Welty v. Ret. Bd., 20150746-CA

• Decision Date: 09 February 2017
• Docket Number: No. 20150746-CA,20150746-CA
• Citation: 392 P.3d 893
• Court: Utah Court of Appeals
• Parties: Diane WELTY and Jacob Lopez, Petitioners, v. RETIREMENT BOARD, Public Employees' Group Term Life Program, Respondent.

392 P.3d 893

Diane WELTY and Jacob Lopez, Petitioners,

v.RETIREMENT BOARD, Public Employees' Group Term Life Program, Respondent.

No. 20150746-CA

Court of Appeals of Utah.

Filed February 9, 2017

Diana J. Huntsman, Steven M. Rogers, and Chelsey Phippen, Salt Lake City, 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.

Opinion

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:

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 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 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.

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 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. , 140 Ariz. 238, 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 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...