Court: ERISA Trumps PA Probate Law

With that finding, a split panel of the Pennsylvania Superior Court voted 2 – 1 to throw out a lower court ruling in a legal dispute between a Pennsylvania man’s estate and his ex-wife over the dead man’s life insurance proceeds. The majority ruled that the Pennsylvania law is similar to a Washington state statute, which the U.S. Supreme Court ruled in 2001 was pre-empted by ERISA.

“As such, when, as here, a life insurance policy is governed by ERISA, (the Pennsylvania statute), like the Washington statute at issue in   (the 2001 Supreme Court case), binds the ERISA plan administrator to determine beneficiary status in a manner contrary to the plain language of the plan instrument,” saidSenior Judge Robert E. Colville, writing for the court. “Therefore, (the Pennsylvania statute) “runs counter to ERISA’s command. . . that the fiduciary shall administer the plan in accordance with the documents and instruments governing the plan. Moreover, (the Pennsylvania statute) interferes with nationwide uniform plan administration, because the statute requires plan administrators to familiarize themselves with a state law to determine beneficiary status.”

According to the ruling, the life insurance policy involved in the case was issued in 1997 by Hartford Life Insurance Co. to employees of C.S. Davidson, including Paul J. Sauers III. Shortly after the policy was issued, Paul Sauers married Jodie L. Sauers and named her as his primary beneficiary and his nephew as the contingent beneficiary.

The two were divorced in 2002 and after the divorce, Paul failed to remove his ex-wife as his primary beneficiary. Paul died in 2006 and Hartford paid benefits to Jodie Sauers as named beneficiary.

Paul Sauers’s estate then sued the ex-wife to recover the benefits. The estate argued that the designation of the ex-wife was legally withdrawn after the divorce while the ex-wife argued for ERISA pre-emption. A state trial court ruled in favor of the estate.

The estate's argument that the Pennsylvania law was different from the Washington state statute at issue in the 2001 U.S. Supreme Court holding because, unlike the Washington state statute involved in that case, the Pennsylvania law states that plan administrators will not be held liable for making payments to former spouses, was rejected by Colville.

The ruling in  In re Estate of Sauers , Pa. Super. Ct., No. 1060 MDA 2007, 5/9/08 is available here .