Metropolitan Life Ins. Co. v. Christ

• Citation: 979 F.2d 575
• Parties: METROPOLITAN LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. Margaret CHRIST, individually and as guardian ad litem for Kelly Christ, Jeffrey Christ, and Anthony Christ, Defendants-Appellees. METROPOLITAN LIFE INSURANCE COMPANY, Plaintiff, v. Melba CHRIST, Defendant-Appellant, and Margaret Christ, individually and as guardian ad litem for Kelly Christ, Jeffrey Christ, and Anthony Christ, Defendants-Appellees.
• Decision Date: 17 November 1992
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 575

979 F.2d 575

61 USLW 2330

METROPOLITAN LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. Margaret CHRIST, individually and as guardian ad litem for

Kelly Christ, Jeffrey Christ, and Anthony Christ,

Defendants-Appellees.

METROPOLITAN LIFE INSURANCE COMPANY, Plaintiff, v. Melba CHRIST, Defendant-Appellant, and Margaret Christ, individually and as guardian ad litem for

Kelly Christ, Jeffrey Christ, and Anthony Christ,

Defendants-Appellees.

United States Court of Appeals, Seventh Circuit.

Argued March 31, 1992.

Decided Nov. 10, 1992.

As Amended Nov. 17, 1992.

Brian W. McGrath, James O. Huber, Foley & Lardner, Milwaukee, Wis., William J. Toppeta, Cornelia Dude, Paul G. Huck, Metropolitan Life Ins. Co., Law Dept., David J. Larkin, Jr. (argued), New York City, for plaintiff-appellant Metropolitan Life Ins. Co.

Gerald G. Fuchs (argued), Evansville, Ind., for defendant-appellant Melba Christ.

Allen Silverstein (argued), Milwaukee, Wis., for defendants-appellees Margaret Christ and Anthony Christ.

Stuart M. Gerson, Office of U.S. Atty. Gen., Robert S. Greenspan, Michael S. Raab, Dept. of Justice, Civ. Div., Appellate Section, Washington, D.C., for amicus curiae U.S.

Before RIPPLE and MANION, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

MANION, Circuit Judge.

Lawrence Christ, a federal employee, was married to Margaret Christ, with whom he had three children. In 1978, Lawrence and Margaret divorced. The divorce decree ordered Lawrence, among other things, to maintain his children as beneficiaries on his life insurance policies until September 13, 1993, when the youngest would turn eighteen. Among those policies was one issued by Metropolitan Life Insurance Company (MetLife) pursuant to the Federal Employees Group Life Insurance Act, 5 U.S.C. §§ 8701-16 (FEGLIA). In 1988, Lawrence married Melba Christ. In January 1990, Lawrence died, still insured under the FEGLIA policy. Despite the divorce decree, Lawrence never had designated any beneficiary to receive the proceeds of his FEGLIA policy.

This case involves the proper distribution of the proceeds of Lawrence's FEGLIA policy. Both Margaret (as guardian for her minor children) and Melba filed claims for the policy proceeds with MetLife. MetLife, in turn, filed an interpleader action in federal district court under 28 U.S.C. § 1335 to determine the proper beneficiary. Margaret based her claim on the children's rights under the divorce decree, arguing that Lawrence's failure to designate the children as beneficiaries under the policy amounted to a breach of trust that unjustly enriched Melba and therefore justified the imposition of a constructive trust on the proceeds for the children's benefit. Melba argued that FEGLIA preempted the state divorce decree and state law equitable principles and that she was entitled to the proceeds as the beneficiary under FEGLIA's order of precedence. The district court, following Rollins v. Metropolitan Life Insurance Co., 863 F.2d 1346 (7th Cir.1988), concluded that the divorce decree formed a constructive trust and awarded the insurance proceeds to Margaret's children. We reverse the district court.

I.

Congress enacted FEGLIA in 1954 "to provide low-cost group life insurance to Federal employees." H.R.Rep. No. 2579, 83d Cong., 2d Sess. (1954), reprinted in 1954 U.S.C.C.A.N. 3052. Under FEGLIA, insurance benefits are provided under a master policy issued by MetLife to the United States Office of Personnel Management (OPM). See 5 U.S.C. § 8709 (authorizing OPM to purchase group policy from private life insurance companies). OPM administers FEGLIA and has the authority to "prescribe regulations necessary to carry out" FEGLIA's purposes. 5 U.S.C. § 8716. Payroll deductions from participating employees pay for a portion of the cost of FEGLIA insurance; contributions from the government pay for the rest. 5 U.S.C. §§ 8707-08.

FEGLIA sets out precisely to whom insurance benefits are to be paid when a participating employee dies. See 5 U.S.C. § 8705. That statutory "order of precedence" provides:

(a) The amount of group life insurance and group accidental death insurance in force on an employee at the date of his death shall be paid, on the establishment of a valid claim, to the person or persons surviving at the date of his death, in the following order of precedence:

First, to the beneficiary or beneficiaries designated by the employee in a signed and witnessed writing received before death in [the employing office or, in some cases, the OPM]. For this purpose, a designation, change, or cancellation of beneficiary in a will or other document not so executed and filed has no force or effect.

Second, if there is no designated beneficiary, to the widow or widower of the employee.

Third, if none of the above, to the child or children of the employee and descendants of deceased children by representation.

Fourth, if none of the above, to the parents of the employees or the survivor of them.

Fifth, if none of the above, to the duly appointed executor or administrator of the estate of the employee.

Sixth, if none of the above, to other next of kin of the employee entitled under the laws of the domicile of the employee at the date of his death.

Id. (emphasis added). The master policy issued by MetLife expressly incorporates the statutory order of precedence. The handbook that explains FEGLIA to federal employees advises them that if they wish to have their death benefits paid according to the statutory order of precedence, they need not designate a beneficiary.

A regulation promulgated by the OPM underscores a federal employee's unrestricted right to designate or change his policy's beneficiary: "A change of beneficiary may be made at any time and without the knowledge or consent of the previous beneficiary. This right cannot be waived or restricted." 5 C.F.R. § 870.902(e) (emphasis added). FEGLIA itself also contains a preemption clause that provides that

[t]he provisions of any contract under [FEGLIA] which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any law of any State or political subdivision thereof, or any regulation issued thereunder, which relates to group life insurance to the extent that the law or regulation is inconsistent with the contractual provisions.

5 U.S.C. § 8709(d)(1).

In Rollins, when this court was faced with the same issue in nearly identical circumstances, we decided that nothing in FEGLIA preempted a state divorce decree directing an insured to name a certain beneficiary or precluded the imposition of a constructive trust on the insurance proceeds to enforce the decree despite FEGLIA's order of precedence and the insured's unhampered right to change beneficiaries. See 863 F.2d at 1349-54. Based on our decision in Rollins, the district court felt constrained to hold that Lawrence's failure to designate his children as beneficiaries of his FEGLIA policy amounted to a breach of trust that unjustly enriched Melba and justified the imposition of a constructive trust in favor of the children on the proceeds. Both Melba and MetLife appeal the district court's decision. ¹

This appeal raises one issue: should we overrule Rollins? Rollins conflicts with FEGLIA's unambiguous language and its implementing regulations, with basic principles of federal preemption of state law, and with case law from other circuits. See Dean v. Johnson, 881 F.2d 948 (10th Cir.), cert. denied, 493 U.S. 1011, 110 S.Ct. 574, 107 L.Ed.2d 569 (1989); O'Neal v Gonzalez, 839 F.2d 1437 (11th Cir.1989). It also conflicts with Ridgway v. Ridgway, 454 U.S. 46, 102 S.Ct. 49, 70 L.Ed.2d 39 (1981), in which the Supreme Court held that a nearly identical insurance program for military servicemen does not allow a divorce decree to direct to whom benefits are to be paid or the imposition of a constructive trust on those benefits. We therefore overrule Rollins and reverse the district court's judgment. ²

The Supremacy Clause, U.S. Const. Art. VI, cl. 2, makes "the Laws of the United States ... the supreme Law of the Land ... anything in the Constitution or Law of any State to the Contrary notwithstanding." From this comes the doctrine that federal law may preempt state law. Preemption occurs in three situations. Congress may define expressly to what extent a federal statute preempts state law. E.g., Morales v. Trans World Airlines, Inc., --- U.S. ----, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95-98, 103 S.Ct. 2890, 2898-2899, 77 L.Ed.2d 490 (1983). We may also infer preemption when a pervasive scheme of federal regulation makes it reasonable to infer that Congress intended exclusive federal regulation of the area. English v. General Elec. Co., 496 U.S. 72, 79, 110 S.Ct. 2270, 2279, 110 L.Ed.2d 65 (1990). Finally, where state law actually conflicts with federal law, state law must give way, even in fields such as domestic relations that traditionally have been governed by state law. Ridgway, 454 U.S. at 54-55, 102 S.Ct. at 54-55. Thus, "a state divorce decree ... must give way to clearly conflicting federal enactments." Id. at 55, 102 S.Ct. at 54.

Whether or not federal law preempts state law depends "on statutory intent," so preemption analysis begins " 'with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.' " Morales, --- U.S. at ----, 112 S.Ct. at 2036 (quoting FMC Corp. v. Holliday, 498 U.S. 52, 55, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990)). This underscores Rollins' major shortcoming. Rollins gave little attention to FEGLIA's actual language. It relegated to a footnote, with no analysis, the statutory order of precedence for payment of the death benefit. See 863 F.2d at 1348 n. 3. Nor did Rollins refer to FEGLIA's preemption clause. An analysis of FEGLIA's language shows that FEGLIA preempts the...