Ninth Circuit Affirms Separation Agreement Is QDRO for ERISA Life Insurance Benefits

November 19, 2024

On November 5, 2024, the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) affirmed a district court’s summary judgment ruling that a legal separation agreement (LSA) met the necessary requirements for a qualified domestic relations order (QDRO) under ERISA.

At issue was language in the LSA between Haili Kowalski and her now-deceased ex-husband (the decedent), which provided that the decedent “shall carry and maintain a policy of life insurance in the amount of $800,000” and “name [Kowalski’s minor son, EK] as sole beneficiary.” Notwithstanding this obligation, the named beneficiary on the decedent’s employer-sponsored life insurance policy provided through the Hartford Life and Accident Insurance Company (“the Hartford Plan”) was not EK, but Marilyne Valois, the decedent’s girlfriend, in the amount of $493,000.

When Kowalski presented the LSA to Hartford after her ex-husband’s death, Hartford brought an interpleader action in the United States District Court for the Northern District of California to resolve the discrepancy. The district court ruled on summary judgment that the LSA was a QDRO under ERISA, and that therefore EK, rather than Valois, was the rightful beneficiary of the decedent’s life insurance proceeds, after which Valois appealed to the Ninth Circuit.

Valois argued that ERISA requires that a QDRO must “clearly specif[y]” “each plan to which such order applies,” and that therefore the LSA could not be a QDRO because while it required the decedent to have carried and maintained life insurance for EK, it did not clearly specify the Hartford Plan for those purposes.

The Ninth Circuit rejected this argument, holding that it has historically only required “substantial compliance” with ERISA’s specificity requirements, the purpose of which is to “spar[e] plan administrators the grief they experience” due to “uncertainty concerning the identity of the beneficiary.” Under this standard, even though the LSA made only a general mention of “a policy of life insurance,” rather than specifying the Hartford Plan as such, it still substantially complied with ERISA, since the Hartford Plan was the only life insurance policy the decedent had.

Valois also argued that the LSA could not be a QDRO for purposes of the Hartford Plan because the Hartford Plan only provided for $493,000 of benefits, rather than the $800,000 specified in the LSA. The Ninth Circuit also rejected this argument on the grounds that the LSA is an agreement between the decedent and Kowalski, not between Kowalski and Hartford, and nothing in the LSA required Hartford to provide an amount greater than $493,000, and Kowalski was not requesting any more than the amount allowed under the Hartford Plan.

While plan sponsors usually handle QDROs in the context of retirement plans, they can also play a role in group life insurance plan administration, as this case demonstrates. Even though life insurance carriers bear the primary burden of complying with QDROs to ensure that insurance proceeds are distributed to the proper beneficiary or beneficiaries, the Ninth Circuit’s reasoning and holding in this case should provide plan sponsors a glimpse into how courts approach these issues.

Hartford Life and Accident Insurance Company v. Marilyne Valois v. Haili Kowalski