Travelers Insurance Company v. Fields

Decision Date13 December 1971
Docket NumberNo. 71-1164.,71-1164.
Citation451 F.2d 1292
PartiesThe TRAVELERS INSURANCE COMPANY, a Connecticut Corporation, Plaintiff-Appellee, v. Barbara G. FIELDS, Individually and as Administratrix of the Estate of Jan A. Fields, Deceased, Defendant-Appellee, and Phyllis N. Fields, Individually and as Guardian, and Janet Marie Fields, Lori Allison Fields, and Jan Scott Fields, minors, Defendants-Appellants, and Charles Paul Wagner, Administrator of the Estate of Jan A. Fields, Deceased, Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Leo J. Breslin, Cincinnati, Ohio, for defendants-appellants; John J. O'Hara, Arnold Taylor, for O'Hara, Ruberg & Cetrulo, Covington, Ky., Lindhorst & Dreidame, Cincinnati, Ohio, on brief.

John A. Lloyd, Jr., Cincinnati, Ohio, for appellees; William B. O'Neal, Cincinnati, Ohio, for plaintiff-appellee on brief; John A. West, Cincinnati, Ohio, Stanley Chrisman, Covington, Ky., for defendant-appellee on brief.

Before WEICK, McCREE and KENT, Circuit Judges.

McCREE, Circuit Judge.

This is an interpleader action brought pursuant to 28 U.S.C. § 1335 by the Travelers Insurance Company (Travelers) in the United States District Court for the Eastern District of Kentucky. Named as defendants were Barbara G. Fields, widow of the insured and administratrix of his Ohio estate, and Phyllis N. Fields, his first wife and guardian of their children. This appeal has been taken by Phyllis Fields from a judgment in favor of Barbara. We affirm.

Jan A. Fields, a citizen of Kentucky, was employed by the Mead Corporation at a plant in Ohio. In May 1960 and December 1964, Travelers issued group insurance policies to Mead, insuring Mead's employees against accidental death. Both policies contained the following provision:

This policy is issued and delivered in the State of Ohio and shall be governed by the laws of that state.

Jan became insured under these policies in the amount of $103,000. He designated Phyllis, his wife at that time, beneficiary on both policies.

Subsequently Phyllis instituted an action for divorce in the Kenton County Circuit Court in Kentucky. Both Phyllis and Jan were citizens of Kentucky and both appeared personally in the action. On September 27, 1966, a divorce decree was entered. As required by K. R.S. § 403.065 (1962), the decree contained a restoration-of-property provision, adjudging that

each party shall restore to the other such property not disposed of at the commencement of this action as either may have obtained directly or indirectly from or through the other during said marriage in consideration or by reason thereof.1

The property settlement agreement negotiated by the parties was silent concerning the proceeds of the Travelers policies.

Thereafter, on June 6, 1967, Jan married Barbara Fields. On September 9, 1969, without having changed the designation of Phyllis as beneficiary, Jan died in an airplane crash. Both Phyllis and Barbara, the latter in her capacity as administratrix of Jan's Ohio estate (he was a citizen of Ohio at his death), claimed the proceeds of the policies.

The court below, 323 F.Supp. 387, (E.D.Ky.1970) granted summary judgment in favor of Barbara. Judge Swinford held that, since the Kentucky courts have consistently construed the state's restoration-of-property statute to abrogate the interest of a divorced spouse named as beneficiary even if the designation is not altered on the policy, Phyllis' rights under the Travelers policies were extinguished by the 1966 divorce decree. This decree, Judge Swinford wrote, would be given full faith and credit by Ohio courts "both as to its dissolution of the marriage, and as to its resolution of property rights." Thus,

an Ohio court would be impelled to recognize the restoration of property order, which by construction of the laws of the state wherein the divorce was granted, explicitly extinguished Phyllis\' rights as a beneficiary.

He added that, even if the case were to be characterized as a "matter of Ohio contract law," which was Phyllis' contention, "Ohio contract law cannot restore to Phyllis those rights which she as a part of her divorce surrendered."

On appeal, Phyllis contends that the court erred in its determination that her status as beneficiary was extinguished by the Kentucky divorce decree. She argues that this result violates her rights under the due process clause of the Fourteenth Amendment and offends the dictates of the full faith and credit clause. We consider these contentions in this order.

The Kentucky courts have consistently held since 1913 that the restoration-of-property order in a Kentucky divorce decree extinguishes the divorced wife's rights2 as a beneficiary of a life insurance policy on her husband's life despite the failure of the husband to change her designation as such following the divorce.3 Bissell v. Gentry, 403 S.W.2d 15 (Ky.1966); Salisbury v. Bick, 368 S.W.2d 317 (Ky.1963); Warren v. Spurlock's Administrator, 292 Ky. 668, 167 S.W.2d 858 (1943); Schauberger v. Morel's Administrator, 168 Ky. 368, 182 S.W. 198 (1916); Sea v. Conrad, 155 Ky. 51, 159 S.W. 622 (1913). The Bissell case, supra, applied this rule to the divorced wife's rights in a group insurance policy issued, as here, to her husband's employer.

Appellant does not dispute this statement of Kentucky law. Her contention is that Kentucky law does not apply in this case because of both the provision in the insurance contract between Travelers and Mead that the contract shall be governed by the law of Ohio and the significant Ohio contacts involved in the issuance and maintenance of the contract. In Ohio, a divorce does not extinguish the rights of the wife named as beneficiary. There, the named beneficiary still recovers the proceeds because the designation "wife" is regarded as merely descriptive. See, e. g., Cannon v. Hamilton, 174 Ohio St. 268, 189 N.E.2d 152 (1963).

In support of her contention that Kentucky law does not govern the case at bar, appellant relies principally upon the recent decision of Judge Moynahan of the Eastern District of Kentucky in Morgan v. United States, 315 F.Supp. 213 (E.D.Ky.1969). In that case, the dispute concerned the proceeds of a National Service Life Insurance policy. These policies are issued to veterans of United States military service pursuant to 38 U.S.C. § 701 et seq. Since the Supreme Court has previously construed this Act as requiring that the insurance proceeds go to the named beneficiary, in the context of a dispute between a serviceman's wife in a community property state and the named beneficiaries, Wissner v. Wissner, 338 U.S. 655, 70 S.Ct. 398, 94 L.Ed. 424 (1950), the issue presented in Morgan was whether that federal rule took precedence over the Kentucky restoration-of-property doctrine. Judge Moynahan held that the matter was "one involving the primacy of federal law," and awarded the proceeds to the divorced wife named as beneficiary. 315 F.Supp. at 215.

Appellant apparently argues that the Morgan decision is based upon principles of comity rather than the supremacy of federal law, and that those same principles would mandate Kentucky's deference in the instant context to Ohio law. We disagree.

In Wissner, supra, the widow of a serviceman claimed one-half the proceeds of a National Service Life Insurance policy, although she had not been named beneficiary, on the ground that the state of her domicile was a community property state, under whose law she was entitled to one-half ownership of the policy. The Court reversed the state court's determination that state law took precedence, and held that the congressional purpose in enacting this insurance program would be frustrated if the policy proceeds were not paid to the named beneficiaries. The Court stated:

The National Service Life Insurance Act is the congressional mode of affording a uniform and comprehensive system of life insurance for members and veterans of the armed forces of the United States. A liberal policy toward the serviceman and his named beneficiary is everywhere evident in the comprehensive statutory plan. Premiums are very low and are waived during the insured\'s disability; costs of administration are borne by the United States; liabilities may be discharged out of congressional appropriations.
The controlling section of the Act provides that the insured "shall have the right to designate the beneficiary or beneficiaries of the insurance within a designated class, . . . and shall . . . at all times have the right to change the beneficiary or beneficiaries. . . ." 38 U.S.C. § 717(a). Thus Congress has spoken with force and clarity in directing that the proceeds belong to the named beneficiary and no other. Pursuant to the congressional command, the Government contracted to pay the insurance to the insured\'s choice. He chose his mother. It is plain to us that the judgment of the lower court, as to one-half of the proceeds, substitutes the widow for the mother, who was the beneficiary Congress directed shall receive the insurance money. We do not share appellee\'s discovery of congressional purpose that widows in community property states participate in the payments under the policy, contrary to the express direction of the insured. Whether directed at the very money received from the Government or an equivalent amount, the judgment below nullifies the soldier\'s choice and frustrates the deliberate purpose of Congress. It cannot stand.

338 U.S. at 658-659, 70 S.Ct. at 399-400 (emphasis added). In Legatie v. United States, 40 F.R.D. 114, 117 (E.D.N.Y. 1966), relied upon by Judge Moynahan in Morgan, the court held that National Service Life Insurance policies are "contracts with the United States," their terms "governed by federal statutes and regulations in determining who is to share in the benefits arising therefrom."

These cases merely involve particular applications of the familiar principle that, where the purpose of a federal law requires...

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