Welty v. Retirement Board

2017 UT App 26

THE UTAH COURT OF APPEALS

DIANE WELTY AND JACOB LOPEZ,
Petitioners,
v.
RETIREMENT BOARD,
PUBLIC EMPLOYEES’ GROUP TERM LIFE PROGRAM,
Respondent.

Opinion
No. 20150746-CA
Filed February 9, 2017

Original Proceeding in this Court

Diana J. Huntsman, Steven M. Rogers, and Chelsey
Phippen, Attorneys for Petitioners
David B. Hansen, Liza J. Eves, and Erin L. Gill,
Attorneys for Respondent

JUDGE KATE A. TOOMEY authored this Opinion, in which JUDGES
STEPHEN L. ROTH and DAVID N. MORTENSEN concurred.

TOOMEY, Judge:

¶1 Diane Welty and Jacob Lopez (Petitioners) seek review of
the Utah State Retirement Board and Public Employees’ Group
Term Life Program’s decision denying their claim for payment
of life insurance benefits under the Utah State Retirement and
Insurance Benefit Act (the Act). We decline to disturb the
Board’s ruling.

BACKGROUND

¶2 Welty and Jesse Lopez were married and had children,
including Jacob Lopez, before they divorced in 1997. Their
divorce decree provided:
Welty v. Retirement Board

That [Jesse Lopez] currently has in force and effect
a life insurance policy on his life in the face amount
of $325,000.00. That [Lopez] is ordered to maintain
in full force and effect said life insurance policy
until such time as the last of the parties’ children
reaches age 18 or alimony terminates, whichever is
later. During the period that the child support is
due, [Lopez] should be ordered to irrevocably
designate [Welty], as trustee for the minor
children, beneficiary on said life insurance policy.
[Lopez] should be ordered to provide [Welty] with
proof that the insurance is in effect within 30 days
of entry of the Divorce Decree and provid[e]
verification that said insurance is in effect by
January 15th of each year thereafter.

¶3 Lopez was employed by Salt Lake City Corporation (the
City) where he was covered by a group term life insurance
policy offered to City employees through the Public Employees’
Health Program (PEHP) Life Program.1 Lopez had $173,000 in

1. Title 49 of the Utah Code is the Utah State Retirement and
Insurance Benefit Act. The Act’s purpose is to establish
retirement systems which provide benefits for members and “a
central administrative office and a board to administer the
various systems, plans and programs established by
the . . . board.” Utah Code Ann. § 49-11-103(1) (LexisNexis 2015).
The Utah State Retirement Board is required to “ensure that the
systems, plans, programs, and funds are administered according
to law” and to “take action consistent with this title for the
administration of the systems, plans, and programs in order to
carry out the purposes of this title.” Id. § 49-11-203(c), (n).
Among the plans and programs is the Public Employees’ Benefit
and Insurance Program, which offers a number of employee
benefit plans, including life insurance. Id. §§ 49-20-101, -102(3).
The Public Employees’ Benefit and Insurance Program
(continued…)

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coverage with the Life Program, and in December 1999 he
applied for additional coverage. The application named Welty as
primary beneficiary for the minor children, and Lopez’s current
wife, Mary Ellen Lopez, as secondary beneficiary.2 Lopez also
signed and filed a Beneficiary Change Form (the 1999
Designation) that listed as primary beneficiary “Diane
(petitioner) for minor children as per attached divorce decree,”
and Mary Ellen Lopez as secondary beneficiary. The divorce
decree was attached to the 1999 Designation.

¶4 Between 2003 and 2006, Lopez signed and filed two more
Beneficiary Change Forms that revoked previous nominations of
beneficiaries and made new designations. Then in March 2006,
Lopez signed and filed a Group Term Life/Accident Plan
Beneficiary Change Form (the 2006 Designation) “*r+evoking any
previous nominations or beneficiary(ies)” and designating Mary
Ellen Lopez as primary beneficiary.

¶5 The Self-Funded and Administered Group Term Life and
Accident Plan Master Policy (the Master Policy) “establishes the
coverage and benefits available to Employees and their eligible
Dependents.” The Master Policy cannot be changed “unless

(…continued)
administers these benefit plans. Id. § 49-20-103. Political
subdivisions, such as Salt Lake City Corporation, are eligible to
participate on behalf of their employees. Id. § 49-20-201(1)(b).
The Act thus “provide*s+ a mechanism for covered employers to
provide covered individuals with group . . . life insurance . . . in
the most efficient and economical manner.” Id. § 49-20-105(1).

2. This request for additional coverage was cancelled “based
upon contact from the City’s Human Resources Department.” So
far as we can tell from the record, although he made another
attempt, Lopez never secured additional coverage through the
Life Program.

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Welty v. Retirement Board

approved by the Plan and unless such approval is evidenced by
endorsement or amendment.” It provides for payment of
benefits to designated beneficiaries. “A subscriber may change
his or her beneficiary(ies) by filing a written notice of the change
with the Plan. The change will take effect as of the date the
subscriber signed the notice of change . . . .” Written notices of
claim “must be given to the Plan within twenty (20) days after
the death of a Subscriber . . . unless it was not reasonably
possible to do so.” The Master Policy provides that benefits “will
be paid as soon as reasonably possible after receipt of an
acceptable written proof of loss together with supporting
materials,” and “*a+ny payment made in good faith pursuant to
this provision fully discharges the Plan to the extent of the
payment.” Further, “*n+o legal action may be brought after the
expiration of three years after the time written proof of loss is
required to be furnished.”

¶6 Lopez died in July 2006, while his son, Jacob Lopez, was
still a minor. Shortly after Lopez’s death, Mary Ellen Lopez filed
a Group Term Life Program Claimant’s Statement, and PEHP
paid her $173,000.

¶7 In August 2012, six years after Lopez’s death, Petitioners
submitted a notice of claim to the Life Program, disputing the
distribution of Lopez’s life insurance proceeds. PEHP’s Life
Claims Review Committee and the Executive Director each
denied Petitioners’ claim, and the Petitioners appealed,
ultimately filing a Request for Board Action. An adjudicative
hearing officer conducted a hearing and determined “*t]he
procedure followed by [PEHP] was in accord with its master
policy terms created by statutory framework. . . . [P]etitioners
have not met their burden to [show] that there was error or a
legal defect in *PEHP’s+ conduct.” The Board adopted the
hearing officer’s ruling.

¶8 Petitioners now seek judicial review of the Board’s final
action.

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Welty v. Retirement Board

ISSUE AND STANDARD OF REVIEW

¶9 Petitioners contend the hearing officer erred in his
interpretation of the Utah Code “by denying [their] requests for
payment of life insurance proceeds.” “*W+e review the Board’s
application or interpretation of a statute as a question of law
under the correction-of-error standard.” McLeod v. Retirement
Board, 2011 UT App 190, ¶ 9, 257 P.3d 1090 (alteration in
original) (citation and internal quotation marks omitted); see also
Utah Code Ann. § 63G-4-403(4)(d) (LexisNexis 2016) (stating that
this court may grant relief if an agency has “erroneously
interpreted or applied the law”).

ANALYSIS

¶10 Petitioners argue that because a court ordered Lopez to
irrevocably designate Welty as beneficiary of his life insurance
coverage on behalf of the minor children, and because Lopez
attached the divorce decree to his 1999 Designation thereby
incorporating it into his contract with the Life Program, the Life
Program “breached its contractual duties under the Master
Policy by paying [Mary Ellen Lopez] pursuant to a forbidden
change of beneficiary form.” “Our analysis is rooted in the
concept that an insurance policy is a contract between two
parties.” Quaid v. U.S. Healthcare, Inc., 2007 UT 27, ¶ 10, 158 P.3d
525. In Petitioners’ view, the divorce decree is part of the
contract between Lopez and PEHP. They reason that the
attachment of the divorce decree, as an incorporated document,
rendered the 1999 Designation irrevocable, and thus that the
2006 Designation was invalid, in which case PEHP should not
have paid Mary Ellen Lopez the proceeds of the life insurance
policy.

¶11 Petitioners’ argument fails for several reasons. First,

[i]n order [f]or the terms of another document to be
incorporated into the document executed by the

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parties, the reference must be clear and
unequivocal, and must be called to the attention of
the other party, [the party] must consent thereto,
and the terms of the incorporated document must
be known or easily available to the contracting
parties.

Interwest Constr. v. Palmer, 886 P.2d 92, 97 n.8 (Utah Ct. App.
1994) (second and third alterations in original) (citation and
internal quotation marks omitted). In this case, the 1999
Designation did not explicitly incorporate anything by reference
into the Master Policy, and there is no evidence PEHP approved
the incorporation of the divorce decree.

¶12 The 1999 Designation named, as primary beneficiary,
“Diane (petitioner) for minor children as per attached divorce
decree.” Although this reference acknowledges the divorce
decree, there is no language to indicate that the 1999 Designation
was meant to incorporate the terms of the decree as part of the
Master Policy. See Layne Christensen Co. v. Bro-Tech Corp., 836
F. Supp. 2d 1203, 1236 (D. Kan. 2011) (“A mere reference in one
agreement to another agreement, without more, does not
incorporate the latter agreement into the former by reference. To
incorporate one document into another, an explicit manifestation
of intent is required.” (citation and internal quotation marks
omitted)); United Cal. Bank v. Prudential Ins. Co. of Am., 681 P.2d
390, 411 (Ariz. Ct. App. 1983) (“A reference to a former paper for
descriptive purposes . . . cannot have the effect of importing into
a new contract the conditions and limitations of the former
agreement.” (citation and internal quotation marks omitted)).

¶13 In addition, incorporation also requires consent. See
Interwest Constr., 886 P.2d at 97 n.8. Here, there is no indication
PEHP agreed to be bound by the provisions in the divorce
decree. Petitioners argue that “PEHP’s actions demonstrate that
it consented to incorporation of the divorce decree by accepting
the beneficiary change form along with the attached divorce

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Welty v. Retirement Board

decree.” But this is not sufficient. The Master Policy explicitly
states, “No change in this Master Policy shall be valid unless
approved by the Plan and unless such approval is evidenced by
endorsement or amendment to this Master Policy.” The Master
Policy allows for an insured to make a change of beneficiary at
any time. To incorporate the divorce decree with the effect of
making the accompanying beneficiary designation irrevocable
would modify this clause by forbidding a change in beneficiary.
The Master Policy makes clear this modification is not valid
absent an “endorsement or amendment” by PEHP. Petitioners
have not demonstrated that PEHP consented to incorporate the
divorce decree in the manner the Master Policy requires.

¶14 Second, the Act requires PEHP to pay the last-named
beneficiary. The Act provides that “*t+he most recent beneficiary
designations signed by the member and filed with the office . . .
at the time of the member’s death are binding in the payment of
any benefits due under this title.” Utah Code Ann. § 49-11-609(2)
(LexisNexis Supp. 2016). In other words, under the Act’s plain
language, PEHP is required to pay any benefits owed to the
deceased employee’s most recently designated beneficiary. The
Master Policy is consistent with this provision, requiring
payment to a designated beneficiary and permitting a subscriber
to change the designated beneficiary effective on the date the
notice of change was signed.

¶15 Lopez was a City employee covered at the time of his
death in July 2006 by a group term life insurance policy offered
through PEHP. In March 2006, just months before his death,
Lopez signed and submitted a Beneficiary Change Form
“*r+evoking any previous nominations or beneficiary(ies)” and
designating Mary Ellen Lopez as primary beneficiary. There
being no subsequent change, Mary Ellen Lopez was the most
recent beneficiary designated by Lopez. Soon after Lopez’s
death, Mary Ellen Lopez filed a claim, and PEHP paid it. The Act

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Welty v. Retirement Board

required PEHP to do this, and so did the policy.3 See id. § 49-11-
609(2).

¶16 Having properly paid benefits to Mary Ellen Lopez,
PEHP had no further obligation to pay again. “Benefits paid
under this section shall be: (a) a full satisfaction and discharge of
all claims for benefits under this title; and (b) payable by reason
of the death of the decedent.” Id. § 49-11-609(5).

¶17 Notwithstanding the Act’s requirements, Petitioners
contend that “*c+hanging an irrevocable beneficiary designation
is forbidden under Utah law.” In support, Petitioners rely on
Travelers Insurance Co. v. Lewis, 531 P.2d 484 (Utah 1975). In
Travelers, a divorce decree ordered the decedent to maintain a
life insurance policy with his ex-wife as beneficiary and the
minor children as contingent beneficiaries in the event the ex-
wife remarried or died. Id. at 485. The decedent, “contrary to the
order . . . , changed the beneficiary of the policy to be his second
wife.” Id. The second marriage failed and the first wife
remarried. Id. Following the decedent’s death, “a dispute arose
between [the second wife] and the children as to whom the
proceeds of the policy should be paid,” and the insurance
company filed an interpleader action to determine who was
entitled to the proceeds. Id. The district court granted summary
judgment for the children, and our supreme court affirmed,
determining “that the provisions of a divorce decree control the
disposition of the proceeds of an insurance policy between
contending beneficiaries.” Id. at 485–86. Travelers, then, does not

3. We note that our legislature could amend the Act to allow for
irrevocable designations of beneficiaries under similar
circumstances, in which a divorce decree requires a party to
maintain life insurance to secure payment of child support
during a child’s minority or other obligations created by decree.
This is a policy determination which belongs to the legislative
branch.

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Welty v. Retirement Board

address an insurer’s responsibility to a previously designated
beneficiary; rather, it allows a divorce decree to direct the
payment of life insurance benefits between contending
beneficiaries.

¶18 Petitioners also contend that under section 49-20-401(1)(a)
of the Act, PEHP is responsible to monitor the beneficiaries.
Section 49-20-401(1)(a) states, “The program shall . . . act as a
self-insurer of employee benefit plans and administer those
plans.” But PEHP’s mandate to “administer” the plan does not
create a statutory duty to monitor submitted change-of-
beneficiary forms for possible conflict with extraneous
documents of which it may or may not be aware. If this were the
rule, an insurer would not be able to “rely on the insured’s
designation of a beneficiary.” See Simonds v. Simonds, 380 N.E.2d
189, 192 (N.Y. 1978). Determining the validity of a beneficiary
designation is not PEHP’s responsibility, and it may not have
access to the information necessary to determine whether a
beneficiary designation is valid. The insured is responsible to
abide by any court-ordered constraints and provide PEHP with
proper beneficiary designations.

¶19 Petitioners nevertheless argue that “principles of equity
dictate” that they should receive the insurance proceeds because
“(A) public policy concerns favor upholding an irrevocable
beneficiary designation pursuant to a divorce decree, and (B) the
Life Program is the only entity or person in a position to monitor
beneficiary designations.” PEHP counters that the equitable
considerations point in the other direction because it paid Mary
Ellen Lopez in good faith and because Petitioners delayed
bringing their claim for six years.

¶20 Although Petitioners correctly observe that parents with
child support obligations are sometimes required by court order
to obtain life insurance to secure payment of those obligations,
no one other than the parties to the divorce in this case—Welty
and Lopez—were bound by the decree. What the Petitioners

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suggest, without supporting authority, is that the divorce decree
imposed duties upon PEHP even though PEHP was not a party
to the divorce proceeding. It did not. A court order “bind*s+ only
the parties before the court.” See In re Howard, 76 U.S. 175, 183
(1869); Hiltsley v. Ryder, 738 P.2d 1024, 1025 (Utah 1987) (“Courts
can generally make a legally binding adjudication only between
the parties actually joined in the action.”). Because judicial
mandates to irrevocably designate a beneficiary “involve only
the [policy] owner, not the insurer, . . . [the insurer] may not be
bound by the promise, or order, if the owner fails to name the
appropriate beneficiary, or subsequently changes that
designation.” Kelvin H. Dickinson, Divorce and Life Insurance:
Post Mortem Remedies for Breach of a Duty to Maintain a Policy for a
Designated Beneficiary, 61 Mo. L. Rev. 533, 537 (1996). And, as
explained above, PEHP is not in a position to monitor
beneficiary designations; rather, the insured is responsible to
comply with court orders in designating beneficiaries. Indeed,
the decree itself required that Lopez provide annual
confirmation that there was appropriate insurance in place, a
provision that, in turn, gave Welty some ability to hold Lopez to
account.

¶21 Accordingly, even if equitable considerations applied
here, we are not persuaded that they clearly favor Petitioners.

CONCLUSION

¶22 The Board did not err in interpreting or applying the Act,
and the plain language of the contract required PEHP to pay
Lopez’s last named beneficiary—Mary Ellen Lopez. Having
done so, PEHP’s duties were discharged, and the equities of the
situation do not require PEHP to pay a second time to
Petitioners. We therefore decline to disturb the Board’s decision.

20150746-CA 10 2017 UT App 26