In Metlife v. McDonald, Judge Michelson of the Eastern District of Michigan evaluated competing claims to a life insurance policy. The contest centered on the effect of a divorce decree. As usual for ERISA life insurance beneficiary disputes, federal law controlled, but with reference to a state divorce decree.
Leon McDonald and Sarah McDonald were married for over 20 years. They divorced in February of 1986. The Florida Divorce Agreement stated, “The husband [Leon McDonald] shall name the wife [Sarah L. McDonald] as the primary beneficiary of the husband’s General Motors Corporation life insurance policy, and shall name as equal contingent beneficiaries thereof the parties’ daughter [and the parties’ two grandchildren]. The husband shall continue to have the above persons as his primary and contingent beneficiaries, unless such persons agree to a change.”
Leon later married Beatrice McDonald. Despite the terms of the prior divorce decree, Leon named Beatrice the beneficiary of the General Motors life insurance policy.
Leon then died in 2016. Sarah and Beatrice filed competing claims to the life insurance proceeds. Metlife, the ERISA administrator of the life insurance plan, filed the interpleader lawsuit in federal court. Sarah’s position was that the divorce decree trumped the designation form. Beatrice argued the opposite: that the beneficiary designation controlled.
The court first noted that ERISA’s provisions preempt or “supersede any and all State laws insofar as they...relate to any employee benefit plan” governed by ERISA. Because the Divorce Agreement was incorporated into the divorce judgment entered by the state court, and because it attempted to dictate the beneficiaries of an ERISA-governed policy, it is a state law that relates to an employee benefit plan. As such, it would typically be preempted. However, in 1984, Congress amended ERISA to provide greater protection for spouses and dependents after a divorce. In particular, Congress exempted qualified domestic relations orders (or “QDROs”) from ERISA’s anti-alienation and preemption provisions. So if Leon and Sarah’s Divorce Agreement is a QDRO, then the Divorce Agreement would not run afoul of ERISA’s anti-alienation provision. Nor would the Divorce Agreement be preempted by ERISA.
When Congress amended ERISA in 1984 to remove QDROs from the ambit of preemption, it gave greater protection to spouses and dependents by allowing a state order, outside of the four corners of the employee benefit plan, to modify the distribution of the plan’s benefits. But Congress had to balance that “greater flexibility” for family members against a plan administrator’s obligations under ERISA.
The court evaluated whether the divorce decree met the requirements of a QDRO: (1) “the name and the last known mailing address (if any) of the participant”; (2) “the name and mailing address of each alternate payee covered by the order,” (3) “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,” (4) “the number of payments or period to which such order applies,” and (5) “each plan to which such order applies.” To qualify, the divorce decree must clearly specify those five items.
The court reviewed the divorce decree between Leon and Sarah. It listed their names and the marital address. It listed Sarah as the sole, primary beneficiary. So it “clearly specified” “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined.” Because it is a life-insurance policy, and because Sarah is the sole, primary beneficiary on the policy, the Divorce Agreement by clear implication provides “the number of payments”: one. Likewise, had Sarah died before Leon, one payment of equal share would be made to the surviving contingent beneficiaries.
Beatrice’s primary argument was that the divorce decree did not meet the fifth requirement because it did not clearly specify “each plan to which such order applies.” Beatrice argued that Leon had five or six life insurance policies. But in 1985, Leon only had one life insurance policy through General Motors. Thus, the court found that the policy was specifically identified and that it was QDRO.
Beatrice further argued that the decree was not valid regarding the life insurance, because Florida law prevents divorcing spouses from agreeing to maintain one spouse as the primary beneficiary of the other’s life-insurance policy. But the court found that such is not prohibited under Florida law and rejected that argument.
Finally, Beatrice contended that she paid almost $5,000 for Leon’s funeral expecting that she would receive the life insurance payout. She asked the court to impose a constructive trust for that amount of the General Motors life insurance proceeds, so that she could be reimbursed for the funeral expenses. The court rejected this argument, stating:
Here there is nothing inequitable about Sarah receiving all the proceeds from the GM policy. When Beatrice paid for Leon’s funeral expenses, she may have believed that she was entitled to the proceeds from the GM policy. But she knew—or should have known—that the issue was not free from doubt. About two weeks before Beatrice paid the funeral home, MetLife mailed her (and Sarah) a letter stating that Sarah had laid claim to the benefits. And the letter quoted the language from the Divorce Agreement requiring Leon to name and maintain Sarah as the beneficiary. So it seems that in paying the funeral home, Beatrice took the risk that she would not be awarded the proceeds of the GM policy. Moreover, Beatrice, Leon’s wife at the time of his death, has not shown that she would not have paid the funeral expenses had there been no GM policy (or if MetLife had decided that Sarah should get the proceeds), that Sarah, who had divorced Leon three decades earlier, had given any indication that she would pay for some of Leon’s funeral, or that Sarah attended the funeral or in any way benefitted from it. Further, Sarah claims, and Beatrice has not denied, that Beatrice received proceeds from Leon’s other life-insurance policies; Beatrice has given no reason why the funeral expenses should not be paid from the proceeds from those policies. In all, equity does not favor Beatrice.
Therefore, the court awarded the entirety of the life insurance benefits to Sara.
If you are facing a life insurance beneficiary dispute, it is extremely important that you contact a lawyer experienced in ERISA life insurance. Many lawyers are not familiar with ERISA and may not evaluate the dispute properly up front.