contracts as it existed
when the contracts were made.” Id. The holding did not depend on the age or
number of children. See id.
Second, the Sveens note that Minnesota law gives a beneficiary no vested
interest in the policy. See McCloud v. Aetna Life Ins. Co., 21 N.W.2d 476, 478-79
(Minn. 1946). This, too, is beside the point. What matters are the policyholder’s
rights and expectations, not any interest of the beneficiary. See Whirlpool, 929 F.2d
at 1323.
Third, the Sveens stress that the Minnesota statute has exceptions allowing the
policyholder to “opt out of the default rule of revocation.” Not only is this irrelevant
to Whirlpool’s focus on the policyholder’s right to rely on the law at the time of
contract formation, but Whirlpool itself found a similar escape insufficient. Id. The
Oklahoma statute allowed a policyholder to “rename” a former spouse as beneficiary,
but: “This fact does not cure the constitutional infirmity.” Id. Similarly, here, that
the statute would have allowed him to opt out does not remedy the violation of
Sveen’s rights that would occur by applying the statute to “directly alter[ ] the
obligations and expectations of the contracting parties.” Id.
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The rest of the Sveens’ attempted distinctions either mischaracterize Whirlpool
or do not confront its rationale—maintaining the policyholder’s expectations under
the law that existed at the time of contracting.
According to the Sveens, Whirlpool “undercuts the policy reasons served by
revocation upon divorce statutes” because “there is no justification for extending
Contract Clause concerns to a statute that only affects the donative component of a
life insurance policy.” See, e.g., Stillman v. Teachers Ins. & Annuity Ass’n Coll.
Ret. Equities Fund, 343 F.3d 1311, 1322 (10th Cir. 2003) (disagreeing with
Whirlpool and citing criticism by the Joint Editorial Board for the Uniform Probate
Code). But see Mass. Mut. Life Ins. Co. v. Curley, 459 F. Appx. 101, 106 (3d Cir.
2012) (relying on Parsonese v. Midland Nat. Ins. Co., 706 A.2d 814 (Pa. 1998) to
reach the same result as Whirlpool). The Whirlpool case rejects this argument:
The legislature, in passing this statute, determined that people fail to
consider the need to change their insurance policies after experiencing
a change in family relations. . . . However, this same conclusion
suggests that an individual could rely on the pre-existing law and neither
know nor expect that the rules governing his policy have changed, and
thus might fail to consider the need to investigate potential changes in
the law.
Whirlpool, 929 F.2d at 1323. This court’s previous opinion forecloses any
conclusion other than that the statute here is unconstitutional when applied
retroactively.
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The judgment is reversed, and the case remanded for proceedings consistent
with this opinion.
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