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April 6, 2000


The opinion of the court was delivered by: Bartle, District Judge.


This action involves a dispute over the amount due under a group life insurance policy on the life of a deceased member of the United States Navy. The beneficiary, the decedent's mother, has sued the Office of Servicemembers' Group Life Insurance and the Prudential Insurance Company of America, Inc. ("Prudential") pursuant to the Servicemembers' Group Life Insurance Act ("SGLIA"), 38 U.S.C. § 1965, et seq. Plaintiff has also set forth separate state law claims for negligence, breach of contract, fraud, and bad faith.*fn1 Presently before the court is the motion of the defendants to dismiss these counts for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). Defendants contend that the SGLIA preempts these causes of action.

For purposes of ruling on this motion, all well-pleaded factual allegations in the complaint are assumed to be true and are viewed in the light most favorable to the non-movant. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). We draw any reasonable inferences from the allegations in plaintiff's favor. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1391 (3d Cir. 1994). We will dismiss a complaint only when it is clear that no relief could be granted under any set of facts that could be proven consistent with the allegations. See Hishon, 467 U.S. at 73, 104 S.Ct. 2229.

According to the complaint, Donald Parker served in the Navy for five years and was honorably discharged on February 21, 1998. He died on June 6, 1998. While on active duty, Mr. Parker "obtained life insurance . . . through the Office of Servicemembers Group Life Insurance." Compl. ¶ 10. Mr. Parker signed two forms, one in 1996 and one in 1997, in which he elected life insurance coverage and designated a beneficiary. Mr. Parker's signature on each form was witnessed by another member of the Navy. The present dispute concerns whether Mr. Parker's beneficiary is entitled to $100,000 or $200,000 in life insurance proceeds.

Congress enacted the SGLIA in 1965. It was the latest in a series of statutes designed to provide life insurance for military personnel. During World War I, Congress had in place a life insurance program called War Risk Insurance. See Ridgway v. Ridgway, 454 U.S. 46, 51 n. 3, 102 S.Ct. 49, 70 L.Ed.2d 39 (1981). The National Service Life Insurance Act of 1940 ("NSLIA"), 38 U.S.C. § 1901, et seq., the predecessor to the SGLIA, was implemented just prior to the United States' engagement in World War II. See id. at 50, 102 S.Ct. 49. The NSLIA lapsed after the Korean hostilities. See id. at 50-51, 102 S.Ct. 49. At the time Congress enacted the SGLIA, the United States' involvement in Vietnam had caused many private commercial insurers to limit coverage for members of the armed services. See id. at 51, 102 S.Ct. 49. The SGLIA was enacted to provide active duty military personnel, especially those in combat zones, with access to affordable life insurance coverage. See id. at 50, 102 S.Ct. 49.

Under the SGLIA, the Secretary of Veterans' Affairs ("Secretary") purchases group coverage from one or more commercial insurers. See 38 U.S.C. § 1966(a). The government contracted with defendant Prudential to provide the coverage which is the subject of the dispute here. The United States, not the service member, is the policyholder. See Ridgway, 454 U.S. at 51, 102 S.Ct. 49. The Supreme Court has aptly described the mechanics of the SGLIA program:

In order to make the insurance available through a commercial carrier at a reasonable rate, notwithstanding the special mortality risks that service members often must assume, Congress undertook to subsidize the program. . . . A sum representing the extra premium for special mortality risks is periodically deposited by the United States into a revolving fund that is used to pay premiums on the master policy. . . . The fund otherwise is derived primarily from deductions withheld from service members' pay. . . . Accordingly, depending upon the conditions faced by service members at any given time, the program may be financed in part with federal funds.

Id. at 52, 102 S.Ct. 49. Monthly payroll deductions are "the same for all such [service] members." 38 U.S.C. § 1969(a)(1). The statute and relevant regulations require Prudential to maintain the Office of Servicemembers' Group Life Insurance ("OSGLI") in Newark, New Jersey, in order to administer the SGLIA program. See 38 U.S.C. § 1966(b); 38 C.F.R. § 9.1(b).

As noted above, defendants contend that the SGLIA preempts plaintiff's state law claims. In response, plaintiff argues not only that her state claims are not preempted but that the SGLIA does not even provide a cause of action by which a plaintiff may pursue relief. Surprisingly, plaintiff makes this latter argument despite the fact that she has asserted a claim under the SGLIA in Count III of her complaint, a count which the defendants do not seek to dismiss.

Both the Supreme Court and the Seventh Circuit have addressed questions involving the conflict between the SGLIA and state law, although neither specifically has addressed the issue of preemption as it may apply to a dispute over the amount of the policy proceeds. In each case, the court ruled in favor or the applicability of the SGLIA.

Ridgway v. Ridgway, 454 U.S. 46, 52, 102 S.Ct. 49, 70 L.Ed.2d 39 (1981), concerned the question of who was entitled to the proceeds of an SGLIA life insurance on the life of a Richard Ridgway, a member of the United States Army. In a divorce judgment, a Maine court ordered him to maintain this life insurance coverage for the benefit of his children. Ridgway, later remarrying, removed his first wife as the policy's beneficiary but did not name a beneficiary in her place. If a soldier or sailor did not specify a beneficiary, the SGLIA did so. See 38 U.S.C. § 1970(a) (formerly 38 U.S.C. § 770(a)). Ridgway's current wife was the designated beneficiary under the SGLIA. After his death, his first wife sued in state court to enjoin Prudential from paying benefits to the second wife. On appeal, the Supreme Judicial Court of Maine ordered the proceeds of the policy to be paid to his first wife despite the statutory mandate under the SGLIA. The United States Supreme Court reversed, holding that the SGLIA provisions prevailed. It explained:

"Possession of government insurance, payable to the relative of his choice, might well directly enhance the morale of the serviceman. The [provision exempting policy proceeds from attachment, levy, or seizure] . . . is his guarantee of the complete and full performance of the contact to the exclusion of conflicting claims. The end is a legitimate one within the congressional powers over national defense, and the means are adapted to the chosen end.". . . . The federal interest is especially strong because a substantial share of the proceeds of an SGLIA policy may be attributable to general tax revenues.

Ridgway, 454 U.S. at 56-57, 102 S.Ct. 49 (quoting Wissner v. Wissner, 338 U.S. 655, 660-61, 70 S.Ct. 398, 94 L.Ed. 424 (1950)).

In Prudential Ins. Co. of Am. v. Athmer, 178 F.3d 473 (7th Cir.), cert. denied, ___ U.S. ___, 120 S.Ct. 342, 145 L.Ed.2d 267 (1999), two insurance companies brought an interpleader action to determine who should receive the proceeds of two life insurance policies owned by a man who had been murdered by his wife. One of the relevant policies was issued pursuant to the SGLIA. The decedent had named his wife as the primary beneficiary of the SGLIA policy and his wife's son as the contingent beneficiary. The decedent's daughter argued that the court should apply Illinois law to decide whether, after disqualification of the primary beneficiary (the murderer), the murderer's natural son was entitled to receive the ...

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