Opinion ID: 852072
Heading Depth: 3
Heading Rank: 1

Heading: Provisions and Regulations Relating to the Designation of Beneficiaries

Text: 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.