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
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
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
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
"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
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
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 ...