Prudential Ins. Co. of America v. Athmer

• Decision Date: 14 May 1999
• Docket Number: No. 98-4043,98-4043
• Citation: 178 F.3d 473
• Parties: PRUDENTIAL INSURANCE COMPANY OF AMERICA and Boston Mutual Life Insurance Company, Plaintiffs, v. Chrystal ATHMER, a minor, and Geneva Athmer, individually and as guardian of Chrystal Athmer, Defendants-Appellants, v. Steven M. Hill, Jr., a minor, and Betty Jo Pierce, individually and as guardian for Steven M. Hill, Jr., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

178 F.3d 473

PRUDENTIAL INSURANCE COMPANY OF AMERICA and Boston Mutual

Life Insurance Company, Plaintiffs, v. Chrystal ATHMER, a minor, and Geneva Athmer, individually and as guardian of Chrystal Athmer, Defendants-Appellants, v. Steven M. Hill, Jr., a minor, and Betty Jo Pierce,

individually and as guardian for Steven M. Hill,

Jr., Defendants-Appellees.

No. 98-4043.

United States Court of Appeals Seventh Circuit.

Argued April 12, 1999.

Decided May 14, 1999.

Richard J. Pautler, Thompson & Coburn, St. Louis, MO, argued, for Plaintiffs.

Steven E. Katzman, John F. Pawloski (argued), Katzman & Mack, Belleville, IL, for Defendants-Appellants.

Mary M. Brauer (argued), Cook, Shevlin, Keefe, Ysursa, Brauer & Bartholomew, Belleville, IL; John J. O'Gara, Jr., Belleville, IL, for Defendants-Appellees.

Before POSNER, Chief Judge, and EASTERBROOK and DIANE P. WOOD, Circuit Judges.

POSNER, Chief Judge.

A pair of insurance companies brought this interpleader action to determine who should receive the proceeds of two life insurance policies owned by a man who was murdered by his wife. The contenders are the victim's natural daughter, and the murderess's natural son and sister. Upon stipulated facts, the district judge rendered judgment for the latter two, and the daughter appeals.

Kevin Spann, a soldier in the U.S. Army, was the insured. Prudential had issued him a life insurance policy pursuant to the Servicemen's Group Life Insurance Act of 1965 (SGLI), 38 U.S.C. §§ 1965 et seq., for $200,000 in 1992 when he was stationed in Germany. The policy named Spann's wife, Gina Spann, as primary beneficiary and Gina's natural son, Steven Hill, as contingent or secondary beneficiary. Steven was 13 and had been living with Kevin and Gina throughout the eleven years of their marriage. The other policy, which was for $100,000, had been issued in 1994, also in Germany, by Boston Mutual. This policy also named Gina as primary beneficiary, but it named her sister, Betty Jo Pierce, rather than Steven, as the contingent beneficiary, and it was not issued under SGLI. Neither policy mentioned Chrystal Athmer, Kevin Spann's natural daughter. He had never lived with her or even acknowledged the relationship, which was established by DNA testing after his death. In his will Spann devised his estate to Steven, describing him as "my son."

At the time of his death in 1997, Spann was a permanent resident of Illinois but was stationed in Georgia. His wife had him murdered there by her 18-year-old lover and three of his 16-year old pals. She pleaded guilty to the murder and was sentenced to life in prison without parole plus five additional years (as the district judge judiciously put it, "the State of Georgia even tacked an additional five years onto that already lengthy sentence"). She no longer has custody of her son. In fact, as Steven's lawyer explained without contradiction, "the whole family is estranged from her. The sister [Betty Jo Pierce] didn't have anything to do with her. They've been trying to get Kevin away from her for years. Gina is somewhere else." The sister is Steven's legal guardian, and has instituted a proceeding to adopt him; neither was complicit in Kevin Spann's murder. Gina is conceded to be disqualified from taking anything under the life insurance policies. The question is whether Steven and his aunt are also disqualified. The district judge held not.

There is an initial issue, not adequately dealt with by the parties or the district judge, concerning choice of law. The insurance policies were issued in Germany to a citizen of Illinois. We assume that Kevin Spann was a citizen of Illinois at the time because he was when he died and because the policies list an Illinois address as his permanent mailing address; on the special rules governing the domicile of members of the armed forces, see Restatement (Second) of Conflicts § 17, comment d and illustration 1 (1971). The beneficiaries named in the life insurance policies, Steven and his aunt, are (and, we assume, were) also citizens of Illinois. But the controversy over entitlement to the proceeds was precipitated by a murder in Georgia.

The choice of law issue must be analyzed separately for each policy. The cases say or imply that when a question relating to the interpretation and administration of an insurance policy issued under the authority of the servicemen's insurance statute arises that is not answered by the statute itself, then as with other government contracts, e.g., Boyle v. United Technologies Corp., 487 U.S. 500, 504-05, 108 S.Ct. 2510, 101 L.Ed.2d 442 (1988), the answer is to be supplied by federal common law. Rollins v. Metropolitan Life Ins. Co., 863 F.2d 1346 (7th Cir.1988); Prudential Ins. Co. v. King, 453 F.2d 925, 931 (8th Cir.1971); cf. Ridgway v. Ridgway, 454 U.S. 46, 59-60, 102 S.Ct. 49, 70 L.Ed.2d 39 (1981); Metropolitan Life Ins. Co. v. Christ, 979 F.2d 575 (7th Cir.1992); Prudential Ins. Co. v. Tull, 690 F.2d 848 (4th Cir.1982) (per curiam); but see Emard v. Hughes Aircraft Co., 153 F.3d 949, 959-60 (9th Cir.1998) (dictum). Since the concept of "federal common law" is nebulous when a statute is in the picture, it might be better to jettison the concept in that context and say simply that in filling gaps left by Congress in a federal program the courts seek to effectuate federal policies. Burks v. Lasker, 441 U.S. 471, 476-77, 99 S.Ct. 1831, 60 L.Ed.2d 404 (1979); Ivey v. Harney, 47 F.3d 181, 183-84 (7th Cir.1995). SGLI is a federal program; in fact, technically the government rather than the serviceman is the policyholder. 38 U.S.C. § 1966; Ridgway v. Ridgway, supra, 454 U.S. at 51. The government's concern with beneficiary issues is shown by SGLI's detailed provisions concerning who the beneficiary is if the policy doesn't say, 38 U.S.C. § 1970(a), although the contingency of a beneficiary's murdering the insured is not addressed. As we have both a government contract and a federal statute (we might have the government contract yet only a procedural issue not governed by a statute, or at least by the statute authorizing the contract), the case for using federal law to answer the question of who is to receive the proceeds of the insurance policy is compelling.

Often a court asked to fill a gap in a federal statute will do so by borrowing a state's common law, e.g., Atherton v. FDIC, 519 U.S. 213, 224-25, 117 S.Ct. 666, 136 L.Ed.2d 656 (1997), because in most areas of the law state common law is more highly developed than federal. Steffes v. Stepan Co., 144 F.3d 1070, 1074 (7th Cir.1998); Baravati v. Josephthal, Lyon & Ross, 28 F.3d 704, 707 (7th Cir.1994). But borrowing state law would be a mistake in the case of soldiers' life insurance policies. Frequently as in this case the policy is issued wherever the soldier happens to be stationed when thoughts of mortality assail him. Although soldiers generally designate a U.S. state as their domicile, their connection with that state is often tenuous until retirement. It would be arbitrary to subject issues arising under the policy to the law of a particular state. Better that these policies should be governed by a uniform set of rules untethered to any particular jurisdiction. Prudential Ins. Co. v. Tull, supra; Prudential Ins. Co. v. King, supra, 453 F.2d at 931; cf. United States v. Kimbell Foods, Inc., 440 U.S. 715, 728, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979); Commonwealth Edison Co. v. Vega, 174 F.3d 870 (7th Cir.1999). Congress's desire for uniformity is reflected in the statute's detailed provision mentioned earlier regarding who shall receive the proceeds if a beneficiary is not named.

The principle that no person shall be permitted to benefit from the consequences of his or her wrongdoing has long been applied to disqualify murderers from inheriting from their victims, whether the route of inheritance is a will, an intestacy statute, or a life insurance policy. E.g., Mutual Life Ins. Co. v. Armstrong, 117 U.S. 591, 600, 6 S.Ct. 877, 29 L.Ed. 997 (1886); Riggs v. Palmer, 115 N.Y. 506, 22 N.E. 188 (N.Y.1889); Swietlik v. United States, 779 F.2d 1306 (7th Cir.1985); see annotations at 25 A.L.R.4th 787 (1981 & 1998 Supp.), 27 A.L.R.3d 794 (1970 & 1997 Supp.). It is undoubtedly an implicit provision of the Servicemen's Group Life Insurance Act of 1965, Prudential Ins. Co. v. Tull, supra, and it disqualifies Gina Spann from receiving any of the proceeds of Kevin's SGLI policy, even though she is the primary beneficiary named in it.

The usual consequence when a primary beneficiary disclaims or is forced to disclaim an interest under an insurance policy, will, pension plan, or other such instrument is that the contingent beneficiary takes in the place of the primary one. And this is the approach that a majority of courts take when the beneficiary is disqualified by reason of having murdered his benefactor. E.g., Lee v. Aylward, 790 S.W.2d 462 (Mo.1990); Spencer v. Floyd, 30 Ark.App. 230, 785 S.W.2d 60 (Ark.App.1990); Seidlitz v. Eames, 753 P.2d 775 (Colo.App.1987); National Home Life Assurance Co. v. Patterson, 746 P.2d 696 (Okl.App.1987). (There is a slew of minority rules, see Annot., 26 A.L.R.2d 987 (1952 & 1998 Supp.); Lee R. Russ & Thomas F. Segalla, Couch on Insurance, § 62:19 (3d ed.1997)--which is a good reason for having a uniform federal rule for SGLI policies.) We take it, although the case law is sparse, that if the contingent beneficiary is himself a wrongdoer and his wrongdoing contributed to the death of his benefactor, as where the contingent beneficiary is the accomplice of the primary beneficiary in the benefactor's murder, the same rule that disqualifies the primary beneficiary disqualifies the contingent beneficiary. In re Estate of Vallerius, 259 Ill.App.3d 350, 196 Ill.Dec. 341, 629 N.E.2d 1185, 1188 (Ill.App.1996). We are surprised that Reynolds v. American-Amicable Life Ins. Co., 591 F.2d 343 (5th Cir.1979) (per curiam), allowed an accessory after the fact to...