Ridgway v. Prudential Ins. Co. of America

• Decision Date: 26 September 1980
• Citation: 419 A.2d 1030
• Parties: Hayley D. RIDGWAY et al. v. PRUDENTIAL INSURANCE COMPANY OF AMERICA.
• Court: Maine Supreme Court

Page 1030

419 A.2d 1030

Hayley D. RIDGWAY et al. v. PRUDENTIAL INSURANCE COMPANY OF AMERICA.

Supreme Judicial Court of Maine.

Argued March 17, 1980.

Decided Sept. 26, 1980.

Linnell, Choate & Webber, G. Curtis Webber (orally), Auburn, Orestis & Garcia, Peter Garcia (orally), Lewiston, for plaintiffs.

Skelton, Taintor & Abbott, Stephen P. Beale (orally), Lewiston, for defendant.

Before McKUSICK, C. J., and GODFREY, NICHOLS, GLASSMAN and ROBERTS, JJ.

GLASSMAN, Justice.

In this case, we are called upon to decide a very narrow but important issue: whether federal law prohibits a state court from imposing a constructive trust on the proceeds of a Servicemen's Group Life Insurance policy in favor of a deceased serviceman's minor children when, contrary to a property settlement agreement and an express judicial decree, the serviceman failed to name the minor children as beneficiaries of that insurance.

Richard Ridgway, a career Army sergeant, was insured under a Servicemen's Group Life Insurance (SGLI) policy in the amount of $20,000. As of 1975, the designated beneficiary of this policy was the insured's wife, April Ridgway. On December 7, 1977, April was granted a divorce from Richard in the Superior Court, Androscoggin County. The divorce decree incorporated a property settlement agreement whereby Richard agreed to maintain for the benefit of his minor children the insurance policies on his life which he then owned. The divorce decree expressly commanded that he

keep in force the life insurance policies on his life now outstanding for the benefit of the parties' three children. If any of such insurance policies should subsequently be terminated for any reason, defendant shall immediately replace it with other life insurance of equal amount for the benefit of the children.

On March 28, 1978, Richard married Donna Ridgway. Six days later, he changed the beneficiary designation on the SGLI policy, directing that the proceeds of the policy be paid as specified "by law." Under federal law, this designation was effective upon Richard's death to direct payment of the proceeds to his widow, Donna. See 38 U.S.C. § 770(a) (1976); 38 C.F.R. § 9.16 (1979). Richard died on January 5, 1979; both Donna, as the decedent's widow, and April, on behalf of her minor children, filed claims for the proceeds of the policy.

On April 13, 1979, April filed a complaint in the Superior Court, Androscoggin County, against The Prudential Insurance Company of America after the insurer had indicated that it intended to pay the proceeds of the SGLI policy to Donna. The complaint sought a declaration that pursuant to the divorce decree the minor children were entitled to the policy proceeds as well as both permanent and temporary injunctive relief to prevent Prudential from paying the proceeds to Donna. By stipulation, Donna subsequently joined the action as a party plaintiff, requesting that the insurance proceeds be paid to her. See M.R.Civ.P. 19(a). By leave of court, April then amended the complaint to designate the three children as parties plaintiff and herself as next friend. See M.R.Civ.P. 17(b). By further amendment and the filing of a cross-claim against Donna, April sought the imposition of a constructive trust for the benefit of her children on any proceeds of the policy paid to Donna and an order that in the event Donna was declared a constructive trustee Prudential pay the proceeds directly to the minor children. Following consolidation of the preliminary injunction hearing with a hearing on the merits, see M.R.Civ.P. 65(b)(2), the case was submitted on the basis of the stipulated facts.

The Superior Court ruled that federal law gave an insured serviceman an absolute right by statutorily prescribed means to designate or to change the beneficiary of an SGLI policy, and, therefore, under the supremacy clause of the federal constitution, U.S.Const. art. VI, cl. 2, the insurance proceeds must be paid to Donna despite the inconsistent decree ordering the insured to designate the minor children as beneficiaries of the policy. On this ground, the Superior Court denied April's request for declaratory and injunctive relief in favor of the children based on rights granted in the divorce decree. The court also denied April's request for imposition of a constructive trust on the insurance proceeds and dismissed the cross-claim against Donna, reasoning that federal law would also prohibit equitable interference with Donna's right to the proceeds of the policy. Accordingly, the Superior Court ordered Prudential to pay the proceeds of the policy to Donna.

April has appealed on behalf of her minor children. By agreement of the parties, the insurance proceeds have been deposited with the Clerk of the Superior Court awaiting decision by this Court. Because of this agreement, any question as to the propriety of the Superior Court's denial of injunctive relief is moot. The only issue presented to us is whether the Superior Court was in error in declining to impose a constructive trust on the insurance proceeds for the benefit of the minor children. This issue is joined in April's cross-claim against Donna. We vacate the dismissal of the cross-claim.

Courts have commonly imposed a constructive trust on the proceeds of life insurance policies in the hands of a named beneficiary when the deceased has failed, contrary to the provisions of a property settlement agreement or a divorce decree, to name his divorced wife or his children by his divorced wife as the beneficiaries of the life insurance policies. See, e. g., McKissick v. McKissick, 93 Nev. 139, 144, 560 P.2d 1366, 1369 (1977); Simonds v. Simonds, 45 N.Y.2d 233, 236-238, 380 N.E.2d 189, 191, 408 N.Y.S.2d 359, 360-361 (1978); Richards v. Richards, 58 Wis.2d 290, 297-299, 206 N.W.2d 134, 138 (1973). Donna and Prudential contend that these cases have no application to Servicemen's Group Life Insurance because Congress has preempted the field and legislated as to how the proceeds of such policies are to be distributed. It is their contention that the supremacy clause of the federal constitution prohibits a state court from imposing a constructive trust on the proceeds of an SGLI policy.

Pursuant to its power over national defense, Congress has adopted legislation establishing the SGLI program. Cf. Wissner v. Wissner, 338 U.S. 655, 660-61, 70 S.Ct. 398, 400-401, 94 L.Ed. 424 (1950). There can be no question that Congress has the power fully to preempt the field when legislating pursuant to one of the express powers granted to it in the Constitution. If it has done so, the supremacy clause prohibits state action inconsistent with the congressional design. In the absence of an express preemption, it has been noted by an authority on constitutional law:

The question whether federal law "preempts" state action, largely one of statutory construction, cannot be reduced to general formulas. In evaluating patterns of statutory interaction, the Supreme Court has declared generally that whether challenged state action has been preempted turns on whether or not it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." L. Tribe, American Constitutional Law 377 (1978), quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941).

Thus, the issue in this case is whether the imposition of a constructive trust on the insurance proceeds in the hands of Donna for the benefit of Richard's minor children "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Id.

The Servicemen's Group Life Insurance Act (SGLIA), 38 U.S.C. §§ 765-76 (1976), was enacted by Congress in 1965. The SGLIA authorizes the Administrator of Veterans' Affairs to purchase from commercial insurers a group life insurance policy which provides qualified servicemen automatic coverage in a maximum amount of $20,000. 38 U.S.C. §§ 766(a), 767(a) (1976). A uniform premium is deducted from the servicemen's pay, but each insured can in writing opt out of the program or reduce the amount of coverage. Id., §§ 767(a), 769(a). The Administrator of Veterans' Affairs has been granted broad rule-making authority in supervising this military insurance program. Id., § 210(c)(1).

Section 770(a) of the SGLIA establishes a statutory order of beneficiary preference. In pertinent part, this section provides:

Any amount of insurance under this subchapter in force on any member or former member on the date of his death shall be paid . . . in the following order of precedence.

First, to the beneficiary or beneficiaries as the member or former member may have designated by a writing received prior to death (1) in the uniformed services if insured under Servicemen's Group Life Insurance ...; Second, if there be no beneficiary, to the widow or widower of such member or former member ;

Third, if none of the above, to the child or children of such member or former member and descendants of deceased children by representation, .... 38 U.S.C. § 770(a) (1976) (emphasis added).

See also 38 C.F.R. § 9.16(i) (1979). Section 770(g) creates a statutory spendthrift provision:

Payments of benefits due or to become due under Servicemen's Group Life Insurance . . . made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claims of creditors, and shall not be liable to attachment, levy or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary. 38 U.S.C. § 770(g) (1976).

Pursuant to his rule-making authority, the Administrator has promulgated several regulations concerning the designation and change of beneficiaries of SGLI policies. An insured "may designate any person, firm, corporation or legal entity" as beneficiary. 38 C.F.R. § 9.16(a) (1979). "Any designation or change of beneficiary ... will take effect only if it is in writing, signed by the...