Beneficiary choices that federal employees make in their government-sponsored life insurance trump state laws that could cause the benefits to be paid out in a different way, the U.S. Supreme Court held Monday.
The court ruled unanimously, although with some differences in reasoning among the justices, that the federal law governing the Federal Employees’ Group Life Insurance Program overrides a provision in Virginia state law.
The FEGLI program offers term-type life insurance to federal employees that can be carried into retirement. The basic benefit is roughly equal to the employee’s salary; additional coverage worth up to about an extra five times as much can be elected, as can smaller amounts on family members. The government pays part of the cost of basic insurance except that the U.S. Postal Service pays the entire cost for its employees. Enrollees pay the entire cost of any additional coverage they choose.
The case before the high court involved an employee who named his then-spouse as the beneficiary of his FEGLI benefits. They later divorced and he remarried, but he did not change the beneficiary designation.
After his death, his former spouse received benefits of nearly $125,000, but his surviving spouse sued in Virginia state court under a state law designed to give a current spouse the right to death benefits paid to a former spouse in such a situation. A lower Virginia court ruled in the surviving spouse’s favor but the state’s high court reversed, finding the state law to be preempted by the federal law.
The U.S. Supreme Court agreed, saying that in the FEGLI law “Congress established a clear and predictable procedure for an employee to indicate who the intended beneficiary of his life insurance shall be.”
The Virginia law “interferes with Congress’ scheme, because it directs that the proceeds actually ‘belong’ to someone other than the named beneficiary by creating a cause of action for their recovery by a third party,” Justice Sonia Sotomayor wrote for the court.
She wrote that “many employees perhaps neglect to update their beneficiary designations after a change in marital status” but said the law is clear that the designation on record in the FEGLI program must be honored.
The only exception is if the insured person applies for a change in beneficiary but dies before that change is officially recorded, the court said. “If States could make alternative distributions outside the clear procedure Congress established, that would transform this narrow exception into a general license for state law to override” the federal FEGLI law, it said.
The case is Hillman v. Maretta, No. 11-1221.