Judge Overrides Life Insurance Beneficiary Designation

February 1, 2007 (PLANSPONSOR.com) - Even though a life insurance plan participant had designated his girlfriend as a beneficiary, a federal judge has ordered that benefits actually be paid to the participant's wife.

U.S. District Judge Joseph Tauro of the U.S. District Court for the District of Massachusetts ruled that an automatic restraining order issued in Massachusetts state court divorce proceedings barring a beneficiary designation change represented a qualified domestic relations order (QDRO). The restraining order, therefore, was recognizable under a “proper liberal reading” of the Employee Retirement Income Security Act (ERISA), Tauro asserted.

By trying to have his life insurance benefits redirected to his girlfriend, Chantal Phanor, Joseph Pamphile had actually violated the state judge’s order, Tauro said. He said benefits rightly should go to Ruth Pamphile, who had originally been named beneficiary.

According to Tauro’s order, Joseph and Ruth Pamphile separated in November 2001, but Joseph Pamphile died in March 2005 before the divorce became final.

Tauro ruled that while the restraining order did not specifically list the Unicare Life & Health Insurance Co plan, that message of which plan was being referred to was nonetheless clear. “[B]y using the word ‘changing,’ the (automatic restraining order) makes clear that it is only referring to existing life insurance policies,” Tauro wrote. “(However) this provision of the (automatic restraining order) would not prevent a party from acquiring new life insurance with a different beneficiary.”

In arguing that she was the proper beneficiary, Phanor asserted that the automatic restraining order was not a QDRO and was preempted by ERISA. The court rejected Phanor’s argument, finding that the automatic restraining order existed to protect the rights of parties to a divorce and recognized the existence of an alternate right to benefits that existed outside the benefit plan documents.

“Because such a right would be meaningless if the husband were allowed to simply change the beneficiary, the Massachusetts courts routinely order all parties to a divorce to refrain from such action,” Tauro wrote in the opinion. “The (state) probate court can only make a meaningful final division of assets if parties comply with the (restraining order) and do not shelter their assets. (Joseph Pamphile) should not be allowed to accomplish an unlawful modification of assets by dying before the entry of a final judgment. For this reason, it is appropriate to interpret the (restraining order) as an order conferring enforceable and meaningful rights on the parties to a divorce.”

The case is Unicare Life & Health Insurance Co. v. Phanor, D. Mass., No. 05-11355-JLT, 1/30/07.