Looking Out for Our Kids: QDROs and Employer-Provided Life Insurance.
Sun Life Assur. Co. of Canada v. Jackson, 877 F.3d 698 (6th Cir. 2017), cert. denied, 138 S. Ct. 2624 (2018)
(a) Facts: The parties were divorced in 2006. The divorce decree, which incorporated a separation agreement, ordered the husband to maintain any employer-provided life insurance policies for the benefit of the parties’ daughter until her emancipation.
The husband had such a policy, but his uncle was the sole beneficiary. The husband died in 2013, with the uncle still the only person on the policy. The daughter, still a minor, made a claim to the policy proceeds, but the insurer paid the uncle. The daughter then sued the insurer in federal court.
(b) Issue: Who is entitled to the policy proceeds?
(c) Answer to Issue: The daughter.
(d) Summary of Rationale: Employer-provided life insurance policies are regulated by ERISA. Therefore, the plan must pay the named beneficiary, and it cannot follow any contrary state court order.
As an exception, however, contrary state court orders are not preempted if the state court order is a QDRO. Thus, the result in Jackson turned on whether the divorce decree met the QDRO requirements.
The first requirement states that the DRO must specify the name and address of the alternate payee. The daughter was not named in the insurance provision, but she was named in the agreement, and the agreement was incorporated into the decree. The decree did not state the address of the daughter, but it also incorporated the parties’ parenting plan, which awarded both parties shared custody. The daughter, therefore, resided with the parties, and the addresses of both parties were stated in the agreement.
The second requirement states that the DRO must state the amount of benefits awarded. The divorce decree clearly required that the daughter receive 100% of the proceeds.
The third requirement states that the DRO must state the period of payment. The decree required that insurance must be maintained until the child’s emancipation.
The fourth requirement states that the plan must be identified. The court held that “all employer-provided life insurance” was sufficient to identify the plan.
Because the divorce decree met the requirements for a valid QDRO, the plan was required to pay the proceeds to the daughter.
Important Lesson: Most benefits regulated by ERISA are retirement plans, but ERISA also regulates employer-provided life insurance. If a divorce decree requires a party to maintain employer-provided life insurance, that requirement should be expressly stated in a DRO prepared at the time of divorce and promptly qualified by the insurer. Otherwise, the provision may not be enforceable.
- The wife and the daughter were fortunate that the divorce decree and incorporated documents met the requirements for a QDRO; this will not always happen. The wife should have obtained a DRO at the time of divorce and had it qualified by the insurer.
- It seems likely that obtaining a DRO at the time of divorce would have been quite easy. The husband signed the agreement; he would not have had a valid objection to the DRO. Perhaps the entry of a DRO would even have convinced him to change the beneficiary.
- By waiting until after the husband died, the wife and the daughter created huge problems for themselves. The uncle acquired a right to payment, which he was motivated to defend. Even worse, the insurance company paid the uncle, and it then had a strong motivation to defend the case to avoid the negative publicity that would accompany a confession of error. The daughter ultimately won but she had to litigate in district court and the Sixth Circuit, and she even defended a petition for certiorari in the U.S. Supreme Court. Obtaining a DRO would have saved many thousands of dollars in attorney’s fees.
- The insurer did not have much of an argument that the QDRO requirements were not met. It seems to have argued mostly for a hypertechnical construction of those requirements, especially the name requirement, an approach that most courts have rejected. Its least weak argument, which it does not appear to have stressed, was that neither the decree nor the agreement named the policy so that it was not clear from the face of these documents alone what policies were subject to the provision at issue. But the plan certainly knew, from its files, that the policy was employer-provided, and the provision applied on its face to all employer-provided policies. Thus, while the insurer had to look outside the decree, it did not have to look outside the scope of its own records. The insurer’s argument was extremely weak.