Welty v. Retirement Board

Citations: 2017 UT App 26; 392 P.3d 893; 832 Utah Adv. Rep. 34; 2017 Utah App. LEXIS 26; 2017 WL 542030Docket: 20150746-CA

Court: Court of Appeals of Utah; February 9, 2017; Utah; State Appellate Court

Original Court Document: View Document

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Diane Welty and Jacob Lopez petitioned for a review of the decision by the Utah State Retirement Board denying their claim for life insurance benefits under the Utah State Retirement and Insurance Benefit Act. The court upheld the Board’s ruling. 

Welty and Jesse Lopez, divorced in 1997, had a divorce decree mandating that Jesse maintain a life insurance policy of $325,000 until their youngest child turned 18 or alimony ended. The decree required that Welty be designated as trustee for the children and beneficiary of the policy, with proof of insurance provided annually. 

Jesse Lopez was employed by Salt Lake City Corporation and had a group term life insurance policy with $173,000 coverage. In December 1999, he applied for additional coverage, naming Welty as primary beneficiary for their children and his current wife, Mary Ellen Lopez, as secondary beneficiary. Between 2003 and 2006, Lopez made multiple beneficiary changes, ultimately designating Mary Ellen as the primary beneficiary in March 2006, thereby revoking previous designations.

The Master Policy governing the insurance outlined the process for changing beneficiaries and stipulated that claims must be filed within 20 days of the subscriber's death. It also indicated that no legal action could be initiated after three years from the claim's due date. Jesse Lopez died in July 2006, and shortly thereafter, Mary Ellen filed a claim, receiving the $173,000 benefit.

In August 2012, six years after Lopez’s death, Petitioners filed a notice of claim concerning the distribution of Lopez’s life insurance proceeds, which was denied by PEHP’s Life Claims Review Committee and the Executive Director. After appealing, a hearing officer upheld PEHP's actions, stating they complied with the master policy terms. The Board ratified this decision. Petitioners are now pursuing judicial review, arguing that the hearing officer misinterpreted the Utah Code by denying their payment request. They assert that Lopez's divorce decree, which designated Welty as a beneficiary on behalf of his minor children, was incorporated into his 1999 Designation, thereby making it irrevocable and invalidating a subsequent 2006 Designation that paid Mary Ellen Lopez.

The court's analysis indicates that for a document to be incorporated into another, the reference must be clear, consensual, and the terms known to both parties. The 1999 Designation referenced the divorce decree but did not explicitly incorporate it into the Master Policy. The court emphasized that a mere reference does not suffice for incorporation and highlighted that an explicit intent to incorporate is necessary. Consequently, Petitioners' argument was deemed unpersuasive, as there was no evidence that PEHP accepted the incorporation of the divorce decree into the life insurance contract.

Incorporation of a divorce decree into an insurance policy requires consent, which is absent in this case regarding PEHP. The petitioners claim PEHP consented by accepting a beneficiary change form linked to the divorce decree, but this is inadequate. The Master Policy stipulates that changes must be approved by PEHP through an endorsement or amendment, and any attempt to make the beneficiary designation irrevocable would improperly modify the policy's terms. 

Under Utah law, PEHP must pay the last-named beneficiary as outlined in the Act, which mandates that the most recent beneficiary designations filed prior to a member's death are binding. Lopez, a City employee, designated Mary Ellen Lopez as the primary beneficiary through a form submitted in March 2006, prior to his death in July 2006, with no subsequent changes. Consequently, PEHP paid Mary Ellen Lopez the benefits after her claim was filed, fulfilling its obligations under both the Act and the Master Policy.

Petitioners argue against this payment, asserting that altering an irrevocable beneficiary designation is prohibited under Utah law, citing the case of Travelers Insurance Co. v. Lewis. However, Travelers pertains to the enforcement of divorce decree provisions among competing beneficiaries and does not address the insurer's obligations to previously designated beneficiaries, reinforcing PEHP's compliance with the law and its policy terms in this instance. PEHP is therefore released from any further payment obligations after compensating Mary Ellen Lopez.

Petitioners argue that under section 49-20-401(1)(a) of the Act, PEHP has a responsibility to monitor beneficiaries. However, this section designates PEHP as a self-insurer and administrator of employee benefit plans, which does not impose a duty to oversee change-of-beneficiary forms for conflicts with external documents. It is emphasized that PEHP relies on the insured's beneficiary designations and is not responsible for validating them, as it may lack necessary information. Petitioners assert that equitable principles support their claim for insurance proceeds based on public policy favoring irrevocable beneficiary designations from divorce decrees and PEHP’s monitoring role. PEHP counters that equity favors its good faith payment to Mary Ellen Lopez and highlights the six-year delay in Petitioners' claim.

While acknowledging that parents may be required to secure life insurance for child support obligations, it is clarified that only the parties to the divorce decree (Welty and Lopez) are bound by its terms. Petitioners incorrectly suggest that the decree imposed obligations on PEHP, which was not a party to the divorce proceedings. Courts typically bind only those directly involved, and PEHP is not obligated to enforce a beneficiary designation made by the insured under a court order. The decree required Lopez to confirm adequate insurance annually, allowing Welty to hold her accountable.

Ultimately, the Board's interpretation of the Act is upheld, confirming that PEHP's obligation was to pay the last named beneficiary, Mary Ellen Lopez. PEHP has fulfilled its duties, and the equities do not necessitate a second payment to Petitioners. The Board's decision remains undisturbed.