Newspaper column: Can a Nevada law pass constitutional muster?

Our federal and state constitutions are meant to lay the ground rules for what our governments can and cannot do, spelling out the rights of the individual to be free from the dictates for well-meaning but overweening lawmakers.

A recent obscure and little-noted Supreme Court case out of Minnesota tore the heart out of one of those rights by flippantly dismissing the significance of one of those rights and claiming the outcome is what is best for the lackadaisical peons.

What other rights might be in jeopardy?

The case was a challenge to a Minnesota law that requires a divorced spouse to be automatically dropped as a life insurance beneficiary — a law that treads on the U.S. Constitution’s Contracts Clause, which states, “No State shall … pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts …” A life insurance policy is most assuredly a contract.

From SCOTUS blog

Nevada has a similar law, NRS 111.781, passed in 2011, that states all listed beneficiaries on life insurance policies are automatically revoked once a divorce is finalized.

Nevada’s state Constitution also states, “No bill of attainder, ex-post-facto law, or law impairing the obligation of contracts shall ever be passed.” Doesn’t abrogation constitute impairment?

The underpinning of such laws is that lawmakers believe the average mope is too lazy or too ignorant to initiate a change in life insurance beneficiaries following a divorce.

The case of Sveen v. Melin upheld the Minnesota version of this law by a vote of 8-1 with only Justice Neil Gorsuch dissenting.

In 1998 Mark Sveen purchased a life insurance policy naming his wife Kaye Melin as beneficiary. In 2002 Minnesota passed the law in question. Sveen and Melin later divorced and Sveen died. Melin and Sveen’s children from a previous marriage sought the insurance money.

The court held: “The retroactive application of Minnesota’s statute does not violate the Contracts Clause.” No one even raised the question of whether it was ex post facto.

Even Justice Gorsuch throws the Contracts Clause under one wheel of the bus, writing, “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.”

A prospective contract impairment is OK, but not a retroactive one?

“Of course, the framers knew how to impose more nuanced limits on state power,” Gorsuch writes later. “The very section of the Constitution where the Contracts Clause is found permits states to take otherwise unconstitutional action when ‘absolutely necessary,’ if ‘actually invaded,’ or ‘wit[h] the Consent of Congress.’…  But in the Contracts Clause the 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.”

But Justice Elena Kagan, writing for the majority, rationalizied, “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 … the statute is designed to reflect a policyholder’s intent — and so to support, rather than impair, the contractual scheme.”

Lawmakers and justices are mind readers who can tell what people really want to do rather than what they actually do under signed contracts.

Gorsuch concluded, “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.”

Since Nevada’s law and Nevada’s Constitution appear to be in conflict, there is a chance this controversy could arise here and be settled at the state level. There are principles at stake, as well as money.

A version of this column appeared this week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel and the Lincoln County Record — and the Elko Daily Free Press.

12 comments on “Newspaper column: Can a Nevada law pass constitutional muster?

  1. Anonymous says:

    What “contract” is formed when one individual names another as a beneficiary to a life insurance policy? In the vast majority of cases, there certainly is recognized consideration passed between the parties and the beneficiary is merely receiving a gift. Not only that, the person doing the designation is again in the vast majority of cases, free to change the designation at any time thus completely eliminating even the “expectancy” the beneficiary might have. How is there any contract when that designation could at any time be revoked by the individual that made the original designation?

    If there’s no contract, exactly what did the law impair?

  2. Revoked by the individual, not by the state.

  3. Anonymous says:

    If it’s revocable at will, by the individual, then what agreement exists between the parties that may be enforced by the beneficiary?

    And since the answer is, in most case, “none” then how is there a contract at least as between these two parties?

  4. The contract is between the policy holder and the insurer.

  5. Anonymous says:

    I agree those parties do have a contract but the law doesn’t impair that contract; the individual that purchased the contract still has to pay the premiums,and the insurer still has to pay the benefits. That’s all the contract was for anyway.

  6. Rincon says:

    I suspect the argument here is more about the wording of the law rather than any outcome. I assume that the insurance company would be obligated to inform the insured regarding any change of beneficiary. The insured would be free to reinstate the beneficiary if so inclined, so the only way this could be against the intent of the insured would be if the insured died between the time the divorce becomes final and the time the insured intends to reinstate the beneficiary in the rare case that a spouse actually wants to keep his ex insured.

    The intent of the law is reasonable. Divorce is a clusterfarkle where the combatants’ lives are turned upside down. It’s likely that the majority of life insurance policies are not altered properly at the time of the divorce. Seems to me that this should be considered among the duties of the divorce lawyer, not the insurance company. Just make lawyers liable if they fail to advise their clients in writing to change beneficiaries. As the quarterbacks of divorces, they have a duty to properly advise their clients of all likely legal ramifications of a divorce, and the need to change beneficiaries on life insurance policies is certainly a likely ramification of a divorce. All the lawyers have to do is add a line onto their letter of instruction to clients and they would be protected from any claims and the insured would be properly advised every time.

  7. Steve says:

    If a divorcee really intends the benefits to remain payable as they were prior to the divorce, then that policyholder simply needs to update the benefits to reflect their wishes.
    The law is a good one. It requires positive action on the part of a divorcee to ensure the beneficiaries are as they wish them to be and limits the ability of later claimants suing for benefits.

  8. But is it constitutional?

  9. Steve says:

    Since policyholders have ultimate control over who they decide to make a beneficiary, at best the law is a temporary stop gap, forcing people to think about their future.
    SCOTUS majority say it is. I accept their decision and if it is unacceptable to the country, Congress is the place for change.

  10. Bill says:

    Without doing any research, I wonder if the law also provides for the automatic termination of spousal beneficiaries under IRAs? I rather doubt it. The only valid rationale that I can see for an obviously ex post facto law, is to remove a possible motive for spousal homicide.

  11. Mistrbill says:

    It appears to me that if the attorney(s) in the divorce doesn’t bring this law to light, they should be held liable!
    Next point of view, without a beneficiary is the insurance company liable to find a “next of kin” or just not pay anyone? Or does it go to the state? (Don’t trust insurance companies any more than law makers) Nothing I read above makes the distribution of the benefits clear in a divorce case..
    A “contingent beneficiary”on the insurance policy would be beneficial to the courts.
    Our trust is the contingent in both our cases which eliminates probate or previous death of one or the other of us. Then again, we spent more than 15 minutes planning the future for ourselves!

  12. […] Newspaper column: Can a Nevada law pass constitutional muster? Our federal and state constitutions are meant to lay the ground rules for what our governments can and cannot do, spelling out the rights of the individual to be free from the dictates for well-meaning but overweening lawmakers. […]

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