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Insurance Law

The Supreme Court's Decision in Hillman v. Maretta: The Perils of Beneficiary Designation

By Professor by Leo P. Martinez

Hillman v. Maretta, decided by the U.S. Supreme Court on June 3, 2013 [enhanced version available to subscribers], illustrates the intricacies of the constitutional preemption doctrine and the difficulty of accounting for human behavior. The case, decided unanimously with two concurring opinions, deals with the too commonly occurring situation of a deceased husband who, before his death, fails to change an existing life insurance policy designation upon his remarriage to a new spouse.

The State of Virginia, in harmony with many states, provides that a divorce or annulment of a marriage automatically revokes a beneficiary designation to a former spouse. By contrast, federal law - here the Federal Employees' Group Life Insurance Act (FEGLIA) - accords the original beneficiary designation great significance. The case deals with the question of whether the Virginia statutory framework favoring a new spouse must yield to the federal statute that respects the original, unrevoked beneficiary designation in favor of a former spouse.

This commentary by Professor Leo P. Martinez explains that FEGLIA establishes a life insurance program for federal employees. Upon the death of an employee covered by FEGLIA, life insurance benefits are paid according to a specified "order of precedence." The order of precedence requires any proceeds to accrue first to the beneficiary or beneficiaries designated prior to the employee's death. For the beneficiary designation to be effective it, and any revisions, must be in writing and filed with the government prior to the death of the employee. This requirement, along with the order of precedence, is described in the form employees use to designate a beneficiary. The form also advises employees to update their designations if their intentions change due to a change in marital status.

In 1998, Congress created a limited exception to an employee's right of designation, providing that the order of precedence would be disregarded only as "'expressly provided for in the terms of any court decree of divorce, annulment, or legal separation' or any related settlement, but only in the event the 'decree, order, or agreement' is received" before the employee's death. In this way the statute provides for a mechanism revoking a designation in the event of divorce, but, notes Professor Martinez, "it unequivocally requires action of a definite character prior to an employee's demise."

By contrast, Section 20-111.1(A) (Section A) of the Virginia Code "provides that a divorce or annulment 'revoke[s]' a 'beneficiary designation contained in a then existing written contract owned by one party that provides for the payment of any death benefit to the other party.'" The statute further provides that if federal law preempts Section A, Section 20-111.1(D) (Section D) applies. Section D "creates a cause of action rendering a former spouse liable for the principal amount of the insurance proceeds to the person who would have received them had Section A continued in effect." Because the parties agreed that Section A was preempted by FEGLIA, the Court confined its discussion to the question of whether Section D is preempted as well.

The commentary explains the Court's reasoning in resolving the conflict between the federal and Virginia law as to whether a divorce of a marriage automatically revokes a beneficiary designation to a former spouse in a life insurance policy made available by the Federal Employees' Group Life Insurance Act. The commentary further surveys several states' laws on the issue of whether a divorce or annulment of a marriage automatically revokes a beneficiary designation to a former spouse in a life insurance policy.

     Leo P. Martinez is the Albert Abramson Professor of Law at the University of California, Hastings College of the Law; co-editor, with Marc Mayerson, Douglas R. Richmond, and Jeffrey Thomas of The New Appleman Insurance Practice Guide (LexisNexis 2013); co-author with Douglas R. Richmond of Insurance Law; adviser to the American Law Institute project on Principles of the Law of Liability Insurance; and member of the Editorial Board of The New Appleman on Insurance Law Library Edition.

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