Ex-Spouse May Not Be Removed as Beneficiary of Life Insurance Policy under New York’s Revocation on Divorce StatuteA recent Second Circuit opinion highlights an important nuance in New York’s revocation on divorce statute, N.Y. Est. Powers & Trusts Law § 5-1.4. In New York Life Insurance Company v. Sahani, the Second Circuit affirmed the district’s courts finding that a decedent’s ex-spouse was entitled to life insurance policy proceeds despite divorcing the decedent the year prior.

In 2001, New York Life Insurance Company issued a $250,000 whole life insurance policy to the decedent. The decedent’s mother, Shukti Singh, was the beneficiary of the whole life policy. In 2007, the decedent married Seema Sahani. Shortly thereafter, the decedent transferred ownership of the whole life policy to Sahani and designated her as the primary beneficiary. Also in 2007, New York Life issued a $1 million term life insurance policy on the decedent’s life to Sahani. Sahani was both the beneficiary and owner of the term life policy. In 2013, the decedent and Sahani divorced. In 2014, the decedent died. Both Sahani and the decedent’s mother, Singh, made claims to New York Life under both policies.

New York’s revocation on divorce statute, EPTL § 5-1.4(a), provides that a divorce revokes any revocable disposition made by a divorced individual to his or her former spouse in a life insurance policy.  Among other things, Singh argued that New York’s revocation on divorce statute applied under these facts and revoked Sahani’s beneficiary designation under the policies. The Second Circuit disagreed. Looking “first to plain language of the statute,” the court held “§ 5-1.4(a) does not apply to the situation here.” According to the court, “the beneficiary designation was not ‘revocable’ because the decedent was not ‘empowered’ to cancel it, since Sahani—not the decedent—was the owner of both policies at the time of the divorce.” As the opinion highlights, Sahani was entitled to the policies’ death benefits because she was the owner and beneficiary of the policies. Conversely, if the facts were slightly altered and the decedent had retained ownership of the policies, the ex-spouse would not have been awarded the death benefits because New York’s revocation statute would have revoked her beneficiary designation.

Moreover, the Sahani opinion is instructive for an additional reason—it is an interpleader action. When faced with Sahani’s and Signh’s claims, New York Life interplead the funds and moved for discharge pursuant to 28 U.S.C. § 2361. Early in the lawsuit, the district court granted New York Life’s motion and dismissed New York Life from the lawsuit. Unlike some states’ revocation on divorce statutes, New York’s statute does not expressly insulate insurers from liability to a former spouse when interpleading the contested funds (compare § 5-1.4 with Tex. Fam. Code Ann. § 9.301(c)(2), insulating insurer from liability where insurer interpleads proceeds). However, interpleader should still be considered a viable option where uncertainty exists as to the facts or operation of the statute. Insurers are afforded some protection under the New York law. In New York, insurers are not liable for making a payment to a former spouse unless the insurer “received written notice of the divorce, annulment, or remarriage” at the insurer’s “main office.”

This blog continues a series of blogs addressing this issue and the particulars of revocation on divorce statutes nationwide. If there is a specific state you are interested in or a global question that needs to be addressed, please comment below.

DOL Regulations on Association Health Plans: How Will They Affect the Health Insurance Marketplace?Last year, the President issued an Executive Order directing the Secretary of the Department of Labor (DOL) to issue regulations to expand access to association health plans (AHPs). Earlier this year, the DOL issued final regulations and FAQs on AHPs. The regulations broaden the definition of an “employer” under the Employee Retirement Income Security Act (ERISA). The revised definition is intended to assist employers in joining together as a group or association of employers by geography or industry to sponsor a group health plan. This change is significant because a plan treated as being adopted by a large single employer can potentially avoid some Affordable Care Act (ACA) reforms applicable to the individual and small group insurance markets, such as the requirement to provide essential health benefits. More recently, the DOL has issued a Compliance Assistance Publication that provides more informal guidance on the changes.

The key aspects of the guidance are:

  • Commonality of Interest — Employers may band together as a group to offer health coverage if they are either (1) in the same trade, industry, line of business, or profession; or (2) have a principal place of business within a region that does not exceed the boundaries of the same state or the same metropolitan area (even if the metropolitan area includes more than one state). The group or association of employers must have at least one “substantial business purpose” unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees, even if the primary purpose of the group or association is to offer the coverage to its members. The final regulations include a safe harbor under which a substantial business purpose is considered to exist in cases where the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan.
  • Employer Control — The regulations set forth a requirement for employer control. The control test provides that the functions and activities of the group or association must be controlled by its employer members, and the group or association’s employer members that participate in the group health plan must control the plan. Control must be present both in form and in substance; control is determined based on a facts-and-circumstances test. Members are not required to manage the day-to-day affairs of the group, association, or plan. The final regulations include a requirement that a group or association cannot be a health insurance issuer as defined in ERISA or be owned or controlled by such a health insurance issuer, although the prohibition does not apply to entities that participate in the group or association in their capacity as employer members of the group or association.
  • Eligible Participants — The group of eligible participants includes employees of a current employer member of the group or association, former employees of a current employer member of the group or association who became entitled to coverage under the group’s or association’s group health plan when the former employee was an employee of the employer, and beneficiaries of such individuals (e.g., spouses and dependent children). For working-owner coverage (discussed below), a special provision in the regulations provides that, except as may be required for purposes of COBRA continuation coverage, an individual eligible for coverage under the group health plan as a working owner (and the individual’s beneficiaries) cannot continue to be eligible for coverage under the group health plan for any plan year after it is determined that the individual does not meet the conditions for being treated as a working owner under the final regulations.
  • Working Owners — A working owner without common law employees may qualify as an employer and employee for purposes of an AHP. Plan fiduciaries have a duty to reasonably determine that the conditions of the working-owner requirement are satisfied and to monitor continued eligibility for coverage under the AHP. The hours-worked provision for a working owner is an average of 20 hours per week or 80 hours per month.
  • Nondiscrimination — Using existing nondiscrimination requirements under the Health Insurance Portability and Accountability Act (HIPAA), a group or association cannot restrict membership in the association based on any health factor. The HIPAA rules define a health factor as health status, medical condition, claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability, or disability. AHPs cannot treat member employers as distinct groups of similarly situated individuals. However, AHPs are not precluded from making distinctions between employer members in all circumstances. Distinctions based on a factor other than a health factor (such as industry, occupation, or geography) are permitted, and several examples are provided in the regulations.

The regulations became effective on September 1, 2018, for plans that are fully insured and that meet the requirements for being an AHP sponsored by a bona fide group or association of employers. The effective date is January 1, 2019, for any plan that is not fully insured, was in existence on June 21, 2018, meets the requirements that applied before June 21, 2018, and chooses to become an AHP sponsored by a bona fide group or association of employers. On April 1, 2019, the regulations become effective for any other plan established to be, and operated as, an AHP sponsored by a bona fide group or association of employers.

We will continue to monitor developments on the new regulations and what impact they may have on health insurers.

If you have any questions about the regulations, contact David Joffe at djoffe@bradley.com.

Alabama’s Act Aimed at Prohibiting Financial Abuse of Elders – Should It Be Expanded to Cover Insurers and Insurance Agents?Alabama’s Elder Abuse Act attempts to protect financial abuse of elders. But by not including insurance companies and insurance agents, does the Act go far enough?

Following up on the blog post from late June concerning the intersection of elder abuse laws and long-term care litigation, this post concerns an Alabama statute aiming to prevent financial abuse of elders in the financial advisory context: “Protection of Vulnerable Adults from Financial Exploitation Act,” Ala. Code § 8-7-170, et seq. (2016) (the “Act”).  Specifically, section § 8-6-172 of the Act requires “qualified individuals” to “promptly notify” the Alabama Department of Human Resources and the Alabama Securities Commission if he or she “reasonably believes that the financial exploitation of a vulnerable adult may have occurred, may have been attempted, or is being attempted . . . .”  The Act’s definition of a “vulnerable adult” includes persons 65 year of age or older, and the Act broadly defines “financial exploitation” to include the “wrongful or unauthorized taking, withholding, appropriation, or use of money, assets, or property of a vulnerable adult.” The definition of “financial exploitation” also includes using a power of attorney or guardianship to take advantage of a vulnerable adult’s property.

Notably, the Act currently only applies to “qualified individuals,” which it defines as any “agent, investment adviser representative, or person who serves in a supervisory, compliance, legal, or associated member capacity of a broker-dealer or investment adviser.” It gives such individuals that make a disclosure “in good faith and exercising reasonable care” immunity from administrative or civil liability as a result of making the disclosure. It also gives such individuals the authorization to delay a disbursement from an account of the vulnerable adult if there is a belief that such a disbursement “may result in financial exploitation of a vulnerable adult” and immunity for such delays, if such a delay is made based on a good faith belief.

Insurance agents and insurance companies are often in similar positions as financial advisors vis-à-vis their insureds, particularly with respect to changing beneficiaries (either at the request of the owner/insured or his or her power of attorney or guardian) and disbursing policy proceeds. So should the Act also cover insurance companies and insurance agents?

An argument can certainly be made that without this addition, the elderly could still fall victim to a whole segment of financial issues. The insurance industry frequently faces the challenges of a change in beneficiary, especially late in life for insureds. Sometimes such a change is unauthorized or results from undue influence on an elderly insured. While there is no one solution to combating such abuses, a long-term agent may have a close enough relationship to the policy owner to question or prevent such a change.

In any event, by expanding the Act in the future to include reporting obligations and accompanying immunity for insurance companies and agents that make such disclosures, the elderly might be better protected and insurance companies would have better direction and protection in these scenarios.