A Service Member Waives the Right to Change the SGLI Beneficiary – What Happens Next?
Colorado Case of Kathleen Mills v THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, (corporation), and STEPHEN MILLS (service member’s brother; life insurance beneficiary)
- Spouse: Kathleen Mills (Mrs. Herbert Roger Mills)
- Service Member: Major H. Roger Mills, U.S. Army
- Married: in the state of Ohio
- August 2005: Service member files for divorce in the Court of Common Pleas in Ashtabula County, and requests and receives a state court granted motion to place both the service member and spouse under a restraining order to make no changes to “any life insurance or medical insurance policy either owned by either or in which they have an interest.”
- February 2009: Service member changed his Servicemembers Group Life Insurance (SGLI) beneficiary (held with Prudential) from his spouse, Kathleen Mills, to his brother, Stephen Mills and did not notify his spouse.
- October 2010: Service member passed away in a military training accident
- Divorce: Never finalized due to service members death
- Life Insurance Proceeds: Paid to Stephen Mills of Colorado Springs, CO
Issue: Kathleen Mills claims rights to the proceeds paid to the service members brother, Stephen Mills due to her late husband, Major H. Roger Mills, violating the restraining order (his action to change the beneficiary). She claimed that the change of beneficiary should be null and void because the service member waived his right to change the beneficiary (by entering the restraining order).
Conclusion: Dismissed. Kathleen Mills has no claim to the life insurance proceeds, despite the violation of the state court order.
The case of questionable beneficiary took place in Colorado, the state of residence of the service member’s brother, Stephen Mills. The court held that federal law trumps state law and federal law recognizes the service member’s “absolute right” to change a beneficiary at any time. It also held that the failure to notify a spouse of the change, does not make the policy invalid; the right to change still prevails. (Sources: Mar. 14, 2013 No. 12-1208 (D.C. No. 1:11-CV-02127-DME-CBS) (D. Colo.) here and April 17, 2012 Civil Action No. 11-cv-02127-DME-CBS here. )
Kathleen Mills faced two challenges:
- Under federal law, the service member has an absolute right to designate the beneficiary of the SGLI policy.
- This life insurance is not treated like community property and in fact, cannot be seized for legal or equitable process. When Congress enacted SGLIA in 1965, it declared the proceeds are exempt from taxation and claims from creditors seeking debt repayments.
First issue: Federal law prevails over state law. Ohio had no stance to approve a motion to waive SGLI in the first place. In most cases, when two parties agree to something, it becomes a binding contract. However, two people cannot enter a contract that is in itself—illegal. The restraining order would have been upheld for personal life insurance policies, but not SGLI.
Second issue: This deals with protecting the intentions of the restraining order, in essence—an equitable agreement. When the spouse and service member were placed under this order, the understanding was that Kathleen Mills would remain the beneficiary. Clearly, and injustice has been done. But to whom does Kathleen Mills address her claim? Kathleen Mills has in a sense become a ‘creditor’ seeking payment and as such will have no claim under federal law. Her claim would fall to state level, a claim against the estate of the deceased Major H. Roger Mills (excluding of course, all life insurance proceeds).
Since the case was against Prudential Insurance Company of America and Stephen Mills, we can see why it was ultimately dismissed. There is no claim to be upheld against either party. Prudential Insurance Company has done nothing wrong. They paid the beneficiary designated by federal law. The beneficiary has done nothing wrong. He received the money due him per the policy.
What’s to be Done to Protect the Military Spouse?
Attorney Joseph M. Lyon sums up the predicament nicely:
“The current SGLIA legislation therefore, fails on two fronts. First, the language is not specific on waiver. Conduct described above should not be validated or allowed. It isn’t good policy for state or federal, nor is it becoming of a military officer to seek a remedy in a state court while blatantly ignoring the order, to his spouse’s financial detriment. yet, under our current law, a serviceman can file legal paperwork and protect himself from his wife changing him as a beneficiary, but she is not offered the same protection under the law. Second, the failure to notify does not result in the policy being void. A breach of this duty should have legal consequences, but as it stands, there is no recourse.” (See source)
Kathleen Mills has written a letter to President Obama with a proposal for a Military Spouse Protection Act . This should not be confused with Uniformed Services Former Spouses’ Protection Act (USFSPA). The Military Spouse Protection Act would permit a military spouse to own an equal amount of SGLI Insurance on the service member at the same premium rate. Mrs. Mills is a Gold Star widow, worked as an educator for the Department of Defense, raised two officers, and has six military grandchildren. She acts as a National Military Spouse Advocate, helping abandoned American military spouses. (See article by Paula Carrasquillo of Communities Digital News reported on Feb. 21, 2014)
Financial Uncertainty – What Military Spouses Need to Know
- Every current military spouse and former military spouse should be aware that they are not protected by SGLI in any sense. The service member (per U.S. Supreme Court decision Ridgway v. Ridgway, 454 U.S. 46, 102 S. Ct. 49 (1981)) has an “absolute right” to change this beneficiary at any time. In addition, no federal cases have been noted where a service member has waived the right to designate a beneficiary.
- If you are a divorced service member or former military spouse with language in your decree discussing SGLI, you might want to review it and discuss any questions you might have with your lawyer.
- While we await news of the proposed military spouse SGLI, one way to protect the military spouse from these perils would be to negotiate for the spouse to own a private life insurance policy on the service member. The service member might need to complete medical tests, and the parties would also need to negotiate who should pay the premiums on this policy.