Monday, June 3, 2013

Court Says Virginia Can't Work Around Federal Employee Insurance Beneficiary Precedence

The Supreme Court ruled today in Hillman v. Maretta that the Federal Employees' Group Life Insurance Act, or FEGLIA, preempted Virginia's effort to prioritize the widow or widower of a deceased federal employee over the employee's designated beneficiary.  The Court ruled that Virginia's law conflicted with congressional purposes and objectives in enacting FEGLIA.  The judgment was unanimous, but Justices Thomas and Alito wrote separate concurrences.

The ruling means that a state cannot upset or side-step a deceased federal government employee's designation of beneficiary on his or her life insurance plan, even if the state prioritizes a current spouse over a former spouse.

The case pitted the widow of a federal employee, Hillman, against the employee's former spouse, Maretta, who was also the designated beneficiary on the employee's FEGLIA plan.  Maretta, as designated beneficiary, collected $124,558.03 from the plan upon the employee's death.  But Hillman sued, arguing that Maretta was liable to her under Secion 20-111.1(D), or just Section D, of the Virginia Code.  Section D said that when a former spouse receives a death benefit, that former spouse is liable to "the person who would have been entitled to it were [Section A, another Section within the Viginia Code] not preempted"--in this case, Hillman, the widow.

Maretta argued that FEGLIA preempted Section D.  FEGLIA says that life insurance proceeds go first to the employee's designated beneficiary.  It allows proceeds to go to another person, if "expressly provided for in the terms of any court decree of divorce, annulment, or legal separation," so long as the decree is received by the government before the employee's death.  Finally, FEGLIA has an express preemption provision that says that federal law preempts state law "to the extent that the law or regulation is inconsistent with the contractual provisions."

The Court ruled for Maretta, and struck Section D.  Justice Sotomayor, for the Court, wrote:

Section D interferes wtih Congress' scheme, because it directs that the proceeds actually "belong" to someone other than the named beneficiary by creating a cause of action for their recovery by a third party. . . .  It makes no difference whether state law requires the transfer of the proceeds . . . or creates a cause of action, like Section D, that enables another person to receive the proceeds upon filing an action in state court.  In either case, state law displaces the beneficiary selected by the insured in accordance with FEGLIA and places someone else in her stead.

Op. at 10.

Justice Thomas concurred in the judgment but wrote separately to emphasize his view that the majority's "purposes and objectives" approach is "illegitimate," but that FEGLIA nevertheless preempts Section D, because the ordinary meaning of Section D directly conflicts with the plain language in FEGLIA.  Justice Alito also concurred in the judgment but wrote separately to argue that the majority's analysis swept too broadly.  Justice Alito said that FEGLIA preempted, because Section D overrides the insured's actual and articulated choice of beneficiary.  He said that the majority's approach went too far, because it prioritizes the designated beneficiary "even if the insured's contrary and expressed intent is indisputable."

SDS

http://lawprofessors.typepad.com/conlaw/2013/06/court-says-virginia-cant-work-around-federal-employee-insurance-beneficiary-precedence.html

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