Joel C. MEARNS and Nanette Mearns, Respondents,
v.
Christinе SCHARBACH, formerly known as Christine Mearns, Appellant, and
Guardian Life Insurance Company, Defendant.
Court of Appeals of Washington, Division 3, Panel Seven.
*1050 Robert E. Lawrence-Berrey, Jr., Finney, Falk & Lawrence-Berrey, Yakima, for Appellant.
Linda A. Sellers, Halverson & Applegate, Yakima, for Respondents.
*1049 KURTZ, C.J.
RCW 11.07.010 governs nonprobate assets upon dissolution or invalidation of marriage and revokes beneficiary designations naming the former spouse. This statute operates under the legal fiction that the former spouse, having died at the entry of the decree, does not survive the decedent. In re Estate of Egelhoff,
FACTS
Christine Scharbach married Jerrold Mearns on March 5, 1982. Mr. Mearns applied for term life insurance in June 1992. The Guardian Life Insurance Company (Guardian) issued a renewable term policy on August 12, 1992. Mr. Mearns was designated as the "Owner" of the policy and the policy named "Christine A. Mearns, wife" as the "Primary Beneficiary." Mr. Mearns's two adult children, Joel C. Mearns and Nanette Mearns,[2] were designated as the contingent beneficiaries. The policy renewed on a yearly basis. If the annual premium was not paid, the policy would lapse within 31 days of the expiration date. Mr. Mearns committed suicide on September 12, 1998, within the policy's grace period.
At the time of his death, Mr. Mearns was single, having divorced Ms. Scharbach on October 17, 1997. The Guardian policy was not mentioned in the decree of dissolution and Mr. Mearns did not change the beneficiary designation on the policy after the divоrce. A few weeks after the divorce, Mr. Mearns called his insurance agent and cancelled a $200,000 term policy designating Ms. Scharbach as the primary beneficiary. Mr. Mearns and the agent also discussed the Guardian policy. Mr. Mearns told the insurance agent that he wanted to keep the policy. The agent reminded Mr. Mearns of the recent divorce and asked whether Mr. Mearns wanted to change the primary beneficiary to someone other than Ms. Scharbach. Mr. Mearns responded that hе did not wish to make this change and that he wanted to leave the designation the way it was. Mr. Mearns never contacted the agent about changing the designation of the primary beneficiary.
In May 1998, seven months after the divorce, Mr. Mearns changed the beneficiaries on his retirement and life insurance policies held through his employer. He changed the designation from Ms. Scharbach to Joel *1051 Mearns and Nanette Mearns. When making these changes, Mr. Mearns told the human resources consultant that he intended to change the beneficiaries from his former wife to his children on some, but not all, of his policies.
Joel Mearns administered his father's estate. Joel and Nanette were designated beneficiaries under their father's two policies through his employer. The Mearns children submitted claims to the Guardian policy even though the policy listed them as contingent beneficiaries. Ms. Scharbach also submitted a claim to Guardian for the proceeds of the policy. The Mearns children filed this action seеking the policy proceeds and Guardian interpleaded the money into court. The Mearns children filed a motion for summary judgment, but agreed to continue the motion to allow for discovery. Ms. Scharbach filed a cross-motion for summary judgment.
The court granted summary judgment in favor of the Mearns children, awarding them the policy proceeds. The court denied Ms. Scharbach's motion for summary judgment and motion for reconsideration. Ms. Scharbach appeals.
STANDARD OF REVIEW
Summary judgment is proper only when the pleadings, depositions, and admissions in the record, together with any affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. CR 56(c). All facts and reasonable inferences are considered most favorably to the nonmoving party. Wilson v. Steinbach,
ANALYSIS
Does RCW 11.07.010 automatically revoke the beneficiary designation naming Ms. Scharbach?
Operation of RCW 11.07.010. RCW 11.07.010 reads in pertinent part as follows:
(1) This section applies to all nonprobate assets, wherever situated, held at the time of entry by a superior court of this state of a decree of dissolution of marriage or a declaration of invalidity.
(2)(a) If a marriage is dissolved or invalidated, a provision made prior to that event that relates to the payment or transfer at death of the decedent's interest in a nonprobate asset in favor of or granting an interеst or power to the decedent's former spouse is revoked. A provision affected by this section must be interpreted, and the nonprobate asset affected passes, as if the former spouse failed to survive the decedent, having died at the time of entry of the decree of dissolution or declaration of invalidity.
. . . .
(5) As used in this section, "nonprobate asset" means those rights and interests of a person having beneficial ownership of an asset that pass on the person's death under only the following written instruments or arrangements other than the decedent's will:
(a) A payable-on-death provision of a life insurance policy, employee benefit plan, annuity or similar contract, or individual retirement account.
(Emphasis added.)
RCW 11.07.010 was enacted in 1993, but its applicability is determined by the date of the decree of dissolution or declaration of invalidity. Specifically, RCW 11.07.010(6) provides:
This section is remedial in nature and applies as of July 25, 1993, to decrees of dissolution and declarations of invalidity entered after July 24, 1993, and this section applies as of January 1, 1995, to decrees of dissolution and declarations of invalidity entered before July 25, 1993.
Mr. Mearns obtained the Guardian policy in 1992 and named "Christine A. Mearns, wife," as primary beneficiary. RCW 11.07.010 is applicable here because the decree of dissolution was entered on October 17, 1997.
*1052 RCW 11.07.010 provides that beneficiary designations made in favor of a spouse are revoked upon dissolution and that the nonprobate asset passes "as if the former spouse failеd to survive the decedent, having died at the time of entry of the decree of dissolution or declaration of invalidity." RCW 11.07.010(2)(a). Hence, at Mr. Mearns's death, RCW 11.07.010(2)(a) created a legal fiction whereby Ms. Scharbach predeceased him. See In re Estate of Egelhoff,
Legislative purpose. Ms. Scharbach contends RCW 11.07.010 is a remedial statute that must be construed in light of its legislative purpose. Ms. Scharbach maintains that the sole purpose of the statute is to accomplish the deceased's intent. Ms. Scharbach suggests that an automatic revocation occurs оnly where there is no evidence indicating that the insured wished to retain the former spouse as a beneficiary of the nonprobate asset. In other words, Ms. Scharbach believes the statute is "automatic" in some circumstances but not others. She contends the statute does not apply here because there is evidence indicating that Mr. Mearns wished to retain her as a beneficiary under the policy.
RCW 11.07.010 was enacted in response to Aetna Life Ins. Co. v. Wadsworth,
To the extent no community property rights are invaded, the named beneficiary will generally be entitled to the proceeds. A dissolution decree will divest the former spouse of his or her expectancy as named beneficiary, however, if (1) the dissolution decree, in clear and specific language, states that the former spouse is to bе divested of his or her expectancy as beneficiary and (2) the policy owner formally executes this stated intention to change the beneficiary within a reasonable time after the dissolution decree has been entered. Thus, if the insured spouse dies within this reasonable time period without formally executing the previously stated intention to change the beneficiary, the former spouse will not be entitled to the proceeds. After a reasonable time has passed, however, the clause in the dissolution decree will be ineffective and the former spouse, if named beneficiary, will be entitled to the proceeds. In any event, 1 year after dissolution, it shall be conclusively presumed that the policy owner intended to retain the named beneficiary as the one entitled to the proceeds.
Wadsworth,
The Wadsworth rule was adopted to "encourage individuals to consider carefully the disposition of life insurance policies in dissolution" and to "simplify the procedure of determining to whom life insurance proceeds are to be distributed." Id. at 663,
Contrary to the assertions of Ms. Scharbach, RCW 11.07.010 does not seek merely to discern the intent of the insured. By adopting RCW 11.07.010, the Legislature sought to accomplish several purposes. First, the Legislature codified the assumption that divorcing couples want to change the beneficiary designations on nonprobate assets upon dissolution or invalidity of their marriage. Of equal importance, the Legislature chose to accomplish this goal by adopting an automatic revocation mechanism patterned after the revocation provisions applicable to wills. By choosing this mechanism, the legislators demonstrated their understanding that life insurance and other nonprobate assets are widely used as essential parts of estate planning and should be treated accordingly. Additionally, the adoption of a bright-line rule triggered by the date of dissolution or invalidation of marriage evinces a legislative intent to encourage couples to resolve estate planning questions when terminating their marital relationship.
In short, RCW 11.07.010 was adopted to achieve several purposes. The statute, as written, does not support Ms. Scharbach's argument that the statutory purpose was merely to discern the intent of the insured.
Effect of oral statements. Ms. Scharbach next asserts that Mr. Mearns's oral statements are sufficient to negate the operation of the statute because the post-divorce designation here need not bе in writing. Relying on Waldron v. Home Mut. Ins. Co.,
In the final bill report for RCW 11.07.010, legislators were informed that under the will revocation statute, RCW 11.12.051, a divorced testator could give a former spouse a gift under his or her will only by executing a new will following the divorce. By enacting RCW 11.07.010, the Legislature adopted a bright-line rule based on the will revocation statute. Acknowledging the importance of nonprobate instruments in estate planning, the Legislature determined that these instruments should be treated like wills. This legislative purpose is defeated if courts permit extrinsic oral testimony to negate the operation of the statute.
Moreover, the adoption of RCW 11.07.010 is also аn extension of a portion of the Wadsworth rule. Under Wadsworth, the former spouse would not be entitled to the proceeds if the insured spouse died within a "reasonable time" after the entry of the dissolution decree without formally executing the previously stated intention to change the beneficiary. Wadsworth,
After considering the intent and operation of the insurance revocation statute, we conclude that any redesignation of Ms. Scharbach as a beneficiary had to be in writing. The evidence of oral statements madе by Mr. Mearns is insufficient to contradict the operation of the statute. We note that this result is consistent with the Guardian policy, which also requires written changes as to the designation of a beneficiary.
Applicability of statutory exception. Ms. Scharbach next argues she is entitled to the insurance proceeds because of the statutory exception set forth in RCW 11.07.010(2), which reads as follows:
(b) This subsection does not apply if and to the extent that:
. . . .
(ii) The decree of dissolution or declaration of invalidity requires that the decedent maintain a nоnprobate asset for the benefit of a former spouse or children of the marriage, payable on the decedent's death either outright or in trust, and other nonprobate assets of the decedent fulfilling such a requirement for the benefit of the former spouse or children of the marriage do not exist at the decedent's death.
The decree of dissolution permitted one of the parties to purchase the other party's *1054 interest in their secondary residence in Creston, Washington. Regarding this рroperty, the decree states that: "After one year either party can initiate a listing to sale [sic] the property. Acceptable terms will be negotiated by the parties and proceeds split equally between the parties. Or, if one party wishes to buy out the other the following terms will apply[.]" Specifically, the buying party would have to execute a promissory note and deed of trust in favor of the selling party. The decree further states that, "During such time as any portion of the note remains unpaid, the party responsible for the note agrees to maintain a life insurance policy with the other party as beneficiary in at least the amount of the outstanding balance on the note."
The statutory exception set forth in RCW 11.07.010(2)(b)(ii) is inapplicable because the Mearns's decree of dissolution does not require that the "decedent maintain a nonprobate asset for the benefit of a former spouse or children of the marriage." Rather, the decree allows one party to purchase the other party's interest in an asset by executing a promissory note, securing the note with a deed of trust on the property, and guaranteeing payment in the event of death by maintaining life insurance. There is no evidence in this record that Mr. Mearns executed a promissory note in favor of Ms. Scharbach for the purpose of purchasing this asset. Consequently, the record does not support Ms. Scharbach's contention that Mr. Mearns was required to maintain a life insurance policy designating her as the beneficiary.
Is RCW 11.07.010 unconstitutional as applied to beneficiary designations made prior to its enactment?
Ms. Scharbach contends that the retroactive application of RCW 11.07.010 unconstitutionally impairs Mr. Mearns's contract with Guardian. Ms. Scharbach maintains that Mr. Mearns entered into the insurance contract in 1992, naming Christine Mearns (Scharbach) as primary beneficiary and that he was unaware of the enactment of RCW 11.07.010 in 1993. Relying on Whirlpool Corp. v. Ritter,
Issues raised on appeal. Relying on State v. McFarland,
Standing to raise impairment claim. Ms. Scharbach relies primarily on Whirlpool to support her argument that the Washington insurance revocation statute is unconstitutional as applied here. The Whirlpool court held that the Oklahoma insurance revocation statute was an unconstitutional impairment of contracts when applied to insurance contracts entered before the statute became effective. Whirlpool,
Relying on In re Estate of Dobert,
Ms. Scharbach concedes that the constitutional right in question belongs not tо her but to Mr. Mearns, who was one of the contracting parties. In other words, she agrees with the Dobert court's conclusion that a surviving divorced spouse has no impairment of contract claim arising out of his or her contingent interest as a beneficiary to *1055 an insurance policy. We agree. It is well established that a beneficiary does not acquire a vested right in an insurance policy if the policy owner retains the right to change the beneficiary. Occidental Life Ins. Co. v. Gannon,
Acknowledging that she cannot demonstrate an impairment of her contract rights, Ms. Scharbach argues that she has third party standing to assert Mr. Mearns's constitutional claim.[3] Ordinarily, a person may not claim standing to challenge a statute in order to vindicate the constitutional rights of third parties. Singleton v. Wulff,
The third party standing rules require a showing that: (1) the litigant has suffered an injury-in-fact, giving them a sufficiently concrete interest in the outcome of the disputеd issue, (2) the litigant has a close relationship to the third party, and (3) there exists some hindrance to the third party's ability to protect his or her own interests. Burch,
Contract clause analysis. A statute is presumed constitutional and the party challenging the statute has the burden of proving its unconstitutionality. Myers,
Both the federal and the state constitution prohibit the impairment of contractual obligations. U.S. CONST. art. I, § 10; CONST. art. I, § 23. The two clauses are substantially similar and are given the same effect. Washington Fed'n of State Employees v. State,
In Whirlpool, a former spouse, Darleen Ritter, challenged the constitutionality of the Oklahoma insurance revocation statute. James and Darlene Ritter were married in 1972, and James enrolled in a group life insurance plan in 1985 and named Darlene as his beneficiary. Whirlpool,
Applying the contract clause analysis, the Whirlpool court determined that the Oklahoma insurance revocation statute impaired the insured's contract with the insurance company. The Whirlpool court further concluded that this impairment was substantial and that the statute, as applied retroactively, was "inappropriate in light of its intended purpose and underlying rationale." Id. at 1323.
We reach a different conclusion applying the contract clause analysis to the Washington insurance revocation statute. Legislation impairing contractual obligations may be upheld if the legislation advances a legitimate public purpose. Birkenwald Distrib. Co.,
We view the purpose of our statute more broadly and conclude that it serves a legitimate public purpose. The Washington statute was not designed merely to provide guidance for the interpretation of an insured's intent with regard to the designation of a beneficiary in an insurance contract. RCW 11.07.010 serves a legitimate public purpose by applying will revocation principles to nonprobate assets and requiring that these assets be considered in the event of the dissolution or invalidation of a marriage. The Legislature accomplished this purpose by adopting an automatic revocation mechanism and linking the applicability of the statute to the date of the entry of the decree of dissolution or the declaration of invalidity. Comparing the public purposes advanсed by RCW 11.07.010 with the level of the impairment to the insured's right to contract, we conclude RCW 11.07.010 is an exercise of legislative power designed to meet a legitimate public purpose.
ATTORNEY FEES
This action was brought pursuant to RCW 11.96.070(2) which provides that a person with an interest in or right respecting the administration of a nonprobate asset may have a judicial proceeding for the declaration of rights or legal relations with respect to the nonprobate asset. The Mearns children seek an award of attоrney fees from Ms. Scharbach under RCW 11.96.140 which permits a court to exercise its discretion and "order costs, including attorneys' fees, to be paid by any party to the proceedings or out of the assets of the estate or trust or nonprobate asset, as justice may require." Justice does not require that Ms. Scharbach pay the fees of the Mearns children for the privilege of litigating the difficult question presented in this appeal.
Affirmed.
SCHULTHEIS, J., and KATO, J., concur.
NOTES
Notes
[1] For the purposes of this opinion, we have used the spelling of Ms. Mearns's name that appears in the trial court's caption.
[2] Nanette Mearns is now Nanette Bolyard.
[3] In making this argument Ms. Scharbach distinguishes Dobert, arguing that the Dobert court failed to consider whether the divorced spouse had standing to assert the constitutional rights of the deceased spouse.
[4] Contracts covered included "life insurance contracts, annuities, retirement arrangements, compensation agreements and other contracts designating a beneficiary of any right, property or money in the form of a death benefit." Whirlpool Corp. v. Ritter,