In its recent decision in Hillman v. Maretta, the U.S. Supreme Court considered whether a state law providing for the automatic revocation of a beneficiary designation in the event of divorce was preempted by a federal law providing for the enforcement of a beneficiary designation under a federal life insurance policy. 133 S. Ct. 1943, 1945 (June 3, 2013). Specifically, the Virginia state law at issue provided that a former spouse who recovers “death benefits” in violation of the statute was personally liable to the person to whom the benefits should have been paid. Id. at 1948. In effect, the Virginia law redirected to whom the benefits should be paid without regard to insured’s beneficiary designation.
The Court held the Virginia law was preempted by federal law. Writing for the majority, Justice Sotomayor concluded that the state law conflicted with Congress’s intent in enacting the federal law giving effect to the insured’s beneficiary designation. Id. at 1952-53. In essence, because the state law resulted in the payment of the policy proceeds to someone other than the person whom the insured had designated as a beneficiary, the federal law mandating payment to the beneficiary trumped state law.
Of course, the federal preemption issue raised in Hillman does not arise frequently because the vast majority of life insurance policies do not implicate federal law, much less a federal law that is in conflict with a state law addressing the same field of law. That said, Pennsylvania has enacted a statute similar to the law in Virginia. The Pennsylvania statute is codified at 20 Pa.C.S. § 6111.2(c)(2). In light of Hillman, the fate of this statute could be in question, particularly if a conflict were to arise under the same federal life insurance law at issue in Hillman. Within recent years, the Pennsylvania Supreme Court has actually held that § 6111.2 was preempted by ERISA in a comparable case involving a challenge to a designated beneficiary’s right to recover benefits under an ERISA life insurance policy. See In re Estate of Sauers, 32 A.3d 1241, 1257 (Pa. 2011).
Issues of preemption aside, however, Hillman more generally underscores the importance of ensuring that beneficiary designations under a life insurance policy are current. Some of the most common disputes in the life insurance context involve multiple, conflicting benefit claims because an insured has not updated his or her beneficiary designation. Consequently, in addition to resolving the high-level question of whether the federal law at issue preempted state law, Hillman serves as a reminder of the types of disputes that can arise when an insured fails to update his or her beneficiary designations under a life insurance policy.