On June 11, 2018, the Supreme Court of the United States decided Sveen v. Melin, No. 16-1432, holding that the retroactive application of a Minnesota statute that revokes spousal beneficiary designations in insurance policies upon the spouses’ divorce does not violate the Contracts Clause of the United States Constitution.
Mark Sveen and Kaye Melin were married in 1997. In 1998, Sveen purchased a life insurance policy naming Melin as primary beneficiary and his two children from a previous marriage as contingent beneficiaries. In 2002, Minnesota enacted a statute providing that if one spouse has made the other the beneficiary of a life insurance policy or similar asset, the divorce of the spouses au¬tomatically revokes that designation (unless the individual renames the ex-spouse as beneficiary), and the proceeds go instead to the contingent beneficiary or the policyholder’s estate. Sveen and Melin divorced in 2007, and Sveen never changed the designation of Melin as primary beneficiary on the insurance policy.
Sveen passed away in 2011, and Melin and the Sveen children asserted competing claims to the insurance proceeds. The Sveens argued that under Minnesota’s revocation-on-divorce statute, their father’s divorce canceled Melin’s beneficiary designation, leaving them as the rightful beneficiaries. Melin claimed that because the statute did not exist when the policy was purchased and she was named as the primary beneficiary, application of the later statute to the policy would violate the Constitution’s Con¬tracts Clause. The District Court awarded the insurance money to the children, but the Eighth Circuit reversed, holding that the retroactive application of the Minnesota law would violate the Contracts Clause.
The Supreme Court reversed, holding that application of the Minnesota statute to preexisting insurance contracts did not violate the Contracts Clause. The Court noted that the first step for determining when such a law crosses the constitutional line is whether the state law has “operated as a substantial impairment of a contractual relationship,” considering the extent to which the law undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights. If such factors show a sub¬stantial impairment, the second step of the inquiry asks whether the state law is drawn in an appropriate and reasonable way to advance a signif¬icant and legitimate public purpose. Here, the Court stopped at the first step, concluding that Minnesota’s law does not substan¬tially impair pre-existing contractual arrangements, and that the second step was unnecessary. The Court cited three reasons for its conclusion: (1) the statute is designed to reflect a policyholder’s intent and to support the contractual scheme; (2) the statute is unlikely to disturb any policyholder’s expectations at the time of contracting; and (3) the statute supplies a mere default rule, which the policyholder can undo at will.
Justice Kagan delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Thomas, Ginsburg, Breyer, Alito, and Sotomayor joined. Justice Gorsuch filed a dissenting opinion.