Advisories & Insights

The controversy surrounding same-gender marriages has insurance companies, benefit plans, and third-party administrators scrambling to determine the effect of the rapidly changing law on benefit and eligibility decisions.

The answer may be simpler than it appears.

While same-gender marriage is a hot political issue, the debate has little practical impact on insurers, plans, and administrators because many benefit plans already offer domestic partnership benefits, and the Employee Retirement Income Security Act ("ERISA") and the federal Defense of Marriage Act ("DOMA") will likely preempt inconsistent state laws to the extent they affect an employee welfare benefit plan. Thus, the quandary is only an issue for non-ERISA plans in states where the definition of "spouse" or "marriage" is in dispute.

Whatever the results of pending and imminent constitutional challenges, nothing prevents employers from voluntarily extending benefits to same gender partners. And, there may be very sound business reasons for doing so. The Human Rights Campaign Foundation estimates that over 7,000 private sector companies and government employers, including 217 Fortune 500 companies, offer benefits to their employees' domestic or same-gender partners. (The Human Rights Campaign Foundation, www.hrc.org.)

Employers often cite recruiting and retaining the most qualified personnel as the primary reason for extending domestic partnership benefits. (Society for Human Resource Management, Special Report of Benefits, Aug. 2004.) Other business incentives also exist. For example, the San Francisco Human Rights Commission offers free advertising in the form of a list of insurance companies that offer domestic partnership benefits by state. See www.sfgov.org/site/uploadedfiles/sfhumanrights/docs/insulist.htm.

Thus, voluntarily offering benefits to same-gender partners could not only keep insurers and plans out of court, but it could also offer competitive advantages.

State laws recognizing same-gender marriages, or their equivalent, will likely be preempted by ERISA to they extent that they affect employee benefit plans. The strong preemption provisions of ERISA extend to any conflicting state law which "relates to" an ERISA plan. 29 U.S.C. §1144(a).

The U.S. Supreme Court's decision in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), strongly suggests that state laws regarding same-gender marriages would be preempted if they affect benefit plan administration. Egelhoff involved a dispute over life insurance benefits and the application of a divorce statute that impacted the beneficiary designation.

The Supreme Court reviewed the Washington statute that provided for automatic revocation, upon divorce, of the designation of one's former spouse as beneficiary. The court ruled that the statute was preempted by ERISA, as it applied to ERISA benefit plans, because it directly conflicted with ERISA's requirement that plans be administered, and benefits be paid, in accordance with plan documents.

The Supreme Court reached its decision by reasoning that the plan should not be required to "pay benefits to the beneficiary chosen by state law, rather than those identified in the plan documents." Id. at 1327. The Court further stated: "Requiring ERISA administrators to master the relevant laws of 50 states and to contend with litigation would undermine the congressional goal of ‘minimiz[ing] the administrative and financial burden[s]' on plan administrators." Id. at 1329.

At least one court has directly addressed local laws which require extension of domestic partnership benefits on ERISA-governed plans. A United States district court in California held that a municipal ordinance, which required city contractors to extend benefits to their employee's domestic partners, was preempted by ERISA. Air Transport Assoc. of Am. v. City and County of San Francisco, 992 F.Supp. 1149 (N.D. Cal. 1998).

That case involved examination of a San Francisco city ordinance that required city contractors to pledge that they will not discriminate against their employees on the basis of sexual orientation. Subsequently, the city made the requirement more concrete by "barring the City from contracting with companies whose employee benefit plans discriminate between employees with spouses and employees with domestic partners." Id. at 1155.

The nondiscriminate requirements applied to the contractors' activities throughout the United States and specifically applied to employer-sponsored health care benefits. Id. at 1157. Two airline trade organizations brought suit challenging the ordinance on several grounds, including that is was preempted by ERISA.

The court found that the ordinance related to employee benefit plans because the administration of benefits identified in the ordinance, such as health care benefits, "require procedures for determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of funds for benefit payments, and keeping appropriate records." Id. at 1169. The court also noted that the ordinance imposed an obligation to provide benefits that were measured by reference to ERISA plans. Id. at 1170.

The court held that the ordinance was preempted by ERISA "insofar as it affects ERISA plans providing ERISA-covered benefits and insofar as the ordinance is applied to Airport contracts." Id. at 1155. The court also stated that, although the purpose of the ordinance was commendable, it directly interfered with ERISA's goal of shielding employee benefit plans from inconsistent state and local regulation. Id. at 1176.

The same analysis will likely apply to laws that define "marriage" or "spouse" in a manner that conflicts with the terms of an ERISA plan. This implicates the Defense of Marriage Act (DOMA), 1 U.S.C. §7 and 28 U.S.C. §1738C. Congress enacted DOMA in response to Baehr v. Lewin, 852 P.2d 44 (Haw. 1993), which was the first state court decision holding that a prohibition on same-gender marriages was unconstitutional.

DOMA defines marriage, for purposes of any federal law or federal agency, as "only a legal union between one man and one woman as husband and wife" and defines the term "spouse" as referring to "only to a person of the opposite sex who is a husband or a wife." 1 U.S.C. § 7. DOMA also declares that no state is required to recognize a same-sex marriage granted by another state. 28 U.S.C. §1738C.

However, many are arguing that DOMA will not survive either a due process or equal protection challenge. Last summer, the United States Supreme Court issued a landmark opinion that has sparked several constitutional challenges to state laws adversely affecting same-gender couples. See Lawrence v. Garner, 539 U.S. 558 (2003). The Supreme Court held that same-gender couples have a constitutionally protected liberty interest in personal relationships. Id. at 525-26. In doing so, it struck down a criminal statute that only applied to same-gender couples.

Although the Court noted that the case "does not involve whether the government must give formal recognition to any relationship that homosexual persons seek to enter," many have considered the case an indication that laws banning same-gender marriages may also be unconstitutional. The Supreme Court has also previously struck down class-based legislation directed solely at homosexuals as a violation of the Equal Protection Clause. See Romer v. Evan. 517 U.S. 620 (1996).

Hawaii was the first state to hold that its law prohibiting same gender marriages violated the state's constitution. Baehr v. Lewin, 852 P.2d 44 (Haw. 1993). Subsequently, however, legislation was enacted that allowed the state constitution to be amended so that the legislature could define "marriage," a form of "baby" DOMA. Currently, 38 states have passed baby DOMAs, defining the term "marriage" as a relationship between a man and a woman, or prohibiting marriage between individuals of the same gender.

For example, Arizona law provides that "marriage between persons of the same sex is void and prohibited." A.R.S. §25-101. A California statute states "only marriage between a man and a woman is valid or recognized in California." Cal Fam. Code §308.5. Washington defines marriage as "a civil contract between a male and a female." RCW 26.04.010. These statutes have already been challenged as unconstitutional with varying results.

In Arizona, the Arizona Supreme Court ruled that the Arizona statute did not violate that state's constitution. Standhardt v. Superior Court of the State of Ariz., 77 P. 3d 451 (Ariz. 2003). On the other hand, courts in several other states, including Massachusetts, Oregon and Washington, have ruled that similar statutes violated the constitutions of those states. The Supreme Judicial Court of Massachusetts held that a statute "limiting the protections, benefits, and obligations of civil marriage to opposite-sex couples violates the basic premises of individual liberty and equality under law protected by the Massachusetts Constitution." Goodridge v. Department of Pub. Health, 798 N.E.2d 941,968 (Mass. 2003).

Subsequently, the Massachusetts legislature proposed a "civil union" law, which prohibits same-gender couples from entering into "marriage," but would allow them to form civil unions with all of the benefits, protections, rights, and responsibilities of marriage. See Opinions of the Justices to the Senate, 802 N.E.2d 565 (Mass. 2004). The bill enumerated legal benefits that would adhere to spouses in a civil union. Id. at 1205. Not surprisingly the bill included rights to insurance benefits. Id. But, that proposal also failed to pass consitutional muster because "the bill maintains an unconstitutional, inferior, and discriminatory status for same gender couples." Id. at 1210.

In August 2004, a trial court judge struck down Washington's baby DOMA, holding that is was unconstitutional. Anderson v. Sims, No. 04-2-04964-4 SEA. The decision is now being appealed to the state's highest court, which has previously recognized that same-gender couples can claim the equivalent of community property rights based on the equitable theory of "meretricious relationship." Vasquez v. Hawthorne, 33 P.3d 735 (Wash. 2001). Washington's supreme court held that "equitable claims are not dependent on the legality of the relationship between the parties, nor are they limited by the gender or sexual orientation of the parties." Id. at 737.

These murky waters put insurers and benefit plans into the difficult position of possibly recognizing same-gender marriages for some purposes, but not others, particularly if the plan has participants in multiple states. Life insurers that face a claim from a same-gender spouse should carefully consult the applicable state law and determine whether there are conflicting claims.

In response to recent state recognition of same-gender marriages, some commentators have suggested that insurers and administrators will face a "parade of horribles" or extensive litigation. When these issues are analyzed from a practical and legal aspect, there is a very little practical impact.

First, litigation can be avoided with careful planning. This can include voluntarily extending benefits to same-gender partners and/or further defining the terms "spouse" and "marriage."

Second, laws that are inconsistent with the terms of ERISA-governed plans are likely to be preempted by ERISA and/or the federal DOMA.

The only significant controversy may be in the few states that currently recognize same-gender marriages or in states where a prohibition or same-gender marriages is being challenged. In those limited cases, insurers and benefit plans can resort to standard mechanisms for resolving competing claims for benefits (interpleader actions) and insure they are current on this rapidly developing body of law.