ERISA, Interpleader and Qualified Domestic Relations Orders

Recently, waiting for a pretrial conference in federal court on one of my cases, I listened as a judge explained to the lawyers in a different case, based on only knowing the causes of action, what the actual facts of the case before him must be, even though he had never heard from the parties before. He did, in fact, actually nail the general outline of the case off the top of his head, and the lawyers for the parties simply had to fill in a few of the more specific facts for him. The judge explained that he had seen that type of case a thousand times before, and the fact patterns were always basically the same.

I was reminded of this when I read this recent decision by Judge Tauro in the Massachusetts federal district court, which concerns competing claims to life insurance proceeds provided under an ERISA governed plan. It seems as though the facts of this case are likewise always the facts in these types of claims: a divorce proceeding, followed by a standard state probate court order forbidding the husband from removing his soon to be ex-wife as the beneficiary, followed in short order of course, by the husband changing the beneficiary to his girlfriend (usually followed not long afterward by the husband’s demise, although no one has proven - to my satisfaction anyway - a causal linkage between that and either the girlfriend or the change in beneficiary).

Now of course what happens in that case is you end up with two competing claimants to the life insurance proceeds, one of whom - the ex-wife - asserts that she could not have legally been removed as the beneficiary, and the other of whom - the girlfriend - claims that she is the beneficiary pursuant to the plan’s terms and therefore must be paid the proceeds, at least if the plan’s terms are going to be enforced. And then what happens next of course, is that the plan administrator, quite rightly, files an interpleader action asking the court to figure out which one of the two should get the proceeds. A plan administrator would err if it did anything else, as ERISA preemption and the plan’s terms would suggest that the girlfriend should get the proceeds, but this would be in direct contradiction of a probate court order; there is no reason for the plan and its administrator to be stuck between the rock of the plan and the hard place of the probate court order. And avoiding being stuck in this type of position is exactly why federal law allows interpleader in this situation.

Judge Tauro, in his opinion at the end of January in Unicare Life & Health v Chantal Phanor et al, presents in a very logical manner exactly how this issue should be considered and resolved, finding that the proceeds should be paid out to the former wife under this scenario, so long as the probate court order qualifies as a qualified domestic relations order (“QDRO”) for purposes of ERISA. As the court explained, Congress expressly exempted QDROs from preemption, so as to allow probate courts to properly divvy up marital assets. The key issue with QDROs, and whether the beneficiary designation mandated by them should govern instead of the beneficiary designation that would govern if the terms of the plan controlled the issue, is that there are specific characteristics of the order that must exist for it to qualify as a QDRO. An issue of controversy, and which was at the center of the dispute in Unicare, is how strictly those requirements should be applied, and whether a probate court order that only loosely fits the requirements can qualify as a QDRO for these purposes. Judge Tauro came down squarely on the side of not taking those requirements literally, instead requiring only that the probate court order fit generally within the requirements and fall within the purpose intended to be served by QDROs.

For some reason, the Unicare decision is not currently available on the Massachusetts District Court's website, but I will keep an eye out and post a link to it when it becomes available.  For now, it can be found on Lexis, at 2007 U.S.Dist. LEXIS 6136.