ERISA-District Court Rules That A Beneficiary And Recipient Of Life Insurance Proceeds Under A Plan Must Turn Over The Proceeds To The Participant’s Estate Due To Waiver Under An Order Of Separate Maintenance

The case of Union Security Insurance Co. v. Alexander, Case No. 11-10858 (E.D. Michigan 2011) arises out of the death of Faron Alexander (“Alexander”), and concerns which party is ultimately entitled to his life insurance proceeds. The candidates are: (1) his spouse, the named beneficiary of the proceeds who waived her rights in the policy in a judgment of separate maintenance entered one month before Alexander’s death, and (2) his estate. The life insurance proceeds are payable under a plan subject to ERISA.

In analyzing the case, the court noted that, under the Supreme Court’s decision in Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 300 (2009), ERISA requires plan administrators to act in accordance with the documents and instruments governing the plan. In this case, the parties agree that the spouse is the named beneficiary under the plan, and that the plan must pay the life insurance proceeds to the spouse . The disagreement arises over whether the spouse must then relinquish the proceeds to the estate, in accordance with the judgment of separate maintenance.

The court said that ERISA does not preempt state law claims that challenge a plan beneficiary’s right to retain funds paid out by an ERISA plan. Rather, whether a named beneficiary, who waives her right to life insurance proceeds pursuant to a judgment of separate maintenance or divorce, may retain the funds is an issue governed by state law. Here, under state law, the spouse waived her rights to the proceeds in a judgment of separation, and state law upholds this waiver and judgment. Thus, the court ruled that the life insurance proceeds must be turned over the decedent’s estate.

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