ERISA Requires Life Insurance Proceeds to Follow Separation Agreement, Not Beneficiary Designation
Hartford Life & Accident Ins. Co. v. Valois, No. 23-3286, 2024 WL 4678055 (9th Cir. Nov. 5, 2024)
Haili Kowalski and her ex-husband entered into a legal separation agreement (LSA) that required the ex-husband to maintain a life insurance policy in the amount of $800,000 naming their minor son, E.K., as beneficiary. The ex-husband later started a new job that provided him with a Hartford insurance policy for $493,000. He named his girlfriend, Marilyne Valois, as the policy’s beneficiary.
After Haili’s ex-husband died, both Marilyne and Haili, on behalf of her son, asserted that they were entitled to the proceeds of the Hartford life insurance policy. In an interpleader action, the United States District Court for the Northern District of California granted summary judgment in favor of Haili concerning the life insurance proceeds on the basis that the LSA was a Qualified Domestic Relations Order (QDRO) under the Employee Retirement Income Security Act (ERISA).
On appeal, the Ninth Circuit Court of Appeals affirmed. Under ERISA, benefits must be paid in accordance with the requirements of any QDRO. To qualify as a QDRO (see 29 U.S.C. § 1056(d)(3)), the LSA must clearly specify the plan to which the QDRO applies. Although Marilyne asserted that the LSA was not a QDRO because it did not specifically name the Hartford insurance policy, the court held that only “substantial compliance” with ERISA’s specificity requirements sufficient to avoid “uncertainty concerning the identity of the beneficiary” was necessary. Because the ex-husband only had one life insurance policy, and the LSA mentioned “a policy of life insurance,” he was required to name his son E.K. as the sole beneficiary of the Hartford policy. As a result, the court ruled that the LSA was a QDRO because it met the ERISA specificity requirement.
The court rejected Marilyne’s argument that the LSA, which required the ex-husband to provide an $800,000 life insurance policy for the benefit of his son, was not a QDRO because it required Hartford to provide increased benefits in contravention of ERISA, 29 U.S.C. § 1056(d)(3)(D)(ii). The court determined that the LSA, an agreement solely between Haili and her ex-husband, was not binding on Hartford and thus did not require it to provide more than the $493,000 in life insurance proceeds specified in the Hartford policy.
Takeaways: The Valois case highlights the importance of reviewing and considering clients’ marital agreements to ensure their estate planning documents and retirement account and life insurance policy beneficiary designations align with those agreements. In addition, estate planners should consider consulting an employee benefits attorney when questions arise regarding employee benefits covered by ERISA, a complex law that may preempt some state laws impacting clients’ estate plans. Although a beneficiary designation generally will override any contrary provision in a will or trust, in a benefit plan governed by ERISA, a beneficiary designation contrary to the terms of a QDRO generally will not be honored, as the court held in the Valois case.