In a unanimous decision in favor of Winston & Strawn client Judy Maretta, the U.S. Supreme Court ruled this week that the Federal Employees’ Group Life Insurance Act (FEGLIA) preempts state statutes that interfere with federal employees’ "unfettered freedom of choice" in selecting who will receive and enjoy the benefits of their life insurance policies. The Court’s decision is significant not only for FEGLIA itself—an $824 billion program covering roughly 1.8 million civilian federal employees—but also for preemption under other federal statutes, such as ERISA and the Federal Employees Health Benefits Act (FEHBA), which present similar preemption issues.

Under FEGLIA’s statutory "order of precedence," life insurance proceeds are to be paid first to the insured employee’s designated beneficiary, then to any widow or widower, then to any children, and so on.

But Virginia law disfavors—and purports to change—designations in favor of former spouses: Under Va. Code § 20-111.1(A) ("Section A"), the designation of a former spouse as a beneficiary is automatically revoked upon divorce (which means any insurance proceeds are paid to the beneficiary who is next in line under applicable law). In Egelhoff v. Egelhoff, 532 U.S. 141 (2001), however, the Supreme Court held that a similar Washington state law was preempted by ERISA. Thus, in hopes of avoiding that ruling, Virginia adopted an additional provision (Va. Code § 20-111.1(D) ("Section D")) that purports to make the former spouse personally liable to the state’s preferred beneficiary for the value of the proceeds received. Notably, twelve other states have statutes like Section D—statutes that also apply to benefits under ERISA.

Hillman v. Maretta concerned the life insurance policy of federal employee Warren Hillman, who named his then-wife, Judy Maretta, as his FEGLI beneficiary. The two later divorced, and Warren later married Jacqueline Hillman. Warren never changed his FEGLI designation, however, and died leaving Hillman as his widow but Maretta as his named beneficiary. The federal government’s insurance company thus paid the FEGLI proceeds to Maretta.

Hillman then sued Maretta, invoking Section D of the Virginia law. The Virginia Supreme Court held that FEGLIA preempted Hillman’s claim because the statute conflicted with FEGLIA’s purposes. The U.S. Supreme Court then took up the case, looking to resolve a split among the lower courts as to the scope of FEGLIA preemption.

In an opinion by Justice Sotomayor, the Court affirmed, holding the Virginia law preempted. Applying conflict preemption principles, the Court framed the question as whether Congress’s interest in enacting FEGLIA’s order of precedence was solely one of administrative convenience—i.e., creating a clear rule for where the Government should send a check—or also included a substantive interest in ensuring that duly named beneficiaries would enjoy the use of FEGLI proceeds. Relying on two prior decisions involving similar statutory language (Wissner v. Wissner, 338 U. S. 655 (1950), and Ridgway v. Ridgway, 454 U. S. 46, 55 (1981)), the Court agreed that FEGLIA was designed to serve both purposes. And because the effect of Section D was to take proceeds that "belong" to the designated beneficiary and redistribute them to someone else, Section D was preempted.

Significantly, the Court concluded that it made no difference for preemption purposes whether the displacement of the federal beneficiary occurred directly (as through Section A), or indirectly (as through the cause of action created by Section D). Either way, the state law at issue "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," and thus has to give way to federal law.

The Court found further support for its decision in a 1998 amendment to FEGLIA, under which Congress created a specific mechanism for filing a divorce decree with OPM. Under this provision, a divorce decree would take precedence over the designated beneficiary if the decree not only was properly witnessed and filed with OPM, but also specifically required a named person other than the former spouse to receive the insurance proceeds. By providing this limited method of changing the beneficiary as a result of divorce, Congress implicitly directed that no other state-law mechanism for recognizing divorce was permissible. And while the Court noted that it had long applied a "presumption against preemption" of state laws governing domestic relations, it found that presumption overcome.

Two Justices concurred in the judgment. Justice Thomas reiterated his view that the "purposes and objectives" framework is "an illegitimate basis for finding the pre-emption of a state law," but agreed nonetheless that the Virginia law is preempted because it "directly conflicts" with the insured’s federal right to designate a beneficiary. Justice Alito likewise agreed that Section D is preempted, but he (unlike the other eight Justices) would have held open the possibility that a state law may override a designation made under federal law where such designation "is indisputably contrary to the insured’s expressed wishes at the time of death."

Although the Court’s decision focused on the language and purposes of FEGLIA, Maretta is likely to bear on similar preemption questions that arise under other benefits programs, such as ERISA and FEHBA. For example, Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009), left open the question whether ERISA preempts post-distribution state law claims by the decedent’s estate against a former spouse who receives ERISA benefits despite language in a divorce decree waiving such benefits. Cf. Boggs v. Boggs, 520 U.S. 833, 853 (1997) ("If state law is not pre-empted, the diversion of retirement benefits will occur regardless of whether the interest in the pension plan is enforced against the plan or the recipient of the pension benefit"). The Court’s conclusion that preemption turns on a practical view of the effect of state law could have a significant effect on these cases, which continue to perplex the lower courts.

The Court’s opinion is available here, and Winston’s brief for respondent is available here.