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Opinion analysis: States can’t override federal employees’ life insurance designations

Six short weeks after the April 22 argument in Hillman v. Maretta, the Court decided unanimously that the Federal Employees’ Group Life Insurance Act (FEGLIA) – which provides that the proceeds of federal life insurance policies shall be paid to designated beneficiaries before anyone else – preempts a Virginia law that allows the family of a deceased employee to sue the designated beneficiary for the proceeds if the beneficiary happens to be the employee’s former spouse. The holding rests on the rationale we predicted in our argument recap: that FEGLIA seeks to honor the employee’s choice of beneficiary, and any state attempt to redirect the proceeds conflicts with that objective and is therefore preempted. Notwithstanding the unanimity in the result, the case produced three opinions reflecting the Justices’ varied approaches to the question presented.

We discussed the background and nature of the relevant statutes in our preview. Briefly, FEGLIA provides that federal employees’ life insurance proceeds shall be paid according to an “order of precedence” that gives priority to designated beneficiaries. The Commonwealth of Virginia, concerned that employees might neglect to update their designations after divorce and therefore might unintentionally confer benefits upon their ex-spouses instead of their current families, enacted a statute with two relevant sections. The first (Section A) provided that any designation of a spouse was deemed revoked upon divorce. If the insured employee wanted the life insurance proceeds to go to the former spouse, then the employee would have to re-designate that person. Otherwise, the proceeds would be distributed as if the designation had never been made. Everybody agrees that Section A is preempted because it directly conflicts with FEGLIA’s order of precedence.

This case concerned the second relevant provision, Section D, which provided that if Section A was held preempted, then whoever would be entitled to the life insurance proceeds under state law may sue the former spouse to recover any proceeds paid. Section D acknowledged that if state law could not direct the initial payment of the proceeds, it might nevertheless be able to determine the ultimate destination of those proceeds. Defenders of Section D reasoned that FEGLIA’s order of precedence was designed for a single purpose: to make it easy for federal plan administrators to pay benefits by providing a clear rule about who should initially receive the funds. But they argued that Congress was not concerned with where the funds ultimately landed, so that the states were free to enact laws diverting funds that had already been paid.

The Supreme Court, in an opinion by Justice Sotomayor, rejected that argument, holding that Congress sought not only to achieve administrative convenience, but also to honor the employee’s choice of beneficiary. The Court reasoned that FEGLIA is “strikingly similar” to the National Service Life Insurance Act of 1940 (NSLIA) and the Servicemen’s Group Life Insurance Act of 1965 (SGLIA) – both of which, the Court has previously held, preempt state laws similar to Section D. The Court held that the reasoning of those cases “applies with equal force here,” and that Section D “interferes with Congress’ scheme, because it directs that the proceeds actually ‘belong’ to someone other than the named beneficiary.” The Court thus held that the insured employee’s designation of a beneficiary should be treated as conclusive evidence of his intent. It acknowledged that “[o]ne can imagine plausible reasons to favor a different policy” – including Virginia’s stated justification that insured employees often fail to update their insurance designations after divorce – but concluded that Congress made a different judgment in enacting FEGLIA. It found support for its holding in FEGLIA’s text and legislative history, and rejected attempts to distinguish NSLIA and SGLIA.

The decision does not break new ground. The Court applied settled rules of statutory construction and conflict preemption to hold that when state laws conflict with Congress’s purposes and objectives, the Supremacy Clause does not permit those laws to stand. The ideological diversity of seven Justices joining the main opinion, and the speed with which the Court delivered the result, further signals that the case was a relatively easy one. Nevertheless, three Justices took the opportunity to express disagreement with the Court’s approach.

Justice Scalia continued his practice of spurning legislative history. He joined the entire majority opinion, except footnote 4, which citied the legislative history of FEGLIA as support for the holding. Over the years, Justice Scalia has repeatedly distanced himself from citations to legislative history, especially when he believes them to be unnecessarily cumulative with stronger evidence of Congressional intent.

Justice Thomas wrote separately, concurring in the judgment only and arguing that “purposes and objectives” preemption is a “freewheeling inquiry” that “looks beyond the text of enacted federal law and thereby permits the federal government to displace state law without satisfying an essential precondition to pre-emption, namely, the Bicameral and Presentment Clause.” Justice Thomas takes the view that preemption should only be found when the textual command of a federal statute effectively repeals contrary state law. Concluding that this more stringent test was satisfied here, Justice Thomas nevertheless determined that FEGLIA preempted Section D. Justice Thomas’s concurrence continues a theme that he first voiced in Wyeth v. Levine, a case involving preemption of state torts for inadequate pharmaceutical warning labels.

Justice Alito likewise wrote separately to clarify that in his view, the majority went too far in holding that the employee’s designation should always triumph, even in the face of a contrary clear expression of intent (for example, a validly executed will stating that the employee wished for somebody other than the designated beneficiary to receive his life insurance benefits). In Justice Alito’s view, “FEGLIA prioritizes the insured’s expressed intent,” but does not necessarily determine how that intent must be expressed. In Justice Alito’s opinion, Section D is properly deemed preempted because it overrides the employee’s expressed intent, but perhaps a state statute that privileges a more reliable instrument would not be.

The upshot is that federal employees can have confidence that their life insurance designations will be honored. Of course, and now more than ever, it is incumbent upon those employees to make sure that their designations stay current.

Recommended Citation: Tejinder Singh, Opinion analysis: States can’t override federal employees’ life insurance designations, SCOTUSblog (Jun. 3, 2013, 3:44 PM),