Federal Law That Provides Death Benefits Be Paid To Named Beneficiary Pre-empts State Law

In Hillman v. Maretta (--- S.Ct. ----, U.S.Va., June 3, 2013), the United States Supreme Court considered whether a state law that provides death benefits from an insurance policy be paid to a current spouse, even if a prior spouse remains the named beneficiary, conflicted with a federal law specifying that the benefits be paid to the named beneficiary.  The Court ruled that because compliance with both laws was impossible, the federal law pre-empted the state law.

Facts

As a federal employee, Warren Hillman (“Hillman”) had a life insurance policy pursuant to the Federal Employees' Group Life Insurance Act of 1954 ("FEGLIA").  Hillman named his wife, Judy Maretta (“Maretta”) as beneficiary of the policy.  Hillman and Maretta later divorced, and Hillman remarried Jacqueline Hillman (“Jacqueline”).  However, Hillman never changed the beneficiary on his FEGLIA policy and when he died, his former wife Maretta remained the named beneficiary and collected the FEGLIA policy proceeds of $124,558.03.  Hillman’s widow, Jacqueline, also filed a claim on the policy but was told by FEGLIA’s Administrator that only the policy's named beneficiary, Maretta, could collect.

Jacqueline filed a lawsuit in Virginia state court alleging that Virginia state law revokes a beneficiary designation for a death benefit to a former spouse in cases where there has been a change in the decedent's marital status.  Maretta argued that the Virginia law was pre-empted by federal law and therefore, she was rightly entitled to the benefits.  The Virginia circuit court granted summary judgment for Jacqueline but the Virginia Supreme Court reversed that ruling and awarded the benefits to Maretta because she was the named beneficiary.  Jacqueline appealed to the United States Supreme Court.

 

Decision

Section A of Virginia Code Section 20-111.1 revokes a beneficiary designation in any contract that provides a death benefit to a former spouse where there has been a change in the decedent's marital status.  Section D of that law states that in the event Section A is pre-empted by federal law, a current spouse may still take action against a former spouse who has collected on a policy.

FEGLIA provides that an employee may name a beneficiary of life insurance proceeds and specifies an "order of precedence" providing that death benefits accrue first to the named beneficiary ahead of any other potential recipients.  The question here is whether Virginia laws are pre-empted by FEGLIA.  State law, the Court said, is pre-empted "to the extent of any conflict" with a federal statute and that a conflict occurs when compliance with both federal and state regulations is impossible.

The Court held that FEGLIA established a clear and predictable procedure for an employee to indicate who the intended beneficiary shall be, which reflects Congress' intent to provide federal employees an unfettered freedom of choice in selecting a beneficiary and to ensure the proceeds actually belong to that beneficiary.  Virginia's state laws allowing benefits to be paid to a current spouse rather than the named beneficiary clearly conflict with that federal provision.  "In short, where a beneficiary has been duly named, the insurance proceeds she is owed under FEGLIA cannot be allocated to another person by operation of state law," the Court ruled.

Virginia's laws were pre-empted by FEGLIA and the U.S. Supreme Court affirmed the Virginia Supreme Court judgment.

Questions

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In Hillman v. Maretta (--- S.Ct. ----, U.S.Va., June 3, 2013), the United States Supreme Court considered whether a state law that provides death benefits from an insurance policy be paid to a current spouse, even if a prior spouse remains the named beneficiary, conflicted with a federal law specifying that the benefits be paid to the named beneficiary.  The Court ruled that because compliance with both laws was impossible, the federal law pre-empted the state law.

Facts

As a federal employee, Warren Hillman (“Hillman”) had a life insurance policy pursuant to the Federal Employees' Group Life Insurance Act of 1954 ("FEGLIA").  Hillman named his wife, Judy Maretta (“Maretta”) as beneficiary of the policy.  Hillman and Maretta later divorced, and Hillman remarried Jacqueline Hillman (“Jacqueline”).  However, Hillman never changed the beneficiary on his FEGLIA policy and when he died, his former wife Maretta remained the named beneficiary and collected the FEGLIA policy proceeds of $124,558.03.  Hillman’s widow, Jacqueline, also filed a claim on the policy but was told by FEGLIA’s Administrator that only the policy's named beneficiary, Maretta, could collect.

Jacqueline filed a lawsuit in Virginia state court alleging that Virginia state law revokes a beneficiary designation for a death benefit to a former spouse in cases where there has been a change in the decedent's marital status. Maretta argued that the Virginia law was pre-empted by federal law and therefore, she was rightly entitled to the benefits.  The Virginia circuit court granted summary judgment for Jacqueline but the Virginia Supreme Court reversed that ruling and awarded the benefits to Maretta because she was the named beneficiary.  Jacqueline appealed to the United States Supreme Court.

Decision

Section A of Virginia Code Section 20-111.1 revokes a beneficiary designation in any contract that provides a death benefit to a former spouse where there has been a change in the decedent's marital status.  Section D of that law states that in the event Section A is pre-empted by federal law, a current spouse may still take action against a former spouse who has collected on a policy.

FEGLIA provides that an employee may name a beneficiary of life insurance proceeds and specifies an "order of precedence" providing that death benefits accrue first to the named beneficiary ahead of any other potential recipients.  The question here is whether Virginia laws are pre-empted by FEGLIA.  State law, the Court said, is pre-empted "to the extent of any conflict" with a federal statute and that a conflict occurs when compliance with both federal and state regulations is impossible.

The Court held that FEGLIA established a clear and predictable procedure for an employee to indicate who the intended beneficiary shall be, which reflects Congress' intent to provide federal employees an unfettered freedom of choice in selecting a beneficiary and to ensure the proceeds actually belong to that beneficiary.  Virginia's state laws allowing benefits to be paid to a current spouse rather than the named beneficiary clearly conflict with that federal provision.  "In short, where a beneficiary has been duly named, the insurance proceeds she is owed under FEGLIA cannot be allocated to another person by operation of state law," the Court ruled.

Virginia's laws were pre-empted by FEGLIA and the U.S. Supreme Court affirmed the Virginia Supreme Court judgment.

 

Topics:  Beneficiaries, Divorce, FEGLIA, Life Insurance, Preemption, Surviving Spouse

Published In: General Business Updates, Conflict of Laws Updates, Family Law Updates, Insurance Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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