Husband (H) was an active duty serviceman. He took out a life insurance
policy naming his wife (W) as beneficiary. The policy was issued by the
Servicemen's Group Life Insurance Act of 1965 (SGLIA).
Later, H and W filed for divorce in California. While they were working
through their divorce settlement, they stipulated (agreed) that H would
retain W on his Servicemen’s Group Life Insurance Policy. Six months
later, he changed the beneficiary to his sister (S). The amount of the
policy was $400,000.00.
Sadly, H was terminally ill and in fact died. S learning that she was the
beneficiary on H’s life insurance policy, submitted a claim for
and received the policy’s benefits.
W learned of S’s receipt of the life insurance funds, and filed a
petition to have the money returned to her because she and H had agreed
that she would be the beneficiary.
The court denied W’s request and allowed S to retain the funds, stating
that federal law applied. The federal law allowed a serviceperson to change
the beneficiary on his/her life insurance policy at any time for any reason
– even if it was against state law.
W appealed arguing H and W’s agreement, and that H and S had committed
a fraud against W.
The Appellate Court agreed with the trial court:
“Applying federal law here, we are compelled to conclude Husband
possessed the right under the SGLIA "freely to designate the beneficiary
and to alter that choice at any time by communicating the decision in
writing to the proper office…[I]t appropriately may be said: Congress
has spoken with force and clarity in directing that the proceeds belong
to the named beneficiary and no other…”
Further, the Appellate Court concluded, since S did not know of the beneficiary
change when it was made there could be no fraud against her. Also, since
Congress had provided H with the
absolute right to change his beneficiary at any time, it would not have mattered
how S became the beneficiary.