Hillman v. Maretta

Court below: 

Warren Hillman named his wife, Judy Maretta, the beneficiary of his Federal Employees’ Group Life Insurance Act (FEGLIA) in 1996. The two subsequently divorced and Hillman remarried, but never changed the named beneficiary on his plan to his new wife, Jacqueline Hillman. Upon Warren Hillman’s death, Jacqueline Hillman attempted to claim death benefits under this policy, but her claim was denied because she was not the named beneficiary. Maretta received the benefits instead and Jacqueline Hillman commenced a suit against Maretta for the full amount of the death benefits.

Under Virginia state law, when a couple is divorced their beneficiary designations are automatically revoked. However, the  FEGLIA states that the beneficiary named on the policy shall receive the death benefits regardless of current marital status. The Supreme Court will now decide whether FEGLIA preempts Virginia’s state law regarding named beneficiaries, which will determine whether Jacqueline Hillman or Judy Maretta receives Warren Hillman’s death benefits. This case involves the proper balance of the federal government’s interest in uniform rules for the distribution of FEGLI benefits and the state of Virginia’s interest in seeing the intended beneficiary, rather than the named beneficiary, receive the death benefits.

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Questions as Framed for the Court by the Parties 

VA. CODE ANN. § 20-111.1(A) (2011) provides that a life insurance policy's revocable beneficiary designation naming a then spouse is deemed revoked upon the entry of a Final Decree of Divorce. 5 U.S.C. § 8705(a) provides that the proceeds from a Federal Employees Group Life Insurance (FEGLI) policy should be paid to the beneficiaries properly designated by the employee, and if none, then to the widow of the employee. If VA. CODE ANN. § 20-111.1 (A) is preempted by 5 U.S.C. § 8705(a) or any other federal law, VA. CODE ANN. § 20-111.1(D) (2011), gives the widow (or whoever would otherwise be entitled to the insurance proceeds), after FEGLI insurance proceeds have been distributed to an ex-spouse, a domestic relations equitable remedy against the ex-spouse for the amount of the insurance proceeds received.

The Supreme Court of Virginia, in agreement with the Supreme Court of Alabama, the First, Seventh and Eleventh Circuits of the United States Court of Appeals and several lower federal courts, but in direct conflict with the Indiana Supreme Court, the Supreme Court of Mississippi, the Court of Appeals of North Carolina, the Appellate Court of Illinois, the Missouri Court of Appeals, the Court of Appeals of Texas, the Superior Court of New Jersey, Appellate Division, the Superior Court of Pennsylvania, and the Court of Appeals of Kentucky, held that 5 U.S.C. § 8705(a) preempts a state domestic relations equitable action against the beneficiary of a FEGLI policy after the insurance proceeds of such policy have been paid to such beneficiary in accordance with the statutory order of precedence in 5 U.S.C. § 8705(a).

The question presented is whether 5 U.S.C. § 8705(a), any other provision of the Federal Employees Group Life Insurance Act of 1954 (FEGLIA) or any regulation promulgated thereunder preempts a state domestic relations equitable remedy which creates a cause of action against the recipient of FEGLI insurance proceeds after they have been distributed, like the one contained in VA. CODE ANN. § 20-111.1(D).

Issue

Whether any provision of the Federal Employees Group Life Insurance Act of 1954 preempts states from creating an equitable remedy where a third party can recover the amount of the Federal Employees Group Life Insurance benefit from the original beneficiary.

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Facts

Warren Hillman (Warren) had an insurance policy through the Federal Employees’ Group Life Insurance (FEGLI) program. See Maretta v. Hillman 722 S.E.2d 32, 33 (Va. 2012). In 1996, Hillman named his then wife, Judy A. Maretta, as the beneficiary of that insurance policy. See id. Even though Warren and Maretta divorced in 1998, Warren never designated another beneficiary. See id. Warren went on to marry Jacqueline Hillman and the two remained married until Warren’s death in 2002. See id.

The Federal Employees’ Group Life Insurance Act (FEGLIA) provides a sequence for determining who should benefit from a FEGLI policy. See Maretta v. Hillman 722 S.E.2d 32 at 33. First, the benefit will go to a beneficiary designated by the employee, if the employing office receives notice of this designation before the employee’s death. See id. at 34-35.Without a designated beneficiary, the benefit will go to the widow or widower of the employee. See id.at 33. FEGLIA also includes a provision stating the act preempts state law with respect to insurance regulation when those state laws conflict with the act. See id.

Because Hillman was not the  designated beneficiary, Hillman was unable to collect from Warren’s policy after he passed away. See Maretta v. Hillman 722 S.E.2d 32 at 33. As the designated beneficiary, Maretta received the policy’s benefits totaling $124,588.03. See id.

Hillman filed an action under Virginia Code § 20-111.1(D) against Maretta in the Fairfax County Circuit Court to recover the FEGLI proceeds or, in the alternative, a judgment for the same amount as the proceeds. See Maretta v. Hillman 722 S.E.2d 32 at 33. Maretta filed a demurrer and plea in bar claiming federal statutes preempted the Virginia state law that Hillman was relying on for recovery. See id.at 34.The court overruled the demurrer and plea in bar and determined that Code §20-111.1D was not preempted. See id. Hillman then filed a motion for summary judgment, which the court granted because no material facts were in dispute. See id. The circuit court awarded Hillman the full $124,588.03 that Maretta received from the FEGLI benefits. See id.

Maretta appealed to the Supreme Court of Virginia. See Maretta v. Hillman 722 S.E.2d 32 at 34. The Supreme Court of Virginia concluded that FEGLIA preempts Virginia Code §20-111.1(D) and, therefore, reversed the circuit court. See id. The Supreme Court of Virginia determined that FEGLI was similar to other federal insurance programs that the Supreme Court of the United States has found preempt state laws in the cases of Wissner v. Wissner and Ridgway v. Ridgway. See id. at 46.Hillman appealed, and the Supreme Court of the United States granted certiorari on January 11, 2013.

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Discussion

Maretta argues that FEGLIA preempts Virginia’s law and the federal government did not intend for parties to have a cause of action against the designated beneficiary. See Brief for Respondent, Judy A. Maretta at 14. Hillman contends that Virginia’s state law does not interfere with the federal government and should be allowed to stand. See Brief for Petitioner, Jacqueline Hillman at 19.

Federal Interest in Administration of Federal Insurance Programs versus the State Interest in Family and Insurance Law

According to the United States, Congress created FEGLI as a federally administered insurance program to boost the morale of federal employees. See Brief for the United States as Amicus Curiae in Favor of Granting Certiorari at 51. Congress designed FEGLIA to provide clear rules that reduce disputes over benefits. See id. 17-18. Maretta points out that as both creator and administrator, the federal government has an interest in clear rules that allow the government to pay out benefits from FEGLI policies efficiently. See Brief for Respondent at 14. Furthermore, Maretta asserts that the federal government has an interest in uniform rules regarding the distribution of benefits to avoid the confusion of administering FEGLI benefits in compliance with different state laws. See id. at 38.

On the other hand, Hillman contends that states like Virginia have an interest in seeing that the correct person benefits from insurance. See Brief for Petitioner at 19. Family law is an area traditionally left to the states. See id. at 17. Hillman also points out that many states have laws presuming a party’s directions involving a spouse change upon divorce, which demonstrates that Virginia should have a clear interest in regulating this area of law. See id. at 21-24. Hillman argues that these states prioritize determining the likely intention of the insured regarding the intended beneficiary of a death benefit, and that state's presumption is to provide for current family members. See id. Hillman notes the Virginia law presumes that an insured party would intend to change the beneficiary of the insurance policy upon divorce. See id.

The Designated Beneficiary or the Intended Beneficiary

Maretta argues that setting aside the Virginia law would protect the rights of the designated beneficiary of FEGLI policies. See Brief for Respondent at 20. Maretta’s interpretation of FEGLI would prevent states from allowing other parties to claim the policy’s proceeds. See id. at 35. However, Maretta concedes that these rights of the designated beneficiary are not absolute because FEGLI allows the insured employee to change the designated beneficiary without the consent of the beneficiary. See id. at 31-32. Additionally, Maretta argues that preempting the Virginia law protects the rights of the insured employee because it would provide greater assurance that the program will honor the employee’s choice of beneficiary. See id. at 35.

On the other side, Hillman argues that applying the Virginia law would protect the rights of the likely intended beneficiary. See Brief for Petitioner at 19. Hillman and the state of Virginia assume that, in most circumstances, a federal employee would want the current spouse, not the former, to benefit from the FEGLI policy. See id. 53. If this assumption is correct and laws like the Virginia statute remain in effect, then people who believe they are the intended beneficiary of a FEGLI policy could petition the court to ensure the insured’s intentions were carried out. See id. If the Virginia law is not preempted, a person, such as a widow or a widower, could receive death benefits even when the insured employee designated someone else as the beneficiary. See id.

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Analysis

The issue in this case is whether the Federal Employees’ Group Life Insurance Act (FEGLIA) preempts Virginia’s omitted spouse statute that allows a third party to recover death benefits from the named beneficiary. The Supreme Court of Virginia relied on the United States Supreme Court’s decision in Ridgway v. Ridgway to hold that Maretta, the named beneficiary, should receive the death benefits. The Supreme Court of Virginia concluded that Congress’ intent in passing FEGLIA was that the insured should have an unrestricted and non-waivable right to name or change a beneficiary, and that the FEGLIA benefits belonged to the named beneficiary.

Appealing the Supreme Court of Virginia’s decision, Hillman argues that FEGLIA does not preempt Virginia code because the Congressional intent of FEGLIA is to avoid administrative difficulties and delays. See Brief for Petitioner, Jacqueline Hillman at 30. Hillman also maintains that Congress’s decision to exclude an anti-attachment provision in FEGLIA illustrates intent to allow state non-monetary equitable remedies. See id. 38. Hillman finally asserts that the 1998 amendment to FEGLIA— requiring proceeds to be paid in accordance with a properly filed divorce decree—shows intent to not preempt all state equitable remedies. See id. 42.

Maretta argues that the Virginia law directly conflicts with the means used to implement FEGLIA, and therefore the Virginia state law is preempted. See Brief for Respondent, Judy Maretta at 20. Maretta goes on to argue that there is no reason to examine the legislative history here because the plain text of FEGLIA clearly states that there is federal preemption. See id. at 50.  Finally, Maretta asserts that FEGLIA preempts the Virginia law expressly because of the two laws’ conflicting statutory language. See id. at 52.

Express Preemption of State Law

Hillman argues that VA. Code § 20-111.1(d) (“Section D”) is not preempted by FEGLIA because the Virginia law represents a non-monetary equitable remedy that has to do with domestic relations. See Brief for Petitioner, Jacqueline Hillman at 16. Hillman argues that because the States’ historically have police powers to regulate family law, the entire realm of domestic relations and family law belongs to the States.  See Brief for Petitioner at 17. Hillman relies on language from Hisquierdo v. Hisquierdo that bolsters the presumption against preemption when the law has to do with domestic relations or family law. See id.

Hillman further argues that a simple inconsistency in the language of the federal and state statutes is not enough for federal preemption. See id. at 18. Hillman asserts that the state law must do “major damage” to “clear and substantial” interests of the federal government in order to be superseded. See id. According to Hillman, the federal interest behind FEGLIA must therefore be determined in order to see whether it preempts the Virginia law. See id. Additionally, Hillman argues that when the State and Federal interests are identical, there is a further presumption against preemption. See id. at18. According to Hillman, in this case the interests of the State and federal government are the same: for FEGLI benefits to go to their intended beneficiaries. See id. at19. Therefore, Hillman claims that the Virginia law does no major damage the federal interest and there is no preemption of the Virginia law. See id.

Maretta argues that FEGLIA preempts the Virginia law because the statutes are in direct conflict. See Brief for Respondent at 20. Maretta’s argument rests on the similarities between FEGLIA and the Servicemen’s Group Life Insurance Act of 1965 (SGLIA). In Ridgway, the Supreme Court held that SGLIA preempted state law on two independent bases. See id. The first of these bases, Maretta argues, directly applies to this case, and states that SGLIA’s “controlling provisions” prevent state law from impeding the service member’s right to designate freely the beneficiary and to change who the service member names as the beneficiary at any time. See id. Maretta asserts that this case is an even more compelling case for preemption than the Ridgway case. See id. at 21. Maretta makes this claim because the order of precedence set forth in SGLIA and FEGLIA are identical and, therefore, if the Court found that there was preemption under SGLIA, there should be an identical holding in the case at hand. See id.

Maretta goes on to assert that while Hillman points to the differences in SGLIA and FEGLIA as a basis against preemption, the differences between the statutes actually strengthen the argument for preemption in the case of FEGLIA beneficiaries. See id. at 23. The first difference between the statutes is that FEGLIA defines clearly when a decree of divorce may determine the receipt of benefits. See id. at 31. Secondly, FEGLIA’s implementing provisions prohibit abridgement of the right of the insured to designate beneficiaries. See id. at 35. Lastly, Section 8709(d)(1) demonstrates the preemptive intent of Congress. See id. at 37.

Hillman next asserts that all of the reasoning the court applied to the preemption of SGLIA can be applied to FEGLIA as well because of their latent similarities. See id. at 23. Maretta also claims that here is no need to examine the legislative history here because the language of the statute clearly calls for preemption. See id. at 50. Moreover, Maretta emphasizes that no clear difference in the statutory intent exists behind SGILA and FEGLIA that can be pointed to in the legislative history.

Implied Preemption

Implied preemption occurs when the state law works to prevent the conflicting federal law from achieving its intended objectives. See Brief for Petitioner at 28. Hillman argues that there is no implied preemption because the courts’ presumption that the objectives behind SGLIA are the same as those behind FEGLIA because they have similar statutory language with regards to precedence. See id. In Ridgway, the Supreme Court held that there was federal preemption of a State divorce judgment concerning a service member’s SGLIA policy. See id. at 30. The Supreme Court of Virginia analogized the order of precedence of the SGLIA to that of FEGLIA because of the similarity of their provisions. See id. at 30–31. Hillman therefore argues that the Supreme Court of Virginia was incorrect in this analogy. See id. at 30.

Hillman urges the Supreme Court to examine the preemptive scope of FEGLIA independent of that of SGLIA. See id.  Hillman goes on to say that the exclusion of the anti-attachment, that was added to SGLIA but excluded from FEGLIA, demonstrates that Congress’s intention was to permit enforcement of equitable remedies by the state after the benefits were distributed. See id. at 38. Furthermore, FEGLIA was amended in 1998 to require insurance proceeds to be paid upon divorce. See id. at 42. Together, argues Hillman, these elements of the statutory provision show that Congress did not intent to preempt equitable remedies from the State in FEGLIA cases. See id. at 38–43.

Maretta rebuts Hillman’s argument against preemption by stating that while the federal and state laws may share the same ultimate end goal, preemption still occurs where the means to those ends conflict. See id. at 40. According to Maretta, FEGLIA creates an “exclusive mechanism” for determining the beneficiary under state law. See id. at 43. Maretta argues that the Virginia law terminates the designation of the named beneficiary and changes who receives the death benefits. See id.

Maretta also claims that Section D does not accurately reflect the desires of the federal employee. See id. at 45. Maretta argues that the federal law is so clear that the only reasonable conclusion to be drawn is that federal employees who do not alter their named beneficiary intended to maintain the designee as the recipient of their death benefits. See id. Maretta is essentially arguing that, even though Warren Hillman and Maretta had gotten divorced, the fact that he did not remove Maretta from his FEGLI policy indicates that he intended Maretta to receive the death benefits rather than Jacqueline Hillman. See id. at 46. Thus, allowing the Virginia law to speculate on and to determine the intended beneficiary, rather than giving the death benefits to the named beneficiary, would be in direct violation of the federal law. See id.

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Conclusion

Because Warren Hillman never changed the designated beneficiary for his FEGLI policy, the policy’s death benefit was paid to his former wife and not his widow. Under Virginia state law, Jacqueline Hillman would have a cause of action to collect the policy benefit. The United States Supreme Court must now decide if FEGLIA preempts the Virginia law or if Hillman can use the Virginia law to recover the money paid under Warren’s FEGLI policy. Hillman argues that the federal law and the Virginia law can exist side-by-side and work together to ensure the intended beneficiary receives the insurance payment. However, Maretta argues that the federal law clearly preempts conflicting state laws and that the Virginia law here creates a direct conflict. The case will likely involve a balancing of the federal government’s interest in administrating federal insurance programs against the state’s interest in regulating insurance payments to their citizens.

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