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.
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.
Thomas Mitchell is a longtime Nevada newspaper columnist. You may email him at email@example.com. He also blogs at http://4thst8.wordpress.com/.