In the 1933 case Lynch v. United States, the Supreme Court ruled that Congress could not abrogate contracts made by the U.S. government, including war risk insurance policies issued to World War I veterans. The plaintiff, John J. Lynch, was a veteran who had taken out an insurance policy with the federal government during his service in WWI and continued paying premiums after leaving military service until he became totally disabled due to tuberculosis contracted while serving overseas. When he applied for disability benefits under his policy, however, he was denied on grounds of a law passed by Congress which retroactively cancelled all such policies if they were not converted into other forms within five years from discharge or cessation of hostilities (whichever is earlier). The court held this act unconstitutional as it violated Fifth Amendment's Due Process Clause because it deprived Mr.Lynch of property without due process of law and impaired obligations imposed by contract between him and US Government.

In the dissenting opinion for Lynch v. United States, Justice McReynolds disagreed with the majority's decision to uphold a law that allowed insurance companies to pay out war risk insurance benefits in installments rather than lump sums. He argued that this violated contractual obligations and was therefore unconstitutional. According to him, when soldiers signed up for these policies during World War I, they were promised a specific sum upon death or disability and their beneficiaries had an absolute right to receive it as such. The subsequent legislation changing this payout method retroactively impaired these contracts' obligation contrary to Article 1 Section 10 of the Constitution which prohibits any state from passing laws impairing contract obligations. Furthermore, he contended that Congress did not have unlimited power over veterans' benefits and could not alter terms of agreements after they were made without violating constitutional principles.