Case Title: Metropolitan Life Ins. Co. v. Potter

Citation: 533 So. 2d 589

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1988-09-16T00:00:00Z

Document:
533 So. 2d 589 (1988)
METROPOLITAN LIFE INSURANCE COMPANY
v.
Betty Marie POTTER and Dwight Douglas Potter.
Gene Arnold POTTER
v.
Betty Marie POTTER and Dwight Douglas Potter.
Elizabeth TOWNSEND
v.
Betty Marie POTTER and Dwight Douglas Potter.
87-449, 87-477 and 87-478.

Supreme Court of Alabama.
September 16, 1988.
*590 William J. Toppeta and Allan M. Marcus, New York City, for appellant Metropolitan Life Ins. Co.
David H. Meginniss of Hornsby, Blankenship, Robinson & Meginniss, Huntsville, for appellant Gene Arnold Potter.
S. Dagnal Rowe of Cleary, Lee, Morris, Smith, Evans & Rowe, Huntsville, for appellant Elizabeth Townsend.
George W. Royer, Jr., of Butler & Royer, Huntsville, for appellees.
MADDOX, Justice.
The question presented on these appeals is whether the doctrine of federal preemption applies, specifically, whether federal law allowed a former husband to change the beneficiary on a Federal Employees' Group Life Insurance (FEGLI) policy, even though a state circuit court, in a divorce proceeding, had ordered him to maintain his former wife as the sole beneficiary.
The learned trial judge, in a lengthy judgment, determined that "the effect of a provision in a decree of divorce requiring a party to maintain a designated person as a beneficiary of life insurance create[d] a vested equitable interest in the proceeds of [the FEGLI policy] which [could not] be defeated by a later attempt to change the beneficiary." He also concluded that the insured had committed a fraud on his former wife by failing to advise her that he was going to change the beneficiary designation on the policy, and that as a result, a constructive trust should be imposed in her favor. He issued a summary judgment, finding that: "Under Alabama law it is clear that Betty Marie Potter is entitled to the proceeds of Jackie H. Potter's life insurance despite the attempt by him to change the designation of beneficiary." Metropolitan Life Insurance Company, the insurer, and Elizabeth Townsend and Gene A. Potter, two of the new beneficiaries the insured had named, appeal. Their sole claim is that federal statutes and regulations specifically applicable to the FEGLI policy preempt the state divorce decree and require the payment of the FEGLI proceeds to the designated beneficiaries. We agree with the appellants, and we reverse the judgment and remand the cause.
The facts are not in material dispute. Jackie Potts, the insured, was a retiree from the National Aeronautics and Space Administration (NASA) at the Marshall Space Flight Center in Huntsville. He was covered under a FEGLI policy issued by Metropolitan to the United States Office of Personnel Management. The FEGLI program was established by Congress to provide life insurance coverage to federal civilian employees, and it is governed by the provisions of the Federal Employees' Group Life Insurance Act of 1954 ("FEGLI Act"), 5 U.S.C. §§ 8701-8716 (1982 & Supp. 1986), and by regulations of the Office of Personnel Management, 5 C.F.R. § 870.101 et seq. (1987).
The FEGLI Act provides, in relevant part:
5 U.S.C. § 8705(a).
The regulations provide, in relevant part:
5 C.F.R. § 870.901(e).[1]
The FEGLI Act further provides:
5 U.S.C. § 8709(d)(1). (Emphasis added).
The FEGLI policy provides for payment of proceeds according to the order of precedence mandated by 5 U.S.C. § 8705(a) and prescribes the procedures that must be followed in designating a beneficiary.
On April 25, 1984, Jackie Potter and Betty Marie Potter were divorced by a judgment of the Circuit Court of Madison County, Alabama. That judgment provided, inter alia:
At the time of the divorce, the designated beneficiary of 100% of Jackie Potter's FEGLI insurance was Betty Marie Potter. In a duly executed designation of beneficiary form dated July 13, 1986, and received by the Office of Personnel Management on July 22, 1986, Jackie Potter revoked the designation of Betty Marie Potter as beneficiary of his FEGLI proceeds and named instead his son, Dwight Douglas Potter, his brother Gene Arnold Potter, and a friend, Elizabeth C. Townsend, as beneficiaries of 60%, 20%, and 20% shares, respectively. Jackie Potter did not tell his ex-wife Betty Marie Potter of the beneficiary change.
Jackie Potter died on February 16, 1987. Shortly thereafter, Metropolitan received claims for death benefits from the newly designated beneficiaries and from Betty Marie Potter. Metropolitan also received an assignment of benefits dated March 13, 1987, by Dwight Douglas Potter in favor of Betty Marie Potter, his mother.
On or about March 16, 1987, Betty Marie Potter and Dwight Douglas Potter commenced this action in the Circuit Court for Madison County, Alabama, seeking payment to Betty Marie Potter of the FEGLI proceeds payable upon Jackie Potter's death. No FEGLI proceeds have as yet been paid to any claimant, pending resolution of this action.
The authority of the United States is supreme on all subjects that the Constitution has committed to it, and since this case deals with an insurance policy issued pursuant to the FEGLI Act contained in 5 U.S.C. § 8701 et seq. and governed by administrative regulations issued pursuant to authority granted in that Act, federal power must prevail. Cf. Radio Broadcast Technicians Local No. 1264 v. Jemcon Broadcasting Co., 281 Ala. 515, 205 So. 2d 595 (1967).
According to the preemption doctrine, any time the law of Alabama is in conflict with federal law, or with the administration of a federal program, the federal law must take precedence. Fillinger v. Foster, 448 So. 2d 321 (Ala.1984). Preemption may occur from explicit preemptive language in a statute, from implied congressional intent, or where state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress. Tectonics, Inc., of Florida v. Castle Construction Co., 753 F.2d 957 (11th Cir.1985). Congressional intent to supersede state law may be inferred either because: (1) federal law is so pervasive that Congress left no room for the states to supplement it; (2) the field the federal law touches is one where the federal interests are dominant; or (3) the object the federal law seeks to obtain and the character of the obligations imposed by it reveal a strong federal purpose. Id. at 961.
In Howard v. Uniroyal, Inc., 719 F.2d 1552 (11th Cir.1983), a federal case arising from Alabama, the court recognized that "federal regulations have no less pre-emptive effect than federal statutes." Id. at 1556, quoting Fidelity Federal Savings & *592 Loan Ass'n v. De La Cuesta, 458 U.S. 141, 102 S. Ct. 3014, 73 L. Ed. 2d 664 (1982). The Court also recognized that "Congress' authority to supplant state law is no less because the state's power is exercised by the state judiciary through the common law rather than by the state legislature." Id. at 1557.
The general principles of the doctrine of preemption of state law by federal law have been stated by the United States Supreme Court in Fidelity Federal Savings & Loan Ass'n v. De La Cuesta, 458 U.S. 141, 102 S. Ct. 3014, 73 L. Ed. 2d 664 (1982), as follows:
458 U.S.  at 152-53, 102 S. Ct.  at 3022-23 (emphasis added). See also, Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 104 S. Ct. 615, 78 L. Ed. 2d 443 (1984).
Even when the conflicting state law is in the area of domestic relations,
Ridgway v. Ridgway, 454 U.S. 46, 54-55, 102 S. Ct. 49, 54-55, 70 L. Ed. 2d 39 (1981). The Supreme Court has explicitly stated that a state law divorce judgment, "like any other law governing the economic aspects of domestic relations, must give way to clearly conflicting federal enactments." Id. at 55, 102 S. Ct.  at 55. For other cases involving federal preemption of state domestic relations law, see: McCune v. Essig, 199 U.S. 382, 26 S. Ct. 78, 50 L. Ed. 237 (1905), Wissner v. Wissner, 338 U.S. 655, 70 S. Ct. 398, 94 L. Ed. 424 (1950), Free v. Bland, 369 U.S. 663, 82 S. Ct. 1089, 8 *593 L. Ed. 2d 180 (1962), Yiatchos v. Yiatchos, 376 U.S. 306, 84 S. Ct. 742, 11 L. Ed. 2d 724 (1964), Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S. Ct. 802, 59 L. Ed. 2d 1 (1979), and McCarty v. McCarty, 453 U.S. 210, 101 S. Ct. 2728, 69 L. Ed. 2d 589 (1981).
Under the principles of federal preemption, the federal statutes and regulations governing FEGLI must preempt and supersede conflicting state law embodied in or arising from a divorce decree.
In the instant case, there is no dispute that the beneficiary designation form of July 13, 1986, completed by Jackie Potter and filed with the Office of Personnel Management, complied with the requirements of the FEGLI Act, the regulations, and the policy and was therefore a valid designation of beneficiary. Under the FEGLI regulations, 5 C.F.R. § 870.901(e), Jackie Potter had the unrestrictable right to make this beneficiary change. There was no requirement, under the regulations, to notify the previous beneficiary or to obtain her consent. Indeed, the regulations affirmatively permit a change of beneficiary "at any time and without the knowledge or consent of the previous beneficiary" and prescribe that: "This right cannot be ... restricted." 5 C.F.R. § 870.901(e). Upon Jackie Potter's death, pursuant to the FEGLI order of precedence, 5 U.S.C. § 8705(a), payment of the FEGLI proceeds must be made to the latest designated beneficiaries, namely Dwight Douglas Potter, Gene Arnold Potter, and Elizabeth Townsend.
The trial court was aware of the direction of the federal law governing distribution of FEGLI proceeds, but held that the distribution of the FEGLI proceeds should be controlled by the state court divorce judgment which ordered Jackie Potter to maintain his ex-wife Betty Marie Potter as beneficiary of existing life policies. The state law embodied in or arising from the divorce judgment that would give Betty Marie Potter an interest in the FEGLI proceeds superior to that of the newly designated beneficiaries directly conflicts with federal law. If the divorce judgment is deemed to control payment of the FEGLI proceeds, then it conflicts with the federal statutory order of precedence, 5 U.S.C. § 8705(a); with Jackie Potter's right to change beneficiaries without restriction under 5 C.F.R. § 870.901(e); and with the express preemption provision of 5 U.S.C. § 8709(d)(1); and if it could be construed to control who will receive the FEGLI proceeds, then the court's judgment would effectively nullify Congress's choice that FEGLI requirements for designating a beneficiary must be strictly complied with. 5 U.S.C. § 8705(a). In each area of conflict between federal law and state law, it is federal law that must prevail, under the doctrine of federal preemption.
In a case virtually indistinguishable from the case at bar, except for the specific government life insurance program involved, the United States Supreme Court held that the provisions of the Servicemen's Group Life Insurance Act of 1965 ("SGLIA"), 38 U.S.C. § 765 et seq. (1982 & Supp.1985), prevail over inconsistent state law. Ridgway v. Ridgway, 454 U.S. 46, 102 S. Ct. 49, 70 L. Ed. 2d 39 (1981).
In Ridgway, Army Sergeant Ridgway and his first wife were granted a divorce by a Maine court. The divorce judgment ordered Ridgway to keep in force existing insurance policies on his life for the benefit of his three children. At the time of the divorce, Sgt. Ridgway's life was insured under a $20,000 policy issued by Prudential Life Insurance Company of America pursuant to SGLIA, and Ridgway's first wife, April, was the designated beneficiary. Ridgway remarried and changed the policy's beneficiary designation so that the proceeds would be payable as provided "by law." SGLIA establishes a specified "order of precedence," 38 U.S.C. § 770(a), under which life insurance proceeds are paid to the insured's widow or widower if there is no designated beneficiary. Thereafter, Sgt. Ridgway died, survived by his second wife, Donna. After April and Donna both filed claims for the policy proceeds, April instituted suit in a Maine superior court against Prudential, seeking to enjoin payment of the proceeds to Donna and to obtain a judgment declaring that the proceeds were payable to the children under *594 the divorce judgment. The Maine Supreme Court imposed a constructive trust on the proceeds for the benefit of the children. The United States Supreme Court reversed, holding that SGLIA and related regulations preempted the state court judgment and that payment of the proceeds must be made to the insured's widow, Donna, under SGLIA's "order of precedence." Ridgway v. Ridgway, 454 U.S.  at 48-50, 59-60, 102 S. Ct.  at 51-53, 57-58.
The Supreme Court's holding in Ridgway is dispositive of the case at bar. Ridgway cannot be distinguished just because it dealt with a different federal insurance program. The basic structure of SGLIA was patterned after the FEGLI Act, and the two acts are intended to be construed identically. See, Stribling v. United States, 419 F.2d 1350, 1353-54 (8th Cir. 1969). Both acts authorize the purchase of group policies from private insurance companies. Compare 5 U.S.C. § 8709 and 38 U.S.C. § 766. The designation-of-beneficiary provisions under the two acts are virtually identical. SGLIA § 770(a) provides for an order of precedence of payment of insurance proceeds "First, to the beneficiary or beneficiaries as the member or former member may have designated by a writing received prior to death...." Compare FEGLI Act, 5 U.S.C. § 8705(a). The regulations pertaining to SGLIA provide that an insured "may designate any person, firm, corporation or legal entity" as beneficiary, 38 C.F.R. § 9.16(f), and that "[a] change of beneficiary may be made at any time and without the knowledge or consent of the previous beneficiary." 38 C.F.R. § 9.16(e). Compare FEGLI regulations, 5 C.F.R. § 870.902(d) and (e). Given a similar factual situation and a statutory and regulatory scheme virtually identical to that in the case at bar, the Supreme Court concluded that the controlling provisions of SGLIA must "prevail over and displace inconsistent state law." Ridgway, 454 U.S.  at 60, 102 S. Ct.  at 57.
The provisions of the FEGLI Act and regulations indicate even more strongly that the state court judgment must yield to federal law in this case. The regulations pertaining to change of beneficiary contain the additional language stating that the insured's right to change the beneficiary designation at any time "cannot be waived or restricted." 5 C.F.R. § 870.901(e) (emphasis added).
Furthermore, unlike SGLIA, which was before the Court in Ridgway, the FEGLI Act expressly mandates preemption, providing:
5 U.S.C. § 8709(d)(1). It is certainly appropriate for us to conclude, as the court stated in Ridgway, that "Congress has spoken with force and clarity in directing that the proceeds belong to the named beneficiary and no other." Ridgway, 454 U.S.  at 55-56, 102 S. Ct.  at 55-56, quoting Wissner v. Wissner, 338 U.S. 655, 658, 70 S. Ct. 398, 399, 94 L. Ed. 424 (1950).
The Court in Ridgway indicated that the earlier case of Wissner v. Wissner, 338 U.S. 655, 70 S. Ct. 398 (1950), which had held that the National Service Life Insurance Act of 1940, 38 U.S.C. § 801 et seq. (now 38 U.S.C. § 701 et seq.) preempted California community property law, was controlling. 454 U.S.  at 55, 102 S. Ct.  at 55. In Wissner, the insured's widow attempted to assert her community property interest in one-half of the proceeds of the NSLIA policy, even though the insured had designated his mother as beneficiary. The Supreme Court found that California law was in direct conflict with the NSLIA, which gives the insured the right to designate a beneficiary and to change the beneficiary at any time. Wissner v. Wissner, 338 U.S.  at 658-59, 70 S. Ct.  at 399-400. The court held that California's community property law was in conflict with the NSLIA provision because it "nullifies the soldier's choice and frustrates the deliberate purpose of Congress [that the proceeds be paid *595 to the named beneficiary]. It cannot stand." 338 U.S.  at 659, 70 S. Ct.  at 400.
The precedent set by Ridgway v. Ridgway has been followed consistently in cases dealing specifically with the FEGLI Act. See, Metropolitan Life Insurance Co. v. McMorris, 786 F.2d 379 (10th Cir.1986); Metropolitan Life Insurance Co. v. McShan, 577 F. Supp. 165 (N.D.Cal.1983); Knowles v. Metropolitan Life Insurance Co., 514 F. Supp. 515 (N.D.Ga.1981); McGovern v. Broadstreet, 720 P.2d 589 (Colo. Ct.App.1985); and Estate of Hanley v. Andresen, 39 Wash. App. 377, 693 P.2d 198 (1984). The courts in all of these cases held that the FEGLI Act and regulations, giving the insured federal employee the right freely to designate a beneficiary, must preempt and supersede inconsistent provisions of a state court divorce judgment.
While the result we reach in this case may seem harsh, the language and intent of the congressional act and the regulations promulgated pursuant to the authority granted by the Act, are clear, and the result we reach is the same result other courts have reached when dealing with cases involving a FEGLI policy. The most recent case we have found is O'Neal v. Gonzalez, 839 F.2d 1437 (11th Cir.1988). There, the insured had designated his aunt as the beneficiary under his FEGLI policy, but had also contractually agreed with a girl friend with whom he lived that he would name her as the beneficiary. The facts in O'Neal closely parallel those of this case. Because the facts of that case and the contentions of the parties in that case are so similar to the facts and the contentions of the parties in this case, we quote extensively from that opinion, which was authored by Chief Judge Roney:
"O'Neal raises two issues on appeal: (1) whether an insured's change of designated beneficiary under a FEGLIA policy is valid when it violates a contractual agreement made by the insured to provide *596 payment of the policy in another manner; and (2) whether a constructive trust benefitting a non-designated person may be imposed upon proceeds of the FEGLIA policy once payment has been made to the designated beneficiary. For the purpose of summary judgment, the district court properly assumed the existence of a contract between O'Neal and Bazo and that Bazo had breached that agreement.
"5 U.S.C.A. § 8705(a).
"5 C.F.R. § 870.901 (1986).
"In Metropolitan Life Insurance Co. v. McShan, 577 F. Supp. 165 (N.D.Cal. 1983), federal employee Ellis McShan, insured under FEGLIA, named his four children as beneficiaries. In a judgment entered in a marriage dissolution action, McShan was ordered to maintain all of his children as beneficiaries of his life insurance policy. Subsequently, McShan executed a second designation of beneficiary form, naming his second wife, Esther, as sole beneficiary. The children contended that the proceeds should be held in a constructive trust because the state court order was violated. The court in a comprehensive, well-reasoned decision, held that the substantive rights granted under FEGLIA and the regulations prevailed over and preempted state law to the contrary.
*597 "O'Neal does not attempt to distinguish these cases, but rather points out the inequity of the results in McShan and Knowles as well as the inequity to O'Neal should this appeal be decided against her.
"`It must be assumed that the federal provisions regarding designation of beneficiaries were intended to confer on the insured more than the right to do a meaningless act. If the proceeds are to go to someone other than the designated beneficiary the act of so designating serves no purpose.'
"McShan, 577 F. Supp.  at 168.
839 F.2d  at 1440.
The trial judge in the present case was of the opinion that Yiatchos v. Yiatchos, 376 U.S. 306, 84 S. Ct. 742, 11 L. Ed. 2d 724 (1964), and the state court case of Roberts v. Roberts, 560 S.W.2d 438 (Tex.Civ.App. 1977), supported his judgment. We must disagree. In Metropolitan Life Ins. Co. v. McShan, 577 F. Supp. 165 (N.D.Calif.1983), cited approvingly by Chief Judge Roney in O'Neal, Chief Judge Peckham discussed both the Yiatchos case and the Roberts case. He stated that "[a] number of factors indicate that Roberts was wrongly decided." He also opined that Ridgway, not Yiatchos, was controlling. McShan involved a factual situation strikingly similar to the one presented here. Chief Judge Peckham held that the FEGLI Act preempted a state court divorce order requiring an insured federal employee to maintain all his children as beneficiaries of his life policy and that the employee's second wife, whom he had subsequently named as beneficiary, was entitled to the proceeds of the policy when the employee died. As pointed out earlier, the Eleventh Circuit in O'Neal cited McShan with approval.
Other cases reaching similar results are: Adams v. Macy, 314 F. Supp. 399 (D.Md. 1970) (designation-of-beneficiary form, which was witnessed by the beneficiary in violation of a federal regulation stating that a beneficiary could not act as witness *598 to the designation, was ineffective to change the beneficiary); Estate of Hanley v. Andresen, 39 Wash. App. 377, 693 P.2d 198 (1984) (literal compliance with FEGLIA and the regulations is necessary in designating a beneficiary); Metropolitan Life Ins. Co. v. Trainor, 754 P.2d 427 (Colo. App.1988) (in an interpleader action filed by Metropolitan, the trial court found that the federal employee had intended to name his second wife as the beneficiary and ordered the benefits paid to her, but the appellate court reversed, holding that the insured's failure to designate his second wife as beneficiary left his former wife as beneficiary despite his intent, because under federal law, strict compliance with the law and regulations regarding change of beneficiary was mandatory).
In reaching the decision we reach in this case, we have considered the case of Lingle v. Norge Division of Magic Chef, Inc., ___ U.S. ___, 108 S. Ct. 1877, 100 L. Ed. 2d 410 (1988), which held that the petitioner's state tort remedy for retaliatory discharge was not preempted by § 301 of the Labor Management Relations Act of 1947, 29 U.S. C. § 185. We are of the opinion that Lingle in no way changes or modifies the rule of law set out in Ridgway and applicable to this case.
Based on the foregoing, we hold that the judgment of the trial court is due to be reversed and the cause remanded for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
TORBERT, C.J., and ALMON, BEATTY and HOUSTON, JJ., concur.
[1]  5 C.F.R. § 870.901(e) was redesignated as 870.902(e), effective 1/6/88.