A beneficiary is a beneficiary is a beneficiary, SCOTUS says, p.2

We are discussing a recent U.S. Supreme Court decision regarding the proceeds from a life insurance policy. The insured was covered under the Federal Employees’ Group Life Insurance plan, and when he passed away in 2008 his widow discovered that the named beneficiary on the policy was his ex-wife. The insurer distributed the proceeds to the ex-wife, and the widow sued.

The widow sued under an unusual state law. (This case is not from Florida.) The law essentially wiped out the existence of an ex-spouse when it came to death benefits from insurance policies, retirement plans and the like. If the payout went to the former spouse anyway, the law allowed the surviving spouse or next-in-line beneficiary to sue the former spouse.

The trial court found for the widow. On appeal, the state’s high court found for the ex-wife. Apparently, this has happened in other jurisdictions, because the U.S. Supreme Court agreed to hear the case in order to settle differences between states and federal circuit courts.

The majority found for the ex-wife. A named beneficiary is a named beneficiary, the decision says, regardless of state law. If Congress had intended the life insurance program to operate differently, it would have said so. Congress did not, and a state cannot interfere with the insured’s freedom to choose who will receive the proceeds of a life insurance policy or any other death benefit.

If law students learn just one thing in their first-year contract law class, it is that U.S. courts have a high regard for an individual’s freedom to contract. If Congress, a state legislature or any other lawmaking body wants to limit that freedom, there had better be a compelling reason. Apparently, no such reason existed in this case.

Source: Courthouse News Service, “Justices Side With First Wife on Insurance Policy,” Barbara Leonard, June 3, 2013

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