Opinion ID: 852072
Heading Depth: 2
Heading Rank: 2

Heading: feglia

Text: FEGLIA's purpose is to provide low-cost group life insurance to Federal employees. H.R.Rep. No. 83-2579, at 1 (1954), reprinted in 1954 U.S.C.C.A.N. 3052, 3052. The U.S. Office of Personnel Management (OPM) administers the federal group life insurance program and may prescribe regulations necessary to carry out the purposes of FEGLIA. 5 U.S.C. § 8716(a) (2006). Mary Jo directs us to several FEGLIA provisions and the United States Supreme Court's decision in Ridgway v. Ridgway, 454 U.S. 46, 102 S.Ct. 49, 70 L.Ed.2d 39 (1981), to support her position that FEGLIA precludes a court from imposing a constructive trust on life insurance proceeds. She also cites federal decisions that have ruled in favor of preemption. [4] Phyllis and the grandchildren acknowledge that federal court decisions, including Metropolitan Life Insurance Co. v. Christ, 979 F.2d 575 (7th Cir.1992), have decided that FEGLIA preempts equitable state law claims. But they point to numerous state courts that have reached a different result. [5] After careful consideration of the two distinct analyses on this issue, we choose to follow the majority of state courts in finding that there is nothing within FEGLIA or elsewhere preventing a state court from imposing a constructive trust on FEGLI proceeds. Accordingly, we conclude that FEGLIA does not preempt an equitable state law claim for a constructive trust, notwithstanding (1) FEGLIA provisions relating to the designation of beneficiaries; (2) FEGLIA's preemption clause; and (3) Ridgway, 454 U.S. 46, 102 S.Ct. 49.
A section of FEGLIA, coupled with regulations promulgated under FEGLIA, establishes to whom FEGLI proceeds are paid when a policyholder dies. Specifically, the provisions provide an order of precedence for beneficiaries and also explain when a court order alters that order of precedence. Section 8705(a) sets the order of precedence and provides in part, (a) Except as provided in subsection (e), the amount of group life insurance ... in force on an employee at the date of his death shall be paid, on the establishment of a valid claim, to the person or persons surviving at the date of his death, in the following order of precedence: First, to the beneficiary or beneficiaries designated by the employee in a signed and witnessed writing received before death in the employing office or [under certain circumstances] in the Office of Personnel Management. For this purpose, a designation, change, or cancellation of beneficiary in a will or other document not so executed and filed has no force or effect. Second, if there is no designated beneficiary, to the widow or widower of the employee. This priority list continues within subsection (a). Subsection (e) [6] of section 8705 states that a dissolution decree that expressly names a person as the recipient of FEGLI proceeds will alter the order of precedence if the decree is received, before the date of the covered employee's death, by the employing agency or, if the employee has separated from service, by the Office [of Personnel Management]. 5 U.S.C. § 8705(e)(2). Furthermore, regulations promulgated under FEGLIA expand on the subject of beneficiaries. First, 5 C.F.R. § 870.801 (2012) provides in part that if a court order names a specific person or persons to receive life insurance benefits upon the death of an insured individual ... a certified copy of the court order must be received by the appropriate office on or after July 22, 1998, and before the death of the insured. 5 C.F.R. § 870.801(d)(1), (2). [7] And the next section provides that an insured person may change his or her beneficiary at any time without the knowledge or consent of the previous beneficiary and that this right cannot be waived or restricted. 5 C.F.R. § 870.802(f). In sum, these provisions and regulations (1) provide that an insured has the right to change his or her beneficiary at any time; (2) prioritize who shall be paid FEGLI proceeds, with the designated beneficiary at the top of the list; and (3) state when and how a dissolution decree can trump this priority list. In this case, no one sent a certified copy of Phyllis and Carlos's dissolution decree to the appropriate office before Carlos's death. Mary Jo accordingly argues that the dissolution decree cannot be enforced against her because the requirements of FEGLIA were not met. Mary Jo elaborates that Phyllis and the grandchildren could have guaranteed themselves at least part of the proceeds of the policy by following [a] simple procedure, and they had ten years in which to do so, but they did not. Mary Jo cites several federal decisions, which presented similar fact patterns, to support her contention. The Court of Appeals found these decisions persuasive and stated, `[t]o alter the designation of a beneficiary in this case by imposing a constructive trust would directly contradict the language of § 8705(e) that specifically mandates the conditions that must be met for a court divorce decree to be given effect.' Hardy, 942 N.E.2d at 845 (quoting Metro. Life Ins. Co. v. Zaldivar, 413 F.3d 119, 121 (1st Cir.2005)). Although this reasoning has been followed by numerous federal courts, many state courts have ruled against preemption. They have found that section 8705 merely provides a simple procedure for payment of the policy's proceeds and that a constructive trust imposed after the policy proceeds are paid would not conflict with that procedure. Kidd v. Pritzel, 821 S.W.2d 566, 569, 572 (Mo.Ct.App.1991) (emphasis added). Phyllis and the grandchildren urge us to adopt that logic, asserting that the federal objective was not to provide an absolute right to designate a beneficiary regardless of the content of settlement agreements and divorce decrees but simply to allow for efficiency in the payment of claims directly by FEGLIA. We agree that the imposition of a constructive trust does not conflict with the provisions relating to the order of precedence and designation of beneficiaries. [T]he sole purpose of section 8705 has always been to provide for the speedy and economic settlement of insurance claims. Fagan v. Chaisson, 179 S.W.3d 35, 42 (Tex.App.2005) (citing Kidd, 821 S.W.2d at 569-70, and noting Kidd's examination of FEGLIA's legislature history). The section fulfills the congressional intention by reducing ... administrative and legal hassles. Kidd, 821 S.W.2d at 572. Thus, once proceeds are paid out to a designated beneficiary, the purpose of § 8705 has been achieved. Id. And state law claims asserting an equitable interest in those proceeds do not affect that purpose and thus do not conflict with the congressional intent underlying FEGLIA. Id. As aptly stated in Kidd, Regardless of what claims are brought to recover the proceeds once they are paid out to the designated beneficiary, the purpose of § 8705 has been served. Neither the insurance carrier nor the government can be burdened by participation in a state judicial proceeding to recover the proceeds. Nor will they be saddled with the unpleasant and cumbersome task of interpreting state statutes, divorce decrees, property settlement agreements or wills. Under § 8705 the insurer may simply pay the policy proceeds quickly and directly to the named beneficiary and be done with it. If the insured fails to designate a beneficiary, the statute provides direction to determine the person to pay. This does not bar equitable claims.... Id. This reasoning applies with equal force to the regulations promulgated under FEGLIA, specifically, sections 870.801 and 870.802. These regulations compliment[ ] the Congressional intent of section 8705 (to alleviate administrative hassles and expedite the payment of claims) and do not preempt equitable state law claims. Fagan, 179 S.W.3d at 44. Ultimately, a constructive trust does not affect who holds legal title to the FEGLI proceeds. That is controlled by FEGLIA and the regulations promulgated under itthey control to whom the proceeds are directly paid. A constructive trust, on the other hand, protects an equitable interest in the proceeds.
FEGLIA also contains a preemption clause, which states, The provisions of any contract under this chapter which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any law of any State or political subdivision thereof, or any regulation issued thereunder, which relates to group life insurance to the extent that the law or regulation is inconsistent with the contractual provisions. 5 U.S.C. § 8709(d)(1). Mary Jo asserts that this preemption clause prevents state law from changing to whom FEGLI proceeds are paid. We agree that FEGLIA and the regulations promulgated under it control who holds legal title to the proceeds. But we see nothing in the preemption clause that precludes equitable state law claims. To interpret the preemption clause as preventing the imposition of a constructive trust extends the clause's scope beyond its plain language. The text of section 8709 reveals that it is only concerned with conflicts between state regulation of group life insurance programs and the express contractual provisions contained in FEGLIA policies. Fagan, 179 S.W.3d at 43. On the other hand, the preemption clause is not concerned with state law claims brought once the proceeds of a policy are paid out. Kidd, 821 S.W.2d at 573. Ultimately, the preemption clause's purpose is to alleviate the difficulty of interpreting state laws and regulations concerning group life insurance. Id. This purpose is consistent with the purpose underlying the provisions discussed in the previous section: the reduction of administrative and legal hassles. Id.
Mary Jo argues that the United States Supreme Court decision of Ridgway v. Ridgway, 454 U.S. 46, 102 S.Ct. 49, 70 L.Ed.2d 39 (1981), supports her preemption argument. Federal decisions have often cited this case in support of a conclusion that FEGLIA preempts equitable state law claims. E.g., Christ, 979 F.2d at 580-82. On the other hand, several state court decisions have found Ridgway inapplicable to the FEGLIA preemption issue. E.g., Fagan, 179 S.W.3d at 44-45. Importantly, Ridgway does not directly address FEGLIA but rather the Servicemen's Group Life Insurance Act of 1965 (SGLIA). [8] Ridgway's facts, however, are similar to the present case. In Ridgway, the United States Supreme Court considered whether SGLIA precluded the imposition of a constructive trust. 454 U.S. at 47, 102 S.Ct. 49. Ridgway involved a divorce decree that ordered the insured to maintain life insurance policies, including a SGLIA policy, for the benefit of the three children from the first marriage. Id. at 48, 102 S.Ct. 49. After the divorce, the insured remarried and essentially designated his second wife as the beneficiary of his SGLIA policy. Id. at 48-49, 102 S.Ct. 49. After the insured died, both the first and second wives filed claims for the SGLIA proceeds. Id. at 49, 102 S.Ct. 49. Subsequently, the first wife, on behalf of the three minor children, filed suit, seeking to enjoin the payment of the SGLIA proceeds to the second wife. Id. Ultimately, the United States Supreme Court decided that SGLIA preempted equitable state law claims. Id. at 60, 62, 102 S.Ct. 49. The Court found that the beneficiary designation controlled, and thus the second wife was entitled to the proceeds. Id. at 62, 102 S.Ct. 49. Although FEGLIA and SGLIA share similarities, there is one significant difference between the two Acts. Ridgway's language on this difference is instructive. In Ridgway, the Court determined that SGLIA's order of precedence conferred a right on an insured to designate his policy beneficiary. Id. at 55-57, 102 S.Ct. 49. As discussed above, section 8705 of FEGLIA also confers this right on an insured. But Ridgway also extensively discussed SGLIA's anti-attachment provision, which provided that SGLIA policy proceeds were exempt from creditors and any `attachment, levy, or seizure by or under any legal or equitable process whatever,' whether accomplished `either before or after receipt by the beneficiary.' Id. at 61, 102 S.Ct. 49. The Court found that a constructive trust on the SGLIA proceeds would operate as a prohibited seizure of the SGLIA proceeds, in contravention of the anti-attachment provision. Id. at 60, 102 S.Ct. 49. Furthermore,  Ridgway expressly stated that if Congress chose to avoid the result in that case, it could do so by enacting legislation which did not include an anti-attachment provision. Kidd, 821 S.W.2d at 571 (citing Ridgway, 454 U.S. at 63, 102 S.Ct. 49). Mary Jo argues that although Ridgway discussed the anti-attachment provision, it was one of two separate bases for preemption. Mary Jo asserts that because SGLIA's order of precedence alone was sufficient to find that SGLIA preempted equitable state law claims, it is of no import that FEGLIA lacks an anti-attachment provision. The Court of Appeals agreed with Mary Jo's contention, citing numerous federal decisions, including Christ in support. Hardy, 942 N.E.2d at 846-47. In response, Phyllis and the grandchildren note that Ridgway (and Christ ) were decided before 1998. In 1998, subsection (e) was added to section 8705 to provide, as discussed above, that dissolution decrees could alter FEGLIA's order of precedence where the decree was forwarded to the appropriate office prior to the insured's death. Phyllis and the grandchildren argue that [t]his provision is further evidence that the FEGLIA order of precedence is not about who ultimately receives the proceeds after they are paid ... but rather is about a concern for administrative efficiency in the payment of claims. We first note that SGLIA does not contain a method, like section 8705(e) of FEGLIA, by which a decedent's designation of beneficiary can be overridden. We also note that the purpose behind SGLIA is quite different than FEGLIA. As explained above, FEGLIA's primary purpose revolves around administrative efficiency. On the other hand, when enacting SGLIA, Congress `spoke[ ] with force and clarity in directing that the proceeds belong to the named beneficiary and no other.' 454 U.S. at 56, 102 S.Ct. 49 (quoting Wissner v. Wissner, 338 U.S. 655, 658, 70 S.Ct. 398, 94 L.Ed. 424 (1950)). Ultimately, the lack of an anti-attachment provision within FEGLIA, the divergent purposes underscoring FEGLIA and SGLIA, and the 1998 amendment to section 8705 of FEGLIA compel us to conclude that Ridgway is not controlling here. The order of preference in FEGLIA is an administrative tool to allow for the efficient payment of FEGLI proceeds. We realize that some decisions have interpreted Ridgway differently, but we respectfully disagree. Accordingly, we hold that FEGLIA does not preempt equitable state law claims to recover FEGLI proceeds that have been paid in accordance with FEGLIA's provisions and the regulations promulgated under it. A different conclusion would run afoul of the strong presumption against preemption in this traditional area of state regulation. As the Pennsylvania Superior Court fittingly recognized, [W]e are confident that Congress did not intend that the vast number of federal employees in this country be permitted to enter into voluntary, state court-sanctioned agreements ... and then shirk completely the duties imposed by those agreements. The federal interest in doing so is far too minimal and the damaging impact to state domestic relations law far too grave. Eonda v. Affinito, 427 Pa.Super. 317, 629 A.2d 119, 123 (1993).