Supreme Court Holds the Federal Employee Group Life Insurance (FEGLI) Act Preempts Contrary State Regulations Regarding Death Benefits of Federal Employees

The Federal Employee Group Life Insurance (“FEGLI”) program was established under the Federal Employee Group Life Insurance Act (“FEGLIA”) in 1954, and is administered by the Office of Personnel Management (“OPM”).  FEGLIA “provides that, upon an employee’s death, life insurance benefits are paid in accordance with a specified order of precedence [under] 5 U. S. C. §8705(a). The proceeds accrue first, to the beneficiary or beneficiaries designated by the employee in a signed and witnessed writing received before death. . . .  If there is no designated beneficiary, the benefits are paid to the widow or widower of the employee. . . .  Absent a widow or widower, the benefits accrue to the child or children of the employee and descendants of the deceased children; the parents of the employee or their survivors; the executor or administrator of the estate of the employee; and last, to other next of kin.”

In 1996, Warren Hillman, a federal employee and resident of Virginia, named his then-wife, Judy Maretta, as the beneficiary of his FEGLI policy.  Mr. Hillman and Ms. Maretta divorced in 1998.  In 2002, Mr. Hillman married Jacqueline Hillman.  Mr. Hillman never altered the beneficiary of his FEGLI policy and died unexpectedly in 2008. 

Ms. Hillman filed a claim to collect the benefit of Mr. Hillman’s FEGLI policy, but OPM informed her that Ms. Maretta was the beneficiary.  Ms. Maretta filed a claim and was provided a benefit of approximately $125,000. 

Section 20–111.1(A) of the Virginia Code specifically provided that a divorce or annulment revokes a death benefit payable to a former spouse if the designation of the former spouse was made prior to the dissolution of the marriage, unless federal or state law provided otherwise.  This theoretically would have made Ms. Hillman the proper beneficiary, except for the fact that under FEGLIA, a federal law, Ms. Maretta was the proper beneficiary. 

However, Section 20–111.1(D) of the Virginia Code went on to state that ““If [Va. Code Ann. §20–111.1] is preempted by federal law with respect to the payment of any death  benefit, a former spouse who, not for value, receives the payment of any death benefit that the former spouse is not entitled to under [§20–111.1] is personally liable for the amount of the payment to the person who would have been entitled to it were [§20.111.1] not preempted.”  In other words, the Virginia law provided that if federal law requires an insurance policy to provide a death benefit to a former spouse instead of to the person who would be entitled to the benefit under Virginia law, then Virginia law could not stop the benefit from being given directly to the former spouse.  Instead Virginia would then allow the person who would have been entitled to recover the benefit under Virginia law to sue the former spouse who had received the benefit for the full amount of the benefit under federal law.  Pursuant to this provision, Ms. Hillman then filed a claim for the benefit against Mr. Maretta in the Virginia Circuit Court, because under Virginia law, she would have been entitled to recover the benefit if not for the federal law’s preemption of the state law. 

The Virginia Circuit Court awarded Ms. Hillman the benefit.  Ms. Maretta appealed and the Virginia Supreme Court reversed, stating that “Congress did not intend merely for the named beneficiary in a FEGLI policy to receive the proceeds, only then to have them subject to recovery by a third party under state law.”  The Virginia Supreme Court thus found that the Virginia law was preempted by federal law. 

Ms. Hillman then appealed to the United States Supreme Court.  In a unanimous decision authored by Justice Sotomayor, the Supreme Court affirmed the ruling of the Virginia Supreme Court that Ms. Maretta was the proper beneficiary under law. 

Before the Supreme Court, Ms. Hillman argued that Congress’ intent had simply been to determine a scheme to quickly and efficiently pay out benefits so that the matter of payment did not become burdensome for the government.  Ms. Hillman argued that Congress had no intent to limit who could then bring a state law claim against the recipient as a proper beneficiary once the federal government had disposed of its obligation to pay out the funds.  The Supreme Court acknowledged some substance to Ms. Hillman’s augment, but found Ms. Maretta’s position more compelling.  Ms. Maretta argued that the fundamental purpose of the relevant portions of FEGLIA was to ensure that the properly designated beneficiary would be able to collect the funds allocated to them by a federal employee and make use of them. 

The Supreme Court agreed and relied on precedent from Wissner v. Wissner, 338 U. S. 655 (1950) and Ridgway v. Ridgway, 454 U. S. 46 (1981) to justify its decision.  In Wissner, the Supreme Court ruled that where federal law provided that a named beneficiary receive a uniformed service member’s death benefit under a program similar to FEGLI, the courts of California could not allocate a portion of the proceeds to a widow who was not a designated beneficiary, even though California’s marital property laws would normally require such an allocation.  In Ridgway, the Supreme Court ruled that where federal law provided that a named beneficiary receive a uniformed service member’s death benefit under a program similar to FEGLI, and the service member named his widow as a beneficiary and made no allocation to his first wife, the courts of Maine could not allocate a portion of the benefit to the decedent’s first wife, even though a divorce decree in the state courts required the decedent to allocate a portion of his death benefit to his first wife (although FEGLIA, as currently amended, allows a divorce decree or judgment filed with OPM or the employing Agency prior to the employee’s death to override, in whole or in part, the employee’s designation). 

The Supreme Court acknowledged that Virginia law was likely only attempting to aid individuals who neglected to update their beneficiaries after a divorce but prior to death in a fashion that would probably be more consistent with the decedent’s wishes.  However, based on the case precedent and the text of FEGLIA, the Supreme Court ultimately held that the purpose of FEGLIA is to allow federal employees to specifically designate a beneficiary - a designation which can be changed at any time - and for the beneficiary to receive the benefit.  Virginia’s provisions, which either required the benefit to be paid to Ms. Hillman directly or else allowed Ms. Hillman to sue Ms. Maretta for the benefit, despite the fact that Ms. Maretta was the named beneficiary, were in direct conflict with the federal law’s requirement that the benefit be paid to the designated beneficiary. 

The Supreme Court thus affirmed the Virginia Supreme Court and found that Ms. Maretta was entitled to the benefit.  The case, Hillman v. Maretta, is available here

 

Posted in Case Law Update

Tags: Federal Employee Group Life Insurance , FEGLI, Supreme Court, Hillman v. Maretta

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