Supreme Court Holds Federal Law Preempts State Law Allowing Litigation Over Proceeds Of Federal Life Insurance Policy

Recently, in Hillman v. Maretta,1 the Supreme Court of the United States affirmed a Virginia Supreme Court ruling that held that federal law preempts a state law that allowed a deceased federal employee's spouse to sue a former spouse for proceeds paid to her as a beneficiary under the Federal Employees' Group Life Insurance Act (FEGLIA). Although the decision was based on the specific provisions of FEGLIA, the principles expressed in the decision may apply to similar insurance or plan proceed disputes arising under the Employee Retirement Income Security Act (ERISA).

Section 20-111.1 of the Virginia Code allows an insurance policyholder's widow or widower to sue a former spouse to recover death benefits the former spouse received under an insurance policy or death benefit plan. The purpose of the statute is to address a situation in which a policyholder neglects to change his or her beneficiary designation after a change in marital status, presuming that the policyholder would want the death benefits to be paid to his or her current spouse. Noting several other states have similar statutes and that federal courts have split on the issue of whether such statutes were preempted by FEGLIA, the Supreme Court granted certoriari to resolve the dispute.

Applying traditional conflict preemption principles, the Supreme Court held the Virginia statute was preempted by federal law because one of the purposes of FEGLIA is to ensure that a named beneficiary receives and keeps control of insurance proceeds under the life insurance program for federal employees. Section 20-111.1 of the Virginia Code directly conflicts with that purpose, the Court explained, by providing that a widow or widower can sue a former spouse to collect the proceeds of the policy despite the designation of the former spouse as the named FEGLIA beneficiary. Importantly, over the objection of Justice Thomas - who concurred in the result but not the opinion - the majority opinion looked to “the nature of the federal interest” at issue to determine whether the Virginia statute was preempted by FEGLIA. In contrast, Justice Thomas wrote in his concurring opinion that the Court should simply interpret the textual meaning of FEGLIA's terms, as opposed to “engag[ing] in freewheeling inquiry into whether state law undermines supposed federal purposes and objectives.”

While the holding in Hillman concerns only the preemptive effect of FEGLIA, which applies to employees of the federal...