Virginia statute on revocation of benefits incident to divorce is preempted by federal law for federal insurance policies.
In 1996, Warren Hillman named Judy Maretta, his wife at the time, as the beneficiary of a Federal Employees’ Group Life Insurance (FEGLI) policy. Warren and Judy later divorced. In 2002, Warren married Jacqueline Hillman. Warren never changed his FEGLI beneficiary designation and died in 2008 while still married to Jacqueline. Judy filed a claim for andreceived the death benefits of the FEGLI policy. Jacqueline sued Judy in the Fairfax Circuit Court claiming entitlement to the death benefit.
Virginia Code § 20-111.1(A) statutorily revokes any revocable beneficiary designation for the benefit of a spouse in the event of a divorce. In addition, Virginia Code § 20-111.1(D) provides that if Virginia Code § 20-111.1(A) is preempted by federal law, a former spouse who receives a death benefit is personally liable for that amount to the person who would be entitled to it if not for the preemption.
In contrast to these provisions of the Virginia Code, the Federal Employees’ Group Life Insurance Act (FEGLIA) directs that the benefits of a FEGLI policy are payable first to the designated beneficiary, or, if there is no designated beneficiary, to the insured’s surviving spouse. FEGLIA also contains an express preemption provision stating that provisions of FEGLIA supersede and preempt all inconsistent state laws. The circuit court granted summary judgment to Jacqueline, finding that FEGLIA did not preempt Virginia Code § 20-111.1(D) and that Jacqueline was therefore entitled to recover the benefits from Judy under Virginia law.
On appeal, the Supreme Court of Virginia reversed the circuit court on the grounds that: (1) because Congress intended that FEGLI policy benefits should belong to the designated beneficiary, FEGLIA preempts the applicable Virginia Code provisions; (2) Judy, as the designated beneficiary, is entitled to the death benefit of the FEGLI policy; (3) because Virginia Code § 20-111.1(A) revokes the beneficiary designation upon divorce, it alters the order of precedence outlined in FEGLIA and therefore directly conflicts with its provisions; (4) as such, Virginia Code § 20-111(A) is preempted by federal law.
Unlike Virginia Code § 20-111.1(A), Virginia Code § 20-111.1(D) does not alter the direct payment of FEGLI benefits, but rather grants a third party the right to recover those benefits from the former spouse. Jacqueline argued that since the statute was not in direct conflict with the federal law, it should not be preempted. However, the Virginia Supreme Court held that Congress intended the benefits to belong to (and not merely be payable to) the designated beneficiary. Therefore, Virginia Code § 20-111.1(D) is preempted since it serves as an obstacle to the accomplishment of the federal statute’s goals and frustrates the purposes of Congress. Under FEGLIA, Congress intended that no persons other than the designated beneficiary should have an interest in the FEGLI policy benefits. Since the federal statute preempts the applicable Virginia Code sections, Judy, the designated beneficiary, is entitled to the policy benefits and Jacqueline has no claim against Judy for the benefits.