Case Name: Aetna Life Insurance Company v. Schilling, Appellant; Lehman, Appellee, et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1993-08-25
Citations: 67 Ohio St. 3d 164
Docket Number: No. 92-1375
Parties: Aetna Life Insurance Company v. Schilling, Appellant; Lehman, Appellee, et al.
Judges: Moyer, C.J., Resnick and Pfeifer, JJ., concur.
Reporter: Ohio State Reports, Third Service
Volume: 67
Pages: 164–174

Head Matter:
Aetna Life Insurance Company v. Schilling, Appellant; Lehman, Appellee, et al.
[Cite as Aetna Life Ins. Co. v. Schilling (1993), 67 Ohio St.3d 164.]
(No. 92-1375
Submitted May 25, 1993
Decided August 25, 1993.)
Hardgrove & Plank, Rhett A. Plank and Robert P. Carlisle, for appellant.
C. Bernard Brush and Orval E. Fields II, for appellee.

Opinion:
Douglas, J.
R.C. 1339.63 provides, in part:
"(A) As used in this section:
"(1) 'Beneficiary' means a beneficiary of a life insurance policy, an annuity, a payable on death account, an individual retirement plan, an employer death benefit plan, or another right to death benefits arising under a contract.
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"(B)(1) Unless the designation of beneficiary or the judgment or decree granting the divorce, dissolution of marriage, or annulment specifically .provides otherwise, and subject to division (B)(2) of this section, if a spouse designates the. other spouse as a beneficiary and if the spouse who made the designation is divorced from the other spouse, obtains a dissolution of marriage, or has the marriage to the other spouse annulled, then the other spouse shall be deemed to have predeceased the spouse who made the designation , and the designation of the other spouse as a beneficiary is revoked as a result of the divorce, dissolution of marriage, or annulment."
R.C. 1339.63 became effective May 31, 1990, just twenty days before the decedent's death. The statute was enacted as part of Am.Sub.H.B. No. 346. Section 3 of the bill provides that the enactment "shall apply only to the estates of decedents who die on or after [May 31, 1990]." 143 Ohio Laws, Part III, 4566.
Appellant maintains that R.C. 1339.63, as applied in this case, violates Section 28, Article II of the Ohio Constitution, which provides, in part: "[t]he general assembly shall have no power to pass retroactive laws, or laws impairing the obligation of contracts We agree with appellant's position that R.C. 1339.63 cannot be applied in a constitutional manner to effectively nullify Lawrence's designation of appellant as the beneficiary of the life insurance proceeds. Accordingly, we reverse the judgment of the court of appeals.
Lawrence obtained life insurance coverage from Aetna through his employer pursuant to the terms of a group life insurance contract. Technically, Lawrence might not have been a party to the contract since the group policy was issued to Owens-Corning by Aetna. However, Lawrence was a party to the group insurance arrangement, and his rights were governed by the group insurance contract. See, generally, Talley v. Teamsters Local No. 377 (1976), 48 Ohio St.2d 142, 2 O.O.3d 297, 357 N.E.2d 44. In this regard, the Aetna group policy provided Lawrence, as an insured, the contractual right to designate his life insurance beneficiary. Section 6, Article VI of the group policy provides in part:
"An employee, whether or not employment has terminated, may designate a beneficiary, and from time to time change his designation of beneficiary, by written request filed at the headquarters of the Policyholder or at the Home Office of the Insurance Company.
"Any amount payable to a beneficiary shall be paid to the beneficiary or beneficiaries designated by the employee, except that, unless otherwise specifically provided by the employee in his beneficiary designation:
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"(c) if no designated beneficiary survives the employee, or if no beneficiary has been designated, payment shall be made to the employee's widow or widower, if surviving the employee [.]" (Emphasis added.)
Section 1, Article II of the policy provides that:
"If an employee shall die while Employee Coverage is in force for the employee, the Insurance Company shall pay, upon receipt of due proof of the death of such employee — to the beneficiary determined in accordance with the terms of this policy — the amount determined in accordance with the terms of this policy." (Emphasis added.)
Lawrence was insured under the group policy and exercised his right to designate appellant as the life insurance beneficiary well before the effective date of R.C. 1339.63. Under the terms of the policy, Lawrence had a contractual right to have Aetna pay death benefits to the beneficiary designated by him so long as the policy remained in effect at the time of his death. Aetna had a corresponding contractual obligation to pay death benefits to the surviving beneficiary so designated. At the time of the decedent's death, all conditions for payment of the death benefits were satisfied and, therefore, Aetna was contractually bound to pay the insurance proceeds to appellant. However, R.C. 1339.63, if applied in this case, would essentially change the contract which existed prior to the effective date of the statute. In this regard, the provisions of R.C. 1339.63 would impermissibly impair the obligation of contract in violation of Section 28, Article II of the Ohio Constitution.
The effect of R.C. 1339.63 is to nullify a husband's or wife's designation of his or her spouse as the beneficiary of death benefits payable under contract where the marital relationship was terminated after the designation was made and if the designation or the judgment or decree of divorce, dissolution or annulment does not specifically provide otherwise. Lawrence died on June 19, 1990, just twenty days after the effective date of the statute. Therefore, Lawrence's designation of appellant as beneficiary would be revoked by operation of R.C. 1339.63, since Lawrence and appellant were divorced after the designation was made, and no specific provision was contained in the divorce decree or the beneficiary designation to specifically avoid the effect of the statute. In our judgment, application of R.C. 1339.63 in this case impermissibly interferes with Lawrence's contractual rights under the group policy. Therefore, appellant, as the designated beneficiary, has a clear right to the proceeds irrespective of the provisions of R.C. 1339.63, which cannot impair the obligation of contracts that existed prior to the effective date of the statute.
As early as 1823, in the case of Smith v. Parsons (1823), 1 Ohio 236, 241, this court stated that: "when a law by which the parties to a contract are not bound, or which can not be considered as forming a part of the contract, or as creating a rule for its construction, is applied in its discharge, it may be said to impair its obligation in the sense of the constitution." Similarly, in the case of Goodale v. Fennell (1875), 27 Ohio St. 426, 432, this court stated, with respect to the constitutional prohibition against laws impairing the obligation of contracts: "[w]hen the contract is once made, the law then in force defines the duties and rights of the parties under it. Any change which impairs the rights of either party, or amounts to a denial or obstruction of the rights accruing by a contract, is obnoxious to this constitutional provision."
Today, we hold that the provisions of R.C. 1339.63, as applied to contracts entered into before the effective date of the statute, impair the obligation of contracts in violation of Section 28, Article II of the Ohio Constitution. We note, however, that contracts entered into on or after the effective date of R.C. 1339.63 are subject to the provisions of the statute.
Accordingly, for the foregoing reasons, we reverse the judgment of the court of appeals and remand this cause to the trial court with instructions to order the release of the funds to appellant.
Judgment reversed.
Moyer, C.J., Resnick and Pfeifer, JJ., concur.
A.W. Sweeney, Wright and F.E. Sweeney, JJ., dissent.
. It is interesting to note that the beneficiary designation was made, and the divorce occurred, prior to the enactment of R.C. 1339.63. Therefore, for all practical purposes, the only method of avoidance of R.C. 1339.63 in this case was for Lawrence to have redesignated appellant as his beneficiary between the time that Lawrence was placed on notice of the effect of the statute (assuming that he was ever made aware of the change in the law) and the date of his death. As indicated, Lawrence died just twenty days after the effective date of the statute.