Hardy v. Hardy

• Decision Date: 14 March 2012
• Docket Number: No. 51S01–1106–PL–366.,51S01–1106–PL–366.
• Citation: 963 N.E.2d 470
• Parties: Phyllis HARDY, Alax Keith Furnish and Megan Jessica Furnish, By Next Friend Phyllis Hardy, Appellants (Plaintiffs below), v. Mary Jo HARDY, Appellee (Defendant below).
• Court: Indiana Supreme Court

963 N.E.2d 470

Phyllis HARDY, Alax Keith Furnish and Megan Jessica Furnish, By Next Friend Phyllis Hardy, Appellants (Plaintiffs below),

v.Mary Jo HARDY, Appellee (Defendant below).

No. 51S01–1106–PL–366.

Supreme Court of Indiana.

March 14, 2012.

Benjamin L. Niehoff, Bloomington, IN, Attorney for Appellants.

Brad L. Rigby, Huntingburg, IN, Attorney for Appellee.

On Petition to Transfer from the Indiana Court of Appeals, No. 51A01–1005–PL–248

DAVID, Justice.

In this case, an insured held a life insurance policy issued as part of a federal employee benefit plan. When the insured divorced from his first wife, the divorce decree and property settlement required the insured (1) to maintain the life insurance policy and (2) to designate the first wife and their grandchildren as equal beneficiaries. Subsequently, the insured remarried, designated his second wife as the sole beneficiary to the life insurance policy, and increased the insurance coverage. After some time, the insured and second wife divorced. When the insured died, the second wife remained the sole beneficiary on the life insurance policy.

The first wife and grandchildren filed suit, asserting equitable claims over the life insurance proceeds. On cross-motions for summary judgment, the trial court determined that federal employee benefit law preempted the equitable state law claims and that the policy proceeds accordingly belonged to the second wife.

We hold that the Federal Employees' Group Life Insurance Act does not preempt the equitable claims and that the first wife and grandchildren are entitled to a constructive trust over at least a portion of the proceeds.

Facts and Procedural History

Carlos Hardy and Phyllis Hardy were married on December 26, 1976. In 1996, Carlos began working at the Naval Surface Warfare Center, Crane Division (NSWC Crane) as a civilian employee. Through NSWC Crane, Carlos had a life insurance policy with Federal Employees' Group Life Insurance (FEGLI).

On February 2, 1998, Carlos and Phyllis divorced. Their decree of dissolution stated, in part, that “Carlos Hardy shall maintain the Met Life Insurance Policy which has been held during the marriage. Phyllis Hardy and the parties' grandchildren shall each be designated as equal beneficiaries of the policy. Phyllis Hardy shall continue to maintain the life insurance which she has held during the marriage.” It continued, “Neither party shall change any of the life insurance coverage on either policy.” The MetLife policy mentioned in the divorce decree and property settlement is the FEGLI policy.¹

The decree of dissolution also incorporated a property settlement agreement which, among other things, reiterated that Carlos “shall maintain” the FEGLI policy and that Phyllis and the grandchildren would be equal beneficiaries of the policy.

On September 29, 2000, Carlos married Mary Jo (Hall) Hardy. Several days later, on October 4, 2000, Carlos submitted a designation-of-beneficiary form, making Mary Jo the sole beneficiary of his FEGLI policy. That same day, Carlos also increased his insurance coverage. On September 17, 2007, Carlos and Mary Jo divorced.

Their decree of dissolution incorporated a contract and agreement, which stated in part, “[E]ach of the parties hereto shall be awarded any and all life insurance policies which he or she has securing his or her own respective life. [And] each party shall execute any documents necessary to remove his or her name as beneficiaries from each other's respective life insurance policies.”

Carlos died on August 9, 2008. At the time of Carlos's death, Carlos and Phyllis had two grandchildren, Alax Furnish and Megan Furnish. Mary Jo was the named beneficiary on the FEGLI policy, which had payable benefits of approximately $98,000.

In January 2009, Phyllis, Alax Furnish, and Megan Furnish (collectively, “Phyllis and the grandchildren”) filed a complaint for declaratory judgment and constructive trust over the insurance proceeds. In June 2009, Phyllis and the grandchildren filed a motion for summary judgment, arguing that they were entitled to the proceeds of Carlos's life insurance policy. They also asserted that the doctrines of waiver and estoppel precluded any recovery for Mary Jo.

Mary Jo filed a response and a cross-motion for summary judgment, arguing that she was the rightful recipient of the proceeds. She stated that the Federal Employees' Group Life Insurance Act (FEGLIA) ² preempted Carlos and Phyllis's divorce decree and that FEGLIA required the proceeds be paid to the named beneficiary in the policy. Mary Jo asserted that this prevented the court from imposing a constructive trust under state law. Mary Jo also advanced an alternative argument: she claimed that in the event Phyllis and the grandchildren were entitled to assert their claims, they were limited to the policy's value at the time of Carlos and Phyllis's divorce.

The trial court granted Mary Jo's motion for summary judgment, agreeing with her preemption argument. The trial court accordingly awarded all of the FEGLI policy proceeds to Mary Jo. Phyllis and the grandchildren appealed, and Mary Jo argued that the case was not ripe for review. After determining that the case was, in fact, ripe for review, the Court of Appeals affirmed the trial court. Hardy v. Hardy, 942 N.E.2d 838, 842, 848 (Ind.Ct.App.2011).

We granted transfer.

Standard of review

On appeal, the standard of review of a summary judgment motion is the same as that used in the trial court. Tom–Wat, Inc. v. Fink, 741 N.E.2d 343, 346 (Ind.2001). Summary judgment is appropriate only “if the designated evidentiary matter shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Ind. Trial Rule 56(C).

The standard of review does not change if, as here, the parties make cross-motions for summary judgment. Blasko v. Menard, Inc., 831 N.E.2d 271, 273 (Ind.Ct.App.2005), trans. denied. Rather, we apply the standard of review to each motion separately. Id.

We construe all facts and reasonable inferences drawn from those facts in favor of the non-moving party, and our review is limited to the materials designated to the trial court. Tom–Wat, Inc., 741 N.E.2d at 346. We also carefully review a decision on a summary judgment motion to ensure that the losing party was not improperly denied his day in court. Id.

In this case, both parties' motions for summary judgment turn on whether FEGLIA preempts the state law claim for a constructive trust. Preemption is a question of law. Cf. Midwest Sec. Life Ins. Co. v. Stroup, 730 N.E.2d 163, 165–166 (Ind.2000) (“[W]hether ERISA preempts ... state law claims is a question of law.”). Because there is no factual dispute bearing on the preemption issue, “the appellate court will make a final determination with respect to a pure question of law or a mixed question of law and fact not involving disputed material facts.” Tom–Wat, Inc., 741 N.E.2d at 346.

Preemption, FEGLIA, and Equitable State Law Claims

This Court must decide whether FEGLIA preempts a state law claim for the imposition of a constructive trust upon the proceeds of a FEGLI policy.

Mary Jo argues that FEGLIA and its underlying regulations govern the procedures applicable to naming designated beneficiaries and that these federal provisions require that Carlos's policy proceeds be paid to her.³ She contends that a state dissolution decree requiring Carlos to designate Phyllis and the grandchildren as beneficiaries directly conflicts with federal law, and, thus, the doctrine of preemption prevents a court from imposing a constructive trust over the proceeds based on the decree.

Phyllis and the grandchildren concede that FEGLIA governs to whom the policy proceeds are paid and that Mary Jo has the right to receive the proceeds directly. They argue, however, that there is a “difference between the right to receive the proceeds directly and the right to ultimate enjoyment of the proceeds.” They contend that nothing in FEGLIA prevents a court from imposing a constructive trust in favor of persons rightfully entitled to a federal life insurance policy's proceeds.

This specific preemption question is an issue of first impression for this Court. But we note that several state and federal courts have explored whether FEGLIA preempts equitable state law claims and have reached disparate results. Two schools of thought have emerged: one finding that FEGLIA preempts equitable state law claims, and the other finding that equitable state law claims may proceed notwithstanding FEGLIA's provisions.

A. Preemption Generally

The Supremacy Clause of the United States Constitution states in part that “the Laws of the United States ... shall be the supreme Law of the Land ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. This provides Congress with the power to preempt state law. Basileh v. Alghusain, 912 N.E.2d 814, 818 (Ind.2009).

There are three kinds of federal preemption: (1) express preemption, which occurs when a federal statute contains specific language of preemption; (2) field preemption, which occurs when federal regulation is so pervasive that it is reasonable to infer that Congress intended exclusive federal regulation of the area; and (3) conflict preemption, which occurs when a direct conflict makes it impossible to comply with both federal and state regulations or when a state law stands as an obstacle to the execution of federal purposes and objectives. Id.

Essentially, preemption is a question of congressional intent. Id. And an express preemption clause is the best evidence of preemptive intent. Geier v. Am. Honda Motor Co., 529 U.S. 861, 895, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000). In the absence of explicit preemption language, “courts must consider whether the federal statute's ‘structure and purpose,’ or nonspecific statutory language, nonetheless reveal a clear,...