Estate of Cheryl A. Rowley a/k/a Cheryl A. MacInnes v. Joe Dee MacInnes

Defendant appeals by delayed leave an order of the trial court directing him to pay over
to plaintiff $95,000 in life insurance proceeds he received upon the death of his former wife,
Cheryl Rowley, where she failed to change the beneficiary designation on her life insurance
policy after the couple's divorce. The court concluded that a provision in the consent judgment
of divorce, releasing all rights of either party to the proceeds of any life insurance on the other,
waived defendant's right to Rowley's life insurance proceeds. We affirm.

I

Defendant and Rowley divorced on November 1, 1995 after a nine-year marriage. The
consent judgment of divorce provided "that . . . all rights of either party in and to the proceeds of
any policy or contract of life insurance . . . upon the life of the other in which said party was
named or designated as beneficiary . . . shall hereupon become and be payable to the estate of the
owner of said policy, or such named beneficiary as shall hereafter be affirmatively designated."

Rowley died on November 1, 2000. At the time of her death, she participated in a Delphi
Automotive Life and Disability Benefits Program administered by Metropolitan Life Insurance
Company, an employee welfare benefit plan regulated by the Employee Retirement Income
Security Act (ERISA), 29 USC 1001, et seq. Plaintiff participated in this program before the
couple's divorce and had designated defendant as her beneficiary. She had not changed the
beneficiary designation before her death. Metropolitan Life paid the insurance proceeds of

approximately $95,0001 to defendant.2 The trial court granted plaintiff's motion to enforce the
judgment of divorce and ordered defendant to pay plaintiff an amount equal to the insurance
proceeds.

II

The construction and application of a statute involve questions of law. Burba v Burba
(After Remand), 461 Mich 637, 647; 610 NW2d 873 (2000); Atchison v Atchison, 256 Mich App
531, 534-535; 664 NW2d 249 (2003). Similarly, the question of what constitutes a waiver is a
question of law. Leibel v Gen Motors Corp, 250 Mich App 229, 240; 646 NW2d 179 (2002). A
settlement agreement, such as a stipulation and property settlement in a divorce, is construed as a
contract. Massachusetts Indemnity & Life Ins Co v Thomas, 206 Mich App 265, 268; 520 NW2d
708, 710 (1994). Interpretation of unambiguous and unequivocal contract language is a question
of law. Id. This Court reviews questions of law de novo. Burba, supra.

III

Defendant argues that he is entitled to the $95,000 in life insurance proceeds from
Rowley's policy because the provisions of ERISA preempt the provision of the divorce
judgment, purporting to alter the beneficiary to an insurance plan governed by ERISA, and
because the provision in the divorce judgment is not binding as a contract between him and
Rowley. Accordingly, he contends, the trial court erred in circumventing the preemption issue
and concluding that the terms of the divorce judgment constituted a contract under which
defendant waived his rights as a beneficiary.

A. Preemption

Defendant relies principally on Egelhoff v Egelhoff, 532 US 141, 143; 121 S Ct 1322; 149
L Ed 2d 264 (2001) in arguing that the life insurance provision in the divorce judgment is
preempted by ERISA. We find Egelhoff inapposite to the ultimate issue in this case.

Terra Energy, Ltd v Michigan, 241 Mich App 393, 400; 616 NW2d 691 (2000). The facts
presented are that defendant, the plan-designated beneficiary, received payment of the life
insurance proceeds. The proceeds were thereafter placed in escrow. The question whether
waiver may be applied in other factual circumstances is therefore not before us.

In Egelhoff, the Supreme Court held that a Washington statute, which provided that the
designation of a spouse as the beneficiary of a nonprobate asset is revoked automatically upon
divorce, was expressly preempted by ERISA to the extent that it applies to ERISA plans. Id. at
143. "ERISA's preemption section, 29 USC § 1144(a), states that ERISA ‘shall supersede any
and all State laws insofar as they may now or hereafter relate to any employee benefit plan'
covered by ERISA." Egelhoff, supra at 146. The Supreme Court concluded that the Washington
statute "related to" an ERISA plan, i.e., had an impermissible connection with ERISA, because it
governed the payment of benefits and it interfered with nationally uniform plan administration -
both areas of core ERISA concern. Id. at 147-148. The Court observed that the Washington
statute bound ERISA plan administrators to a particular choice of rules for determining
beneficiary status, and, consequently, plan administrators were required to pay benefits to the
beneficiaries chosen by state law rather than those identified in the plan documents. Id. at 147.

The statute therefore ran "counter to ERISA's commands that a plan shall ‘specify the basis on
which payments are made to and from the plan,' § 1102(b)(4), and that the fiduciary shall
administer the plan ‘in accordance with the documents and instruments governing the plan,'
§ 1104(a)(1)(D), making payments to a ‘beneficiary' who is ‘designated by a participant, or by
the terms of [the] plan. § 1002(8)." Egelhoff, supra at 147.
In finding that the Washington statute was preempted, the Supreme Court reasoned that
the statute frustrated ERISA's goal of uniform administration because plan administrators must
familiarize themselves with state statutes to determine whether the named beneficiary's status
was revoked by operation of law. Id. at 149. The problem could be exacerbated by choice-oflaw
issues when an employer was located in one state, the plan participant in another state, and
the former spouse in perhaps a third state. Id. The Court recognized that all state laws created
the potential for a lack of uniformity, but that differing state regulations affecting claim
processing and payment of benefits under an ERISA plan was the exact burden ERISA
preemption was intended to avoid. Id. at 150.

We find the Egelhoff analysis inapposite because in this case the ultimate issue is not
whether a state statute is preempted. To the extent that defendant contends that the provision in
the divorce judgment is indirectly preempted because MCL 552.101 requires that all divorce
judgments contain a provision determining the rights of the divorcing spouse to the proceeds of
any life insurance policy owned by the other spouse, we disagree.

The circumstances of this case convince us that the issue presented is most appropriately
resolved under principles of waiver rather than preemption. See Metropolitan Life Ins Co v
Pressley, 82 F3d 126, 129 (CA 6, 1996) (although federal courts of appeal agree that ERISA
preempts state law regarding designation of beneficiaries, they are split concerning the manner in
which the beneficiary is then determined). Under the view taken by the majority of the federal
circuits, "[e]ven where ERISA preempts state law with respect to determining beneficiary status
under an ERISA-regulated benefits plan, ERISA does not preempt an explicit waiver of interest
by a nonparticipant beneficiary of such a plan." Melton v Melton, 324 F3d 941, 945 (CA 7,

2003); see also Silber v Silber, 99 NY2d 395, 402, 404; 786 NE2d 1263 (2003), Pressley, supra.

We concur with the majority view and resolve this case accordingly.3

B. Waiver

A majority of federal circuit courts of appeal have concluded that waivers of beneficiary
rights are possible under ERISA-governed plans.4 Silber, supra at 402. The majority view
reasons that because "ERISA is silent on the issue of what constitutes a valid waiver of interest"
the courts must turn to federal common law and state law to fill the gap. Melton, supra at 945;
see also Silber, supra at 404. Circuits following the majority view have looked to whether there
is proof of a specific termination of the rights in question, or stated differently, whether a waiver
by a designated beneficiary of an ERISA-regulated benefits plan was explicit, voluntary, and
made in good faith. Melton, supra at 945. "Essentially, when we are evaluating whether the
waiver is effective in a given case, we are more concerned with whether a reasonable person
would have understood that she was waiving her interest in the proceeds or benefits in question
than with any magic language contained in the waiver itself." Id. at 945-946, citing, e.g., Clift v
Clift, 210 F3d 268, 271 (CA 5, 2000). Michigan courts have defined "waiver" as the voluntary
and intentional relinquishment of a known right. Roberts v Mecosta Co Gen Hosp, 466 Mich 57,
69, 642 NW2d 663, 670 (2002); People v Carines, 460 Mich 750, 762 n 7; 597 NW2d 130
(1999).

In this case, the provision at issue in the divorce judgment stated:

LIFE INSURANCE

IT IS FURTHER ORDERED AND ADJUDGED, that except as otherwise
provided, all rights of either party in and to the proceeds of any policy or contract
of life insurance, endowment, or annuity upon the life of the other in which said
party was named or designated as beneficiary, or to which said party became
entitled by assignment or change of beneficiary during the marriage or in
anticipation thereof, whether such contract or policy was heretofore or shall
hereafter be written or become effective, shall hereupon become and be payable
to the estate of the owner of said policy, or such named beneficiary as shall
hereafter be affirmatively designated.
Defendant does not argue that he did not knowingly and voluntarily agree to the above
provision in the consent judgment of divorce. Rather, he argues that the provision does not
waive his rights to the insurance proceeds, but acts only to substitute the estate as the insurance
beneficiary, and therefore should not be given effect because it is in conflict with the preemption
goals of ERISA. Moreover, the provision imposes no duty on him to pay over the life insurance
proceeds. We disagree.

Having concurred with the majority view in the federal circuits and concluded that giving
effect to the above provision does not compromise the purpose and goals of ERISA, Melton,
supra at 945, we hold that defendant waived his rights to the life insurance proceeds at issue and
thus is not entitled to retain them. The above provision is all-inclusive with regard to
defendant's relinquishment of his right to life insurance proceeds from policies owned by his
former wife: "[E]xcept as otherwise provided, all rights . . . to the proceeds of any policy . . . of
life insurance . . . shall hereupon become and be payable to the estate of the owner of said
policy . . . " This language is explicit in its intent to divest defendant of his interest in life
insurance proceeds from policies owned by Rowley. Thomas v Detroit Retirement System, 246
Mich App 155, 160-161; 631 NW2d 349 (2001); Massachusetts Indemnity, supra at 268; see
also Clift, supra (no "magic words" necessary for effective waiver). In our view, giving effect to
the waiver best serves the ends of justice where a divorcing couple's intent is clear. Silber, supra
at 403-404.

We find no merit in defendant's argument that the trial court erroneously viewed the
consent judgment of divorce as a contract. As the trial court recognized, a divorce judgment
entered by consent is in the nature of a contract, and a settlement agreement, i.e., a stipulation
and property settlement, is a contract:

Included in the judgment of divorce was a stipulation and property settlement
containing a provision, entitled "Insurance Waiver," . . .

***

Judgments entered pursuant to the agreement of the parties are of the nature of a
contract, rather than a judicial order entered against one party. Furthermore, a
settlement agreement, which is what the stipulation and property settlement is, is a
contract and is to be construed and applied as such. [Massachusetts Indemnity,
supra at 267-268 (citations omitted).]
In this case, the consent judgment of divorce stated that the parties agreed and stipulated to the
judgment of divorce, which included the provision on life insurance.

Defendant's argument that
he is not required to pay plaintiff the life insurance proceeds because neither party signed the
judgment of divorce - because although the parties consented to entry of the document, they are
not bound in the absence of their signatures under the ordinary rules of contract - borders on the
frivolous.

We affirm the trial court's order directing defendant to pay plaintiff an amount equal to
the total insurance proceeds of $95,000. Defendant has waived any issue concerning the lack of
record support for the $95,000 amount because he stipulated to placing $95,064.74 in escrow
pending appeal and he admits that the correct amount was placed into escrow. Phinney v
Permutter, 222 Mich App 513, 544; 564 NW2d 532 (1997).

We affirm the trial court’s order directing defendant to pay plaintiff an amount equal to
the total insurance proceeds of $95,000. Defendant has waived any issue concerning the lack of
record support for the $95,000 amount because he stipulated to placing $95,064.74 in escrow
pending appeal and he admits that the correct amount was placed into escrow. Phinney v
Permutter, 222 Mich App 513, 544; 564 NW2d 532 (1997).

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