Amicus Curiae Brief — Egelhoff v. Egelhoff

I No. 99-1529

; IN THE

Supreme Court of the United States

DONNA RAE EGELHOFF,

Petitioner,

v.

SAMANTHA JGELHOFF, A MINOR, BY AND THROUGH

HER NATURAL PARENT KATE BREINER

and DAVID EGELHOFF,

Respondents.

On PETITION FoR A Writ oF CERTIORARI

TO THE SUPREME CouRT OF WASHINGTON

—————————————————————————— SX

MOTION OF THE AMERICAN COUNCIL OF

LIFE INSURERS FOR LEAVE TO FILE BRIEF

AMICUS CURIAE AND BRIEF AMICUS CURIAE

IN SUPPORT OF CERTIORARI

Victoria E. FIMEA STEPHANIE W. KANWIT

Senior Counsel, Litigation Counsel of Record

AMERICAN COUNCIL OF LIFE INSURERS STEPHEN N. LamMB

1001 Pennsylvania Avenue, N.W. EpsTEIN BECKER & Green, P.C.

Washington, D.C. 20004 1227 25" Street, N.W.

(202) 624-2183 Suite 700

Washington, D.C. 20037-1156

(202) 861-0900

Attorneys for Amicus Curiae

159761 @ Counsel Press LLC

(800) 274-3321 + (800) 359-6859

z21epP

OF Ee py Oe eg ee ee

Pursuant to this Court’s Rule 37.2(b), the American

Council of Life Insurers (“ACLI”) respectfully moves for

leave to file the attached brief amicus curiae in this case.

The consent of the attorney for petitioner, William Kilberg,

Esq., has been obtained. The consent of the attorney for

respondents, Michael W. Jordan, Esq., was requested but

refused.

Amicus ACLI is based in Washington, D.C., and is an

association representing 435 legal reserve life insurance

companies, accounting for over 73% of life insurance and

over 82% of pension business with such companies in the

United States.

The insurance industry represented by Amicus ACLI is

extremely concerned with the implications of this case

for the future of employer-sponsored life insurance

coverage. The Washington State Supreme Court held in the

decision below that a state probate statute, Wash. Rev. Code

§ 11.07.010, is not preempted by the Employee Retirement

Income Security Act, 29 U.S.C. § 1144(a) (1999) (ERISA),

even with respect to the pension plan. Thus, the Court allowed

a State statute to override and nullify the deceased’s

beneficiary designations under both his life insurance plan

and a pension plan. Egelhoff v. Egelhoff, 139 Wash. 2d 557,

989 P.2d 80 (1999).

ACLI has a unique perspective on the impact that this

decision will have on its members’ ability to offer and

administer life insurance and death benefits through

employer-sponsored plans. In filing this brief, ACLI seeks

to bring to the Court’s attention matters that have not been

fully addressed by the parties regarding the negative effects

of the decision below on the provision of life insurance

benefits.

Respectfully submitted,

STEPHANIE W. KANwIT

Counsel of Record

STEPHEN N. LAMB

EPSTEIN BECKER & GREEN, P.C.

1227 25" Street, N.W.

Suite 700

Washington, D.C. 20037-1156

(202) 861-0900

VICTORIA E. FIMEA

Senior Counsel, Litigation

AMERICAN COUNCIL OF LIFE INSURERS

1001 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 624-2183

Attorneys for Amicus Curiae

TABLE OF CONTENTS

Table of Cited Authorities ....................

Statement of Interest ................... ee

Summary of Argument in Support of Petition for a

nr des de ceGdvctedecccececs

A.

D.

The Washington Statute Violates Congress’

Intent to Subject Plan Administrators to a

Uniform Body of Benefits Law ..........

State Law Cannot Be Allowed to Defeat the

Expectations of ERISA Plan Members and

TE

The Decision Below Discourages Employers

from Sponsoring, and Life Insurers From

Providing, Reasonably-Priced Life Insurance

Se

State “Domestic Relations Laws” Cannot Be

Allowed to Override ERISA .............

EEE

16

19

TABLE OF CITED AUTHORITIES

Page

Cases:

Ankenbrandt v. Richards, 504 U.S. 689 (1992) ... 16

Barber v. Barber, 621 U.S. (21 How.) 582 (1858)

ececcecéedeeesesesbbanseadeneeenseeeest 16

Boggs v. Boggs, 520 U.S. 833 (1997) .......... passim

Brandon v. Travelers Ins. Co. & Abbott Labs.,

18 F.3d 1321 (5® Cir. 1994) ............0055. 9

Emard v. Hughes Aircraft Co., 153 F.3d 949

(9th Cir. 1998), cert. denied, 525 U.S. 1122 (1999)

ecbcscecébbsec deeb 660Neeebbseusensetee 9,10

Fort Halifax Packing v. Coyne, 482 U.S. 1 (1987)

sectbedacuceeesdeaedseabeueeaensennasee: 5

Guidry v. Sheet Metal Workers Nat'l Pension Fund,

GBB UB. SEB CIGGED oc ccccccscccecccscssece 10

Hisquierdo v. Hisquierdo, 439 U.S. 572 (1979) ... 18

Ingersoll-Rand Co. v. McClendon, 498 US. 133

|. PPPPTTTTrririttr ei 7

John Hancock Mut. Life Ins. Co. v. Timbo,

67 F. Supp. 2d 413 (D.N.J. 1999) ............ 11

Cited Authorities

Page

Krishna v. Colgate Palmolive Co., 7 F.3411 ~

DP MEE see ddocudaetabddcedddsnekies 12

Mansell v. Mansell, 490 U.S. 581 (1989) ........ 18

Mendez-Bellido v. Board of Trustees of Div. 1181,

A.T.U. N.Y. Employees Pension Fund & Plan,

709 F. Supp. 329 (E.D.N.Y. 1989) ........... 18

Metropolitan Life Ins. Co. v. Massachusetts,

Ss MD Sdcndvétadaneedvnkstcés 6

Metropolitan Life Ins. Co. v. Pettit, 164 F.3d 857

Se a EE cnsenendneoscheodbedtbesdact 12

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 514 U.S. 645

EE Se RS ci ahaaeeee 5,7, 14,16

Ridgway v. Ridgway, 454 U.S. 46 (1981) ........ 17, 18

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983)

venesonensnncees tedusdedidetverebsuabank 5

Statutes

Pie OF OG oh cc ccccccece Siugusehussetay 18

29 U.S.C. § 1001(a)........... Ait ndhedeteodus 3

SPP EEE Sc'cuddckks Mi aboekneontcns 5

iv

Cited Authorities

Page

BP UB. § GGREED "0 cv ccbcdvcdvcctvesesvccsees 4

SP UBL. © TD ccocecvcecesccsuedéoseds 4,17

29 U.S.C. § 1OS6(d)(3MA) .. 0.6... ce eee eee 17

29 U.S.C. § 1104(ay(1(D) ...... 20... cee eee 5, 8, 17

29 U.S.C. § 1132(a(1M(B) ............6 2c eee 4

BP UE. © CBS 00 cb dc cvvccivddkvedeewesss 1,4

29 U.S.C. § 1144(BM( 2M A) .. 2.2... ce eee eee eee 6

aD ULB. § ERGHEOD cccccccnsecccceetscccts 17

FO Ue © Fee GREER... oo ccopecedans cveuneove 18

Cal. Health & Safety Code § 7185.5(d) .......... 12

Fla. Stat. Ann. § 765.102(1) ............00000ee 12

OO ie 5

N.Y. Pub. Health Law § 2964(2)(a) TTTTT TTT ey 12

Retirement Equity Act of 1984, Pub. L. No. 98-397,

FE DEED evr cccccscccecencoscsveusepen 17

Wash. Rev. Code § 11.07.010 ................ 1,4, 14

Wash. Rev. Code § 11.07.010(2)(a) ............. 4,9

Wash. Rev. Code § 70.122.030 ................ 12

Vv

Cited Authorities

“— Page

Other Authorities:

Buist M. Anderson, Anderson on Life Insurance

SP OMPOR EOE sb caviunceevictessicsssice 2,13

Ann C. Foster, Brief: Life Insurance, Compensation

and Working Conditions, Winter 1997 ........ 1,2

Jeffrey W. Stempel, Law of Insurance, § 18.02{c]

DEE SER eb Sekei éhoveecdvere caceebesede se 5

Employee Benefits in State and Local Governments,

Bulletin 2477, Bureau of Labor Statistics (1994)

PERU CEES CUS THESE baGS Sd DADE SERCO CRE Ces e ss 2

]

STATEMENT OF INTEREST

The American Council of Life Insurance (“ACLI”), based

in Washington, D.C., is an association representing 435 legal

reserve life insurance companies, accounting for over 73%

of life insurance and over 82% of pension business with such

companies in the United States.'

The insurance industry represented by Amicus ACLI is

extremely concerned with the implications of the holding

below for the future of employer-sponsored life insurance

coverage. Relying on an inappropriately narrow reading of

the preemption clause in the Employee Retirement Income

Security Act, 29 U.S.C. § 1144(a) (1999) (“ERISA”), the

Washington State Supreme Court has held that a state probate

statute, Wash. Rev. Code § 11.07.010 (the “Statute”), can

nullify the disposition of plan benefits made in accordance

with the terms of ERISA. As a result, in this case the

decedent’s express designation of petitioner, his former wife,

as beneficiary under both his life insurance and pension plans

was nullified by the Statute’s mandatory presumption that

his former wife as a matter of law “died at the time of entry

of the decree of dissolution.”

The ruling of the Washington Supreme Court has

jeopardized the future of employer-sponsored life insurance

benefit plans covering millions of Americans. According to

the Federal Bureau of Labor Statistics, 74% of all Americans

employed on a full-time basis are covered by employer-

sponsored life insurance.’ The percentage is even higher for

1. Counsel for Amicus were the sole authors of this brief. No

person or entity other than Amicus made a financial contribution to

this brief.

2. Egelhoff v. Egelhoff, 139 Wash. 2d 557, 575, 989 P.2d 80,

90 (1999).

3. Ann C. Foster, Brief: Life Insurance, Compensation and

Working Conditions, Winter 1997, at 53.

2

public sector employees — 87%.‘ Life insurance is considered

so valuable a benefit in attracting and retaining qualified workers

that fully 85% of both private and public employers pay for the

full cost of such insurance.°

If the opinion of the Washington Court is allowed to stand,

life insurance inevitably will become more expensive, more

difficuli to administer, and less accessible for Americans.

Statutes like Washington’s will succeed in eroding or eliminating

the bases for the utility of life insurance as a financial

management and estate planning tool: its certainty and its

liquidity in the wake of the insured’s death. Life insurance

proceeds are designed to be readily accessible to beneficiaries.

Once the insurer receives proof of an insured’s death, payment

of the death benefit to the designated beneficiary is normally

an expeditious procedure.

The named beneficiaries of the millions of life insurance

policies in effect in this country are entitled to rely on an

expectation that they will receive the proceeds of these policies

when making critical future financial decisions for themselves,

their families, and their businesses. Life insurance serves

numerous socially beneficial functions; the proceeds from a

policy can provide funds to keep a business functioning after

the death of its principal, to pay for a child’s education, to pay

off a mortgage, to provide for additional retirement income,

and to encourage gifts to charity.

The Statute will defeat the legitimate expectations of named

plan beneficiaries, as well as those of plan participants, who

will no longer have an absolute right to decide for themselves

who their beneficiaries should be. So too, the plan sponsors,

4. Id. at 54 (citing Employee Benefits in State and Local

Governments, Bulletin 2477, Bureau of Labor Statistics (1994)).

See also Buist M. Anderson, Anderson on Life Insurance § 1.6 at 22

(1991) (“Every large employer, including the federal government,

provides group life insurance for its employees.”).

5. Foster, supra note 3, at 55.

3

fiduciaries, and administrators of ERISA plans need to be able

to decide what types of benefits to offer to plan participants,

and to ascertain their rights and liabilities in regard to those

benefits with certainty. Yet the ruling at issue imposes an

impossible burden on them, allowing each state to dictate how

the beneficiary of a life insurance policy will be determined,

and frustrating ERISA’s goal of achieving uniformity and

consistency in benefits administration by preventing them from

offering uniform life insurance and death benefits.

Such a result runs counter to strong federal policy in this

area aimed at encouraging employers to establish the retirement

and welfare plans that most Americans and their families depend

upon for their post-retirement income, health care benefits, and

life insurance benefits.® As for insurers, the rationale of the

decision makes it infeasible for them to issue life insurance

coverage to a multi-state employer group that is both predictable

with respect to the observance of beneficiary designations, and

affordable, i.e., that constrains premium rates and plan costs

both by achieving economies through uniform administration

of policy benefits, and by avoiding expensive and time-

consuming challenges resulting from inconsistent state

directives and conflicting beneficiary claims.

SUMMARY OF ARGUMENT IN SUPPORT OF

PETITION FOR A WRIT OF CERTIORARI

This case concerns a dispute regarding employer-provided

benefits between a decedent’s children from a prior marriage

and a subsequent spouse, similar to the circumstance presented

in this Court’s prior decision in Boggs v. Boggs, 520 U.S. 833

(1997). In Boggs, this Court held that ERISA preempted a state

6. Congress insisted on the certainty of rights and obligations under

ERISA, noting in Title I that “employees with long years of employment

are losing anticipated retirement benefits owing to the lack of vesting

provisions in such plans,” and that “employees and their beneficiaries

have been deprived of anticipated benefits.” ERISA § 2(a), 29 U.S.C.

§ 1001(a).

4

statute that would allow a non-participant spouse to transfer an

interest in her husband’s pension funds to her sons. Although

the Court acknowledged that descent, distribution, and marital

issues are quintessential examples of traditional areas of state

concern,’ it found that ERISA’s strong anti-alienation provisions

preempted the state statute.®

Here in Egelhoff, a deceased participant’s children have

asserted state law-based claims to the proceeds of ERISA

pension and welfare benefit plans (the latter encompassing life

insurance benefits), although they are neither participants nor

beneficiaries in these plans.? The Washington Supreme Court

has now ruled, contrary to the holding of Boggs, that the Statute

at issue here, Wash. Rev. Code § 11.07.010(2)(a), which

automatically revokes the designated beneficiary status of a

spouse upon divorce, does not run afoul of ERISA.'° Whether

there is found here to be a “direct clash” with ERISA’s

objectives, in the words of the Boggs Court,'' or whether

ERISA’s preemption clause is applied,'? the result should be

the same: this Court should grant certiorari and conclude that

the Washington “state law cannot stand.”"”

Most likely, the Washington legislature enacted Wash. Rev.

Code § 11.07.010 to solve what it perceived to be an endemic

social problem — insureds “forgetting” to change their

7. Boggs, 520 U.S. at 839-40.

8. ERISA § 206(d), 29 U.S.C. § 1056(d), cited in Boggs, 520 U.S.

at 851.

9. In order to have standing to file a suit for benefits under ERISA,

an individual must either be a participant or beneficiary of the plan.

ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1(B).

10. Egelhoff, 989 P.2d at 92 (citing ERISA § 206(d)(1), 29 U.S.C.

§ 1056(d)(1)).

11. Boggs, 520 U.S. at 844.

12. ERISA § 514(a), 29 U.S.C. § 1144(a).

13. Boggs, 520 U.S. at 844.

5

beneficiaries after a divorce. This paternalistic measure,

ostensibly taken “to save policyholders from themselves

(and presumably greedy former spouses),”'* directly interferes

with the federal statutory scheme created by Congress in ERISA

that seeks to insure that both pension and welfare plans are

administered consistently and in accordance with the

“documents and instruments governing the plan.”

Congress enacted ERISA in 1974 to: (1) protect plan

participants and beneficiaries,'® (2) assure uniformity and

efficiency in plan administration,"’ and (3) create incentives for

the creation and maintenance of employee benefit plans.'* Every

one of those Congressional goals would be frustrated by

allowing state law, at the option of each state, to trump the

beneficiary designation of an ERISA plan.

14. Jeffrey W. Stempel, Law of Insurance § 18.02{c], at 18-12

(1994).

15. ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D).

16. Boggs, 520 U.S. at 845 (“The principal object of the statute is

to protect plan participants and beneficiaries.”) (citing Shaw v. Delta

Air Lines, Inc., 463 U.S. 85, 90 (1983)). The statute itself notes that the

express purpose is “to protect interstate commerce and the interests

of participants in employee benefit plans and their beneficiaries.”

29 U.S.C. § 1001(b).

17. New York State Conference of Blue Cross & Blue Shield Plans

v. Travelers Ins. Co., 514 U.S. 645, 656 (1995).

18. Fort Halifax Packing v. Coyne, 482 U.S..1, 11 (1987)

(“A patchwork scheme of regulation would introduce considerable

inefficiencies in the benefit program operation, which might lead those

employers with existing plans to reduce benefits, and those without

such plans to refrain from adopting them.”). The U.S. Tax Code, in

addition, provides incentives both for employers to establish qualified

benefit plans as well as for employees to participate in them, since a

contribution to a qualified plan is immediately deductible by the

employer and only becomes taxable to the employee on subsequent

distribution. I.R.C. § 404.

6

The Egelhoff decision, rather than protecting plan

participants and their beneficiaries, instead undermines the very

reasons they value life insurance — its certainty and its liquidity.

The Statute defeats the legitimate expectations of both

participants and designated beneficiaries on the basis of an

unsubstantiated assumption that insureds inevitably will act

incompetently with respect to a highly personal decision. From

an insured participant’s perspective, the payment of insurance

proceeds to someone other than the person intended to be the

recipient is the substantive equivalent of a failure to provide the

promised benefit.

The decision also creates substantial administrative

uncertainties under ERISA for plan sponsors, plan fiduciaries,

and life insurance companies. If it is upheld, neither plan

sponsors nor fiduciaries could provide an insured death benefit

which allows the covered plan participant to select the ultimate

beneficiary.

The threat of regulation by inconsistent state laws would

drive employers to self-fund life insurance and death benefits,

i.e., fund those benefits from their own assets or through a trust.'*

That alternative is economically infeasible for all but the very

largest of employers, and likely would be an imprudent use of

sponsor and plan assets. Instead of incentives to create benefit

plans, the decision below will discourage employers from

offering and life insurers from providing reasonably-priced life

insurance, by increasing costs related to the determination of

the proper beneficiary, and requiring plan administrators and

insurers to inquire into their employees’ personal matters. It

19. As this Court summarized it in Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 724, 732 (1985), employee welfare plans “may

self-insure or they may purchase insurance for their participants. Plans

that purchase insurance — so-called ‘insured plans’ — are directly

affected by state laws that regulate the insurance industry,” pursuant to

ERISA’s “insurance saving clause,” § 514(b)(2)(A), 29 U.S.C.

§ 1144(b)(2)(A), which exempts from preemption “any law of any State

which regulates insurance, banking, or securities.”

7

would also inspire corrosive intra-family litigation and costly

interpleader actions, and would likely force life insurers to make

duplicate payments to settle claims.

ARGUMENT

A. The Washington Statute Violates Congress’ Intent to

Subject Plan Administrators to a Uniform Body of

Benefits Law

In New York State Conference of Blue Cross and Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. 645, 646 (1995), this Court

specifically noted that one of ERISA’s objectives was to promote

the “nationally uniform administration of employee benefit plans.”

The Court recognized that in enacting ERISA, Congress intended:

to ensure that plans and plan sponsors would be

subject to a uniform body of benefits law; the goal

was to minimize the administrative and financial

burden of complying with conflicting directives

among States or between States and the Federal

Government . . . , [and to prevent] the potential for

conflict in substantive law . . . requiring the tailoring

of plans and employer conduct to the peculiarities

of the law of each jurisdiction.” (emphasis added).

Allowing multiple state statutes to affect the interpretation

and administration of employee benefit plans (including the

disposition of pension plan assets, which may include insurance

policies) will have a dramatic effect on plan sponsors and

administrators. They will be forced to administer these plans

differently in different states, contrary to Congressional intent

that plans not be subject to piecemeal regulation. Moreover,

administering the plans in accordance with varying state laws

will subject plan fiduciaries to potentially devastating claims

for breach of fiduciary duty because Congress has made the

20. Travelers, 514 U.S. at 656-57 (quoting Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133, 142 (1995)).

8

prior determination in ERISA that a plan fiduciary must

“discharge his duties with respect to a plan . . . in accordance

with the documents and instruments governing the plan,””' not

in accordance with those state laws.

The State Supreme Court clearly erred in holding that the

Statute is not preempted under ERISA because it “does not alter

the nature of the plan itself, the administrator’s fiduciary duties,

or the requirements for plan administration.”” The Statute

unquestionably impacts upon all three elements: (1) it alters

the plan of benefits substantially by mandating that written

directives as to designation of a beneficiary be superseded if

inconsistent with state law; (2) it substitutes state probate law

principles, and obligates plan administrators to follow those

principles, by requiring plans to pay benefits in a manner that

is in direct conflict with both the plan requirements and the

written instructions of the decedent, thus violating the fiduciary

duty to follow the terms of the plan documents; and (3) it

interferes with plan administration and alters the administrators’

duties by requiring them to keep track of changes in plan

participants’ marital status, and to ascertain the effect of

Washington’s probate law on each participant’s circumstances.

The Washington Supreme Court attempts to minimize the

negative impact of its decision on uniform plan administration

by insisting that while the Statute “may operate upon the

beneficiary designation in an ERISA plan,” it does not “direct

payment of proceeds,” nor disturb the beneficiary designation

since benefits “remain to be distributed in accord with the plan

documents under ERISA.” That conclusion is not accurate,

because the Statute has created competing ownership interests

that conflict with those prescribed by the ERISA plan

documents. This is a complete and plain usurpation by the State

21. 29 U.S.C. § 1104(a)(1)(D).

22. Egelhoff, 989 P.2d at 90.

23. Egelhoff, 989 P.2d at 90, 91.

-

9

of an ERISA plan’s benefit structure that empowers the plan

participant, and the participant alone, to decide the identity of

his or her beneficiary.

Far from an issue that merely “brushes against the periphery

of an ERISA plan,” as the Washington Supreme Court believes,”

its holding here stands for the proposition that each of the states

can control the rights of ERISA plan participants and specify

the recipients of ERISA plan benefits. It may be that in some

cases (such as Washington state’s), the beneficiary is altered

only in specific circumstances, such as when “a marriage is

dissolved or invalidated . . .”* Other jurisdictions have attempted

to enact laws whereby such beneficiary designations are altered

by state law only if the beneficiary fails to re-designate his or

her ex-spouse.”* Plan sponsors such as multi-state employers

will justifiably consider it a nightmare to have to coordinate, in

each state, the distribution of benefits in compliance. The Statute

thus must be struck down as directly contrary to the strong

federal policy in favor of a “uniform body of benefits law,” as it

imposes on benefit plans (both health and welfare and pension

plans) those very “conflicting directives” that ERISA forbids.

B. State Law Cannot Be Allowed to Defeat the

Expectations of ERISA Plan Members and

Beneficiaries.

As this Court emphasized in Boggs, ERISA was enacted

to ensure that plan participants and their beneficiaries would

receive their expected ben) its. For example, a primary purpose

24. Egelhoff, 989 P.2d at 88 (quoting Emard v. Hughes Aircraft

Co., 153 F.3d 949, 961 (9th Cir. 1998), cert. denied, 525 U.S. 1122

(1999)).

25. Wash. Rev. Code § 11.07.010(2)(a).

26. See, e.g., Brandon v. Travelers Ins. Co. & Abbott Labs.,

18 F.3d 1321 (Sth Cir. 1994) (holding preempted by ERISA such an

attempt by the Texas legislature to require a re-designation of an cx-

spouse after a divorce in order to maintain him or her as the designated

beneficiary on a life insurance policy).

10

of ERISA’s qualified survivor annuity provisions is to “ensure

an income stream” to spouses,”’ while ERISA’s anti-alienation

provision is intended to provide the same income stream to

participants and beneficiaries.”

Those provisions in ERISA cannot co-exist with the

decision of the Washington Supreme Court ho «ti; that the State

probate statute at issue here is saved from preemption under

ERISA Section 514 because it allegedly does not “affect the

administration of ERISA plans but ‘merely the ultimate

ownership of distributed benefits.’ That description of the

effect of the Statute is inaccurate. The “ultimate ownership”

determination alters the manner in which ERISA plans

determine to whom distribution must be made. Currently,

administrators need only look up and apply the participant’s

current written beneficiary designation. Under the Statute, where

the beneficiary is a spouse, the plan administrator first must

determine whether that relationship to the participant has

changed, and if so, must ascertain the nature of the changed

circumstances and form a legal conclusion as to the effect of

the State’s probate law on the plan’s distributive obligation. That

process, the Washington Supreme Court’s opinion

notwithstanding, has a direct and material impact on plan

From the beneficiary’s point of view, “ultimate ownership”

is not an afterthought, but rather precisely the substantive

purpose of his or her designation as a beneficiary. Whether those

benefits have been distributed, or are awaiting future distribution,

is immaterial. The Statute presently determines the criteria

pursuant to which the distribution must take place, substituting

its provisions for the plan’s criteria defining the participant’s

benefit entitlement.

27. Boggs, 520 U.S. at 843.

28. Id. at 852. See also Guidry v. Sheet Metal Workers Nat'l

Pension Fund, 493 U.S. 365, 376 (1990).

29. 989 P.2d at 90 (quoting Emard, 153 F.3d at 959).

11

As this Court held in Boggs, ERISA’s anti-alienation rules

protect plan benefits regardless of whether they “have been

distributed” or they are as yet “undistributed.” Any other rule

would conflict with strong Congressional policy embodied in

ERISA to preserve benefits for pension plan participants and

beneficiaries. The Statute here, however, operates as an

alienation of plan benefits by the State for the purpose of

effectuating an involuntary reallocation.

Consider the scenario where a decedent deliberately left

an €x-spouse as a named beneficiary in a life insurance policy,

perhaps as part and parcel of an informal agreement between

the people involved, or to protect children who are still minors,

and now finds his or her choice — after death, and hence

irrevocably — overruled by state law.*' Plan sponsors and

administrators are entitled to, and under the plan must, assume

that the vast majority of participants who fill out a beneficiary

designation form have done so deliberately and with the

expectation that their choices will be complied with, and should

not be made to accept the paternalistic assumption inherent in

the Washington State Statute that the participants’ choices must

be negated.

afoul of other State policy allowing and even encouraging adult

citizens to prescribe advanced directives not only for disposition

of their worldly assets (as in a will or trust), but to execute

documents such as living wills to declare their intentions as to

other very personal decisions — for example, the extent of

medical treatment they desire should they be unable to make

30. Boggs, 520 U.S. at 854.

31. See John Hancock Mut. Life Ins. Co. v. Timbo, 67 F. Supp. 2d

413, 422 (D.N.J. 1999) (finding that former wife did not waive interest

in proceeds of insurance policy bolstered by fact that “throughout the

post-divorce period decedent continued to assure her that she would

“be taken care of” at his death.”).

12

such a determination in the future.*? Instead, the State here has

made that decision for presumably competent adults merely by

the fact of a divorce, no matter that they have left written

instructions with their plan administrators that the death benefit

be paid to a former spouse.

The application of statutes such as that sustained by the

Washington Supreme Court also defeat beneficiary expectations

by inevitably creating delay and increased costs, in part negating

the protective purpose of life insurance. Delay occurs as

insurance companies and plan administrators are required to

parse state laws in each case to determine whether, when, and

how a beneficiary designation is to be overridden. Plan sponsors

and insurers may be forced to join the competing beneficiaries

as defendants in interpleader actions to prevent double or

multiple liability. This administrative nightmare inevitably will

cause delay and sharply increased costs.*°

Such litigation not only delays payment of the life insurance

benefit, but may even “eat up” all of the insurance proceeds,

leaving the winner with a Pyrrhic victory and possibly creating

even more discord among competing family members. A noted

authority on life insurance points out that the “increase in the

32. See, e.g., Wash. Rev. Code § 70.122.030 (“Directive to

withhold or withdraw life-sustaining treatment”); see also Cal. Health

& Safety Code § 7185.5(d); Fla. Stat. Ann. § 765.102(1); N.Y. Pub.

Health Law § 2964(2)(a).

33. See, e.g., Metropolitan Life Ins. Co. v. Pettit, 164 F.3d 857

(4th Cir. 1998), where a life insurer was forced to file an interpleader

action to allow a court to determine whether the insured’s widow or his

former wife was entitled to insurance proceeds. 164 F.3d at 859. The

court held that the former wife’s claim, which sought to impose a

constructive trust on life insurance proceeds due under the ERISA plan,

was preempted as directly affecting the distribution of plan benefits.

164 F.3d at 865.

34. For example, a final judgment in Krishna v. Colgate Palmolive

Co., 7 F.3d 11 (2d Cir. 1993), was nearly four years in coming after the

insured’s death. Jd. at 13.

13

amounts of life insurance, both individual and group, makes it

worthwhile to litigate,” with such litigation unfortunately serving

“to deplete the policy proceeds.”*’ Dissipation of policy proceeds

is likely where, as here in Egelhoff, the life insurance benefits

claimed by both litigants amount to only $46,000 (Appendix to

Petitioner's Petition for a Writ of Certiorari, p. 4a), while the

pension benefits total only $35,000 (Jd. at 6a).

Nor does the Washington law serve the admittedly laudatory

purpose of protecting participant choice. Choosing one’s

beneficiary is normally a simple administrative task: all that is

required is to fill out a beneficiary designation card, which is

then returned to the plan administrator. Both pension and welfare

plan documents uniformly provide that the participant (unless

incapacitated) is responsible to notify the plan administrator, in

writing, of his or her choice of beneficiary or any change in his

beneficiary designation. The Statute at issue here, however,

assumes that a plan member is incapable of performing that

task, or has neglected to do so, when there has been no challenge

to capacity. In situations where a plan member has deliberately

chosen not to change his or her beneficiary designation, despite

a divorce, the State law steps in and automatically “revokes” a

designation that is totally in accord with the participant’s wishes.

In sum, the decision of the Washington court clearly runs

afoul of Congress’s intent in ERISA by allowing state legislation

to amend plan benefit structures and to thus defeat the legitimate

expectations of plan members. This Statute and similar laws

will diminish the value of life insurance and pension benefits

by delaying their distribution and generating costly litigation

over beneficiary designation and entitlement to benefits.

35. Anderson, supra note 4, § 18.10, at 544.

14

C. The Decision Below Discourages Employers from

Sponsoring, and Life Insurers From Providing,

Reasonably-Priced Life Insurance Benefits

Rather than foster the Congressional goal, as expressed in

ERISA, of permitting “the nationally uniform administration

of employee benefit plans”** and creating incentives for plan

sponsors to establish and maintain employee benefit plans, the

Statute imposes on them and upon their insurers an entirely

new set of duties and risks. Sponsors and insurers now must

determine the validity of beneficiary designations under each

jurisdiction in which a plan is offered or maintained, exposing

themselves to the threat of lawsuits challenging whatever

decision they make.

First, the costs that will be incurred in the determination of

the “proper” beneficiary, especially in the inevitable cases of

multiple competing claimants, will necessarily be charged to

the plan and in turn will make the benefits or insurance policy

more expensive for claimants as well as plan administrators.

Second, the prospect of paying more than once for the same

claim (as is possible here) will give pause to both insurers and

employers who are deciding whether to continue to sponsor

and fund these types of benefit plans. This “dual payment”

scenario may become more frequent as administrators find that

that they have paid life insurance benefits to a beneficiary

designated by a decedent in his or her welfare plan, only to be

faced with a state court order (whether as a result of a statute

like Wash. Rev. Code § 11.07.010, a state law divorce decree,

or a state law of constructive trusts) that a different beneficiary

be paid.

No matter how carefully an ERISA plan is constructed, or

how frequently the plan sponsor or administrator requests that

employees update their beneficiary designations, state laws such

as the Statute at issue here will generate significant

36. Travelers, 514 U.S. at 656.

15

administrative difficulties. What if, for example, a participant

is employed by company “A” in Minnesota and is married with

children. Company A provides an ERISA benefit plan which

includes life insurance in an amount equal to one year’s salary.

The participant names his wife as the beneficiary. A year later,

the participant is offered a significant promotion involving a

transfer to the State of Washington. His spouse prefers

Minnesota to the marriage and Washington and they reach an

amicable agreement to divorce. The divorce becomes final while

he is in Washington. A year later the participant remarries, but

does not change the beneficiary designation. His new wife has

a child by a prior marriage whom the participant does not adopt.

Two years later, the participant and his new wife are killed in

an accident, and her child claims that under the Statute and

Washington’s probate laws, he is the proper ultimate recipient

of the husband’s life insurance proceeds. The complexity of

the litigation that is likely to ensue is patent, as is the burden

such litigation could impose upon Company A’s ERISA plan,

its insurance carrier, and the participant’s designated beneficiary.

The Washington State Court’s decision that the Statute is not

preempted by ERISA becomes the sole spark for such extensive

litigation requiring the involvement of the ERISA plan or its

insurance carrier.

This hypothetical scenario illustrates the clear disincentive

that sponsors or administrators of multi-state plans will now

have to create and support such plans. The increased costs and

more complex administration are deterrents, rendering the cost

of providing life insurance benefits prohibitive. Insurers

themselves will be forced to raise premiums to compensate for

the inevitable increase in interpleader actions and rise in

incidence of conflicting judgments demanding payments to

warring beneficiaries.

16

D. State “Domestic Relations Laws” Cannot Be Allowed

to Override ERISA

As part of its unilateral determination that this Court’s

Travelers opinion has substantially altered ERISA preemption,

the Egelhoff decision contends that the Statute at issue is not

preempted because it involves “domestic relations and family

law, [which] is an area of law historically left to state control.”*”

This simplistic and wholly unsound rationale simply glosses

over this Court’s decision in Boggs,** subsequent to Travelers,

which flatly rejected a doctrine that state probate and domestic

relations laws automatically trump beneficiary rules prescribed

by ERISA-qualified welfare and pension plans.

In addition, that conclusion is predicated on a grossly

overbroad definition of the scope of “domestic relations” law

reserved to the states, a definition that goes far beyond existing

precedent and is contrary to ERISA’s specific language. This

Court has held that the federal courts are divested of power

under Article III of the Constitution in very limited

circumstances, namely, “to issue divorce, alimony, and child

custody decrees.”*” Those categories, and those alone, define

the domestic relations law authority reserved to the states. The

Statute upheld in Egelhoff does not involve any state-law based

claims to the proceeds of ERISA pension and welfare benefit

plans. The State’s assertion that it can dictate the disposition of

ERISA plan benefits is not a “domestic relations” issue, but

instead an arrogation of authority in a purely federal preserve.

37. Egelhoff, 989 P.2d at 92.

38. Boggs, 520 U.S. at 841.

39. Ankenbrandt v. Richards, 504 U.S. 689, 703 (1992)

(“The domestic relations exception, as articulated by this Court since

Barber |v. Barber, 62 U.S. (21 How.) 582 (1858)], divests the federal

courts of power to issue divorce, alimony, and child custody decrees.”)

(emphasis supplied).

17

Nor has Congress hesitated to amend ERISA as it impacts

an area at the heart of what the Washington Court deems

“domestic relations and family law.” For example, Congress

enacted ERISA’s anti-alienation provision” to ensure that

pension benefits are not diverted before they are distributed to

the participant or beneficiary for whom they are intended,

normally a spouse or children. Alienation under ERISA can be

accomplished only in one specific way: by employing a qualified

domestic relations order (“QDRO”).*' No suggestion has been

made that a QDRO is involved here.

A state cannot be permitted to end-run ERISA’s requirement

that a plan must abide by “documents and instruments governing

the plan”*? whenever it asserts, in its discretion, that its own

“domestic relations” issues are involved. The upshot would be

nullification of virtually all ERISA plan criteria governing death

benefit and pension beneficiary designations, as well as

nullification of ERISA’s preemption provisions. Such an

untenable position would presumably leave intact only

beneficiary designations of non-family members, such as occurs

in “key man” insurance policies.

Finally, the “domestic relations” exception to preemption

contrived in Egelhoff cannot be reconciled with an unbroken

line of cases in which this Court has consistently protected

beneficiary designations for life and retirement benefits

mandated by federal programs against interference from state

probate and family law requirements. See, e.g., Ridgway v.

Ridgway, 454 U.S. 46 (1981), where this Court held that the

40. See 29 U.S.C. § 1056(d)( 1), enacted pursuant to the Retirement

Equity Act of 1984, Pub. L. No. 98-397, 98 Stat. 1426. See also Boggs,

520 U.S. at 851; 29 U.S.C. §§ 1056(d)(3)(A), 1144(b)(7).

41. ERISA requires a plan to pay pension benefits to an alternate

payee pursuant to a state domestic relations order if the order meets the

specific requirements prescribed in 29 U.S.C. §§ 1056(d)(3)(A),

1144(b)(7).

42. 29 U.S.C. § 1104(a)(1(D).

18

beneficiary designation under the Servicemen’s Group Life

Insurance Act, 38 U.S.C. § 765, et seq., prevailed over a state

constructive trust for the benefit of another. See also Hisquierdo v.

Hisquierdo, 439 U.S. 572 (1979) (benefits payable under the U.S.

Railroad Retirement Act may not be divided under the community

property laws of California); Mansell v. Mansell, 490 U.S. 581

(1989) (Uniformed Services Former Spouses’ Protection Act,

10 U.S.C. § 1408, did not grant state courts the power to treat as

property divisible upon divorce military retirement pay waived by

the retiree in order to receive veterans’ disability benefits. )*’

The Egelhoff decision runs contrary to the plainly expressed

purpose of Congress to forbid states from interfering with the

consistent and uniform provision of benefits provided through plans

subject to federal statutory regulation. The “domestic relations”

rationale for the decision is a contrivance which collapses when

examined in the context of the Statute’s actual effects. The sum

and substance of those effects is that states, through legislation

such as this Statute, can dictate to ERISA plans, their participants

and their designated beneficiaries, who actually will receive plan

benefits, despite written instructions to the contrary and despite

the mandate in ERISA that pension and welfare plans be

administered consistently. ERISA preempts any such conduct by

the states.

43. The only exception to this consistent Federal jurisprudence is the

aberrational situation noted in Ridgway involving so-called “state-slayer”

statutes, where state law bars any beneficiary who has committed acts such

as murder from inheriting from the decedent. Even in that exceptional (and

thankfully rare) situation, however, the federal courts are careful to point

out that the goal of uniformity of plan administration can still be achieved:

Unlike state testamentary transfer laws, state laws

prohibiting murderers from receiving death benefits are

relatively uniform. Thus, there is little threat of creating a

“patchwork scheme of regulation.” Fort Halifax Packing

Co. v. Coyne, 482 U.S. [at 11].

Mendez-Bellido v. Board of Trustees of Div. 1181, A.T.U. N.Y. Employees

Pension Fund & Plan, 709 F. Supp. 329, 332 (E.D.N.Y. 1989) (citations

omitted).

19

CONCLUSION

For the above reasons, Amicus ACLI respectfully requests

that this Court grant the Petitioner’s writ of certiorari and reverse

the decision of the Washington State Supreme Court.

Respectfully submitted,

STEPHANIE W. KANWIT

~ Counsel of Record

STEPHEN N. LAMB

EpsTeIN BECKER & GREEN, P.C.

1227 25" Street, N.W.

Suite 700

Washington, D.C. 20037-1156

(202) 861-0900

Victoria E. FIMEA

Senior Counsel, Litigation

AMERICAN COUNCIL OF LIFE INSURERS

1001 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 624-2183

Attorneys for Amicus Curiae