After a decades-long drought, the Supreme Court recently decided a case involving the Contracts Clause of the Constitution. You might not recall that provision because it is so rarely invoked in modern-day litigation (due to how it has been construed). It provides that “[n]o state shall . . . pass . . . any Law impairing the Obligation of Contracts.” U.S. Const. art I, § 10, cl. 1. Given that many class action suits involve contracts with consumers and state laws applicable thereto, I thought this case was worthy of mention on my blog.

Sveen v. Melin involved a Minnesota statute providing that a divorce automatically revokes a prior beneficiary designation by the insured under a life insurance policy that designated the former spouse as a beneficiary. The ex-spouse whose rights were divested by the statute argued that applying the statute to a life insurance policy that was issued and beneficiary designation that was executed before the statute was enacted was a violation of the Contracts Clause. The Eighth Circuit found a violation of the Contracts Clause. But the Supreme Court reversed, in an 8-1 decision by Justice Kagan.

The Court’s test for whether the Contracts Clause applies has two parts: (1) whether the state law affects a “substantial impairment” of the contractual relationship, taking into account whether it “undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights”; and (2) “whether the state law is drawn in an ‘appropriate’ and ‘reasonable’ way to advance ‘a significant and legitimate public purpose.’” (Slip opinion, at 7.)

In Sveen, the Court found no “substantial impairment” because the Minnesota law was “designed to reflect a policyholder’s intent,” was “unlikely to disturb any policyholder’s expectations,” and “supplies a mere default rule.” (Id. at 7-8.) The Court reasoned that most people who get divorced generally do not want to maintain their former spouse as the beneficiary of their life insurance policy (unless otherwise agreed or ordered by the court in the divorce settlement, which were carveouts in the Minnesota statute). And it would be quite easy to reestablish prior intent simply by re-executing another beneficiary designation form. Justice Kagan described this as a mere “paperwork obligation” of the type the Court had long held does not violate the Contracts Clause.

Justice Gorsuch was the sole dissenter. He argued that there was a “substantial impairment” here because the designation of the beneficiary is the “whole point” of a life insurance policy. It appears that he also would have been inclined to change the Court’s prior precedent because the requirement of a “substantial impairment” seems inconsistent with the text of the Contracts Clause and some indications of its original purpose. He noted that “Many critics have raised serious objections” to the Court’s Contracts Clause jurisprudence, citing several law review articles, and “[t]hey deserve a thoughtful reply, if not in this case then in another.” (Gorsuch, J., dissenting, at 4.) He also would have found the second part of the test not satisfied in this case because there are various other means by which a state could achieve its goal of informing people of their right to change the beneficiary following a divorce without retroactively changing the contract.

To make this case more interesting for what I deal with on a regular basis, let’s turn things around a bit. The Court’s principles presumably work both ways. From the insurer’s perspective, it’s fairly common for an insurance statute to be contrary to the insurer’s intent and interfere with the insurer’s reasonable expectations under preexisting policies. Is that enough to move the analysis to the second part of the Contracts Clause test? And if so, would the Court consider abandoning or modifying the second part of its test to reform its jurisprudence closer to the original meaning of the clause? (See footnote 2 of the Court’s opinion, finding that the Court did not need to reach that issue here.) Justice Gorsuch’s dissent makes it pretty clear that he would grant certiorari to take those issues up in the right case. Would there be four justices willing to take such a case?

 

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.