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June 2012

Orr v. Prudential Insurance Co., et al. ? ERISA Plans Not Preempted By State Community Property Law.

ERISA Regulated Life Insurance Proceeds Are to Be Distributed to the Named Beneficiary in the Plan.

2012 U.S. Dist. LEXIS 82022 (June 12, 2012)

In a case involving competing claims for life insurance benefits that was governed under an ERISA regulated plan, the United States District Court in Idaho recently held that the state's community property law did not preempt the terms of the ERISA regulated life insurance plan.  

Plaintiff, the deceased's wife, was seeking one-half interest in her husband's life insurance proceeds under Idaho's community property law.  Under the ERISA regulated life insurance plan, the deceased husband had identified their minor son as the sole designated beneficiary.  The plaintiff argued that the state community property law preempts the terms of the life insurance plan.  The representative for the minor son argued that ERISA preempted those laws that would require the ERISA plan administrator to pay benefits to someone other than the designated beneficiary. 

In reaching its decision, the Court relied upon U.S. Supreme Court decision in Egelhoff v. Egelhoff.1  In Egelhoff, the Court held that a Washington state statute which automatically revoked a former spouse's designation as a beneficiary if the marriage dissolved was impermissible because the state was choosing the beneficiary rather than those identified in the ERISA regulated Plan. Based on Egelhoff, the Idaho District Court confirmed that ERISA preempted Idaho community property law, and the plaintiff was not entitled to any of the life insurance proceeds.

Plaintiff argued in the alternative that the Court should impose a constructive trust.  The Court declined to place the life insurance proceeds into a constructive trust because there was no evidence that the minor had waived his interest in the life insurance proceeds, nor was their any evidence that the decedent intended to take away the minor's interest in the proceeds.  Furthermore, the Court relied upon the Ninth Circuit's decision in Carmona v. Carmona,2 where the Ninth Circuit held that a constructive trust cannot be imposed to circumvent the ERISA rules. 

By adding the U.S. District Court of Idaho's decision to the already emerging case precedence, it has become clear that the Ninth Circuit and its federal courts are in agreement that when a beneficiary has been identified in an ERISA regulated plan, the State does not have the authority to trump the designated beneficiary of the proceeds.  

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This decision may be cited now as persuasive non-precedential authority.  The decision may be modified by further proceedings in the district court or on appeal.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com.


1 Egelhoff v. Egelhoff, 532 U.S. 141, 147 (2001)

2 Carmona v. Carmona,2 603 F.3d 1041, 1062 (9th Cir. 2010)

ERISA

Ronald K. Alberts
Sarah N. Turner


ERISA
Insurance
Life, Health & Disability

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