District Court Finds Ex-Wife Can Maintain Cross-Claim on Behalf of Minor Son for ERISA Life Insurance Benefits Based On Terms of Legal Separation Agreement

In Hartford Life and Accident Insurance Company v. Kowalski, et al., No. 21-CV-06469-RS, 2023 WL 1769261 (N.D. Cal. Feb. 3, 2023), Hartford filed a Complaint in Interpleader to resolve competing claims to a life insurance policy. The two named Defendants each filed a cross-claim against the other.  On a Rule 12(b)(6) motion to dismiss, Chief District Judge Richard Seeborg granted in part and denied in part one cross-claimant’s motion.

Prior to his death, decedent participated in a group life insurance plan sponsored by his employer and insured and administered by Hartford. At the time of his death, the proceeds of the policy amounted to $493,000. The policy listed his current wife as the named beneficiary, and on this basis she submitted a claim to Hartford for the proceeds. The decedent’s ex-wife submitted a separate claim on behalf of their minor son. She asserted a right to the proceeds under the terms of a 2010 Legal Separation Agreement (“LSA”) that formalized the divorce; one provision of the LSA required the decedent to “carry and maintain a life insurance policy of $800,000 and to name [the minor son] as the sole beneficiary and to not borrow, assign, or otherwise encumber said policy.” In the face of these competing claims, Hartford filed a Complaint in Interpleader. Both Defendants filed answers with cross-claims. The ex-wife sought a declaratory judgment that she, as legal guardian of the minor son, is entitled to the proceeds because the LSA is a Qualified Domestic Relations Order (“QDRO”) under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”), and that her claim takes precedence over that of the current wife. In the alternative, the ex-wife asserted claims of “undue influence” and conversion.  The current wife’s cross-claim similarly sought a declaratory judgment that she is entitled to the proceeds as the policy’s designated beneficiary, and that the LSA is not a QDRO. The current wife filed the instant motion to dismiss.

In determining the threshold question of whether the LSA is a QDRO, the Court addressed the criteria set forth in 29 U.S.C. § 1056(d)(3)(C), that require a QDRO to clearly specify: (i) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order, (ii) the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined, (iii) the number of payments or period to which such order applies, and (iv) each plan to which such order applies. Furthermore, the Court noted that a QDRO must not “require the plan to provide increased benefits (determined on the basis of actuarial value).” Id. at § 1056(d)(3)(D)(ii). The parties agreed that the LSA satisfies the first three requirements, but they disagreed as to whether it specifies “each plan to which such order applies”.  The LSA did not include the name of the Hartford plan.

Addressing first the argument with respect to increased benefits, the Court found that it lacked merit as the statute was designed primarily to shield plans from being saddled with larger, ongoing payments, typically in the context of pension plans. The Court noted that those concerns were not present in this case because the ex-wife demanded from Hartford only the value of the life insurance proceeds ($493,000), and not the $800,000 specified in the LSA. Thus, the Court concluded the LSA did not provide “increased benefits” within the meaning of Section 1056(d).

With regard to the LSA’s failure to name the Hartford plan, the Court noted that the Ninth Circuit has concluded that a domestic relations order need only substantially comply with the requirements of § 1056 in order to be held a QDRO. This standard has evolved out of an understanding that Congress’s intention in enacting the QDRO provisions was to “mitigate the impact of divorce upon children and

former spouses” by requiring that preexisting obligations under domestic relations orders be upheld.  Without deciding the question here, the Court opined that the LSA would likely pass muster as a QDRO, as it clearly contained the information specified in the statute that a plan administrator would need to make an informed decision. The Court further noted that if it were to accept the current wife’s argument that the Hartford plan needed to be specifically named, it would effectively sanction a loophole in the QDRO framework, as it would have been impossible to name the Hartford plan in the LSA, since decedent began his job in 2020, a decade after the LSA was entered. As such, the Court denied the ex-wife’s Rule 12(b)(6) motion on this basis.

However, the Court granted the motion to dismiss the ex-wife’s claims of “undue influence” and conversion, with leave to amend, finding that the allegations as pleaded were insufficient to state a claim.

As this case demonstrates, entitlement to ERISA life insurance proceeds can be a difficult arena to navigate, both during the claims process, and potentially in litigation. If you are faced with competing claims to life insurance proceeds you believe are owed to you, contact us for assistance.