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ATTORNEY FOR APPELLANTS Benjamin L. Niehoff Bloomington, Indiana

ATTORNEY FOR APPELLEE Brad L. Rigby Huntingburg, Indiana

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Indiana Supreme Court
_________________________________ No. 51S01-1106-PL-366 PHYLLIS HARDY, ALAX KEITH FURNISH AND MEGAN JESSICA FURNISH, BY NEXT FRIEND PHYLLIS HARDY,

In the

FILED
Mar 14 2012, 11:15 am
of the supreme court, court of appeals and tax court

CLERK

Appellants (Plaintiffs below), v. MARY JO HARDY, Appellee (Defendant below). _________________________________ Appeal from the Martin Circuit Court, No. 51C01-0901-PL-0059 The Honorable R. Joseph Howell, Judge _________________________________ On Petition to Transfer from the Indiana Court of Appeals, No. 51A01-1005-PL-248 _________________________________ March 14, 2012 David, Justice. In this case, an insured held a life insurance policy issued as part of a federal employee benefit plan. When the insured divorced from his first wife, the divorce decree and property settlement required the insured (1) to maintain the life insurance policy and (2) to designate the first wife and their grandchildren as equal beneficiaries. Subsequently, the insured remarried, designated his second wife as the sole beneficiary to the life insurance policy, and increased the insurance coverage. After some time, the insured and second wife divorced. When the insured died, the second wife remained the sole beneficiary on the life insurance policy.

The first wife and grandchildren filed suit, asserting equitable claims over the life insurance proceeds. On cross-motions for summary judgment, the trial court determined that federal employee benefit law preempted the equitable state law claims and that the policy proceeds accordingly belonged to the second wife. We hold that the Federal Employees' Group Life Insurance Act does not preempt the equitable claims and that the first wife and grandchildren are entitled to a constructive trust over at least a portion of the proceeds. Facts and Procedural History Carlos Hardy and Phyllis Hardy were married on December 26, 1976. In 1996, Carlos began working at the Naval Surface Warfare Center, Crane Division (NSWC Crane) as a civilian employee. Through NSWC Crane, Carlos had a life insurance policy with Federal Employees' Group Life Insurance (FEGLI). On February 2, 1998, Carlos and Phyllis divorced. Their decree of dissolution stated, in part, that "Carlos Hardy shall maintain the Met Life Insurance Policy which has been held during the marriage. Phyllis Hardy and the parties' grandchildren shall each be designated as equal beneficiaries of the policy. Phyllis Hardy shall continue to maintain the life insurance which she has held during the marriage." It continued, "Neither party shall change any of the life insurance coverage on either policy." The MetLife policy mentioned in the divorce decree and property settlement is the FEGLI policy.1 The decree of dissolution also incorporated a property settlement agreement which, among other things, reiterated that Carlos "shall maintain" the FEGLI policy and that Phyllis and the grandchildren would be equal beneficiaries of the policy. On September 29, 2000, Carlos married Mary Jo (Hall) Hardy. Several days later, on October 4, 2000, Carlos submitted a designation-of-beneficiary form, making Mary Jo the sole

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The Court of Appeals appropriately pointed to a designated affidavit of Phyllis, which explained that the MetLife policy set forth in the divorce decree was actually the FEGLI policy. Hardy v. Hardy, 942 N.E.2d 838, 840 n.3 (Ind. Ct. App. 2011). The affidavit stated, "MetLife administers the FEGLI policy, which was the reason the divorce decree referred to a `MetLife Policy.'" Id.

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beneficiary of his FEGLI policy. That same day, Carlos also increased his insurance coverage. On September 17, 2007, Carlos and Mary Jo divorced. Their decree of dissolution incorporated a contract and agreement, which stated in part, "[E]ach of the parties hereto shall be awarded any and all life insurance policies which he or she has securing his or her own respective life. [And] each party shall execute any documents necessary to remove his or her name as beneficiaries from each other's respective life insurance policies." Carlos died on August 9, 2008. At the time of Carlos's death, Carlos and Phyllis had two grandchildren, Alax Furnish and Megan Furnish. Mary Jo was the named beneficiary on the FEGLI policy, which had payable benefits of approximately $98,000. In January 2009, Phyllis, Alax Furnish, and Megan Furnish (collectively, "Phyllis and the grandchildren") filed a complaint for declaratory judgment and constructive trust over the in surance proceeds. In June 2009, Phyllis and the grandchildren filed a motion for summary judgment, arguing that they were entitled to the proceeds of Carlos's life insurance policy. They a lso asserted that the doctrines of waiver and estoppel precluded any recovery for Mary Jo. Mary Jo filed a response and a cross-motion for summary judgment, arguing that she was the rightful recipient of the proceeds. She stated that the Federal Employees' Group Life Insu rance Act (FEGLIA)2 preempted Carlos and Phyllis's divorce decree and t hat FEGLIA required the proceeds be paid to the named beneficiary in the policy. Mary Jo asserted that this prevented the court from imposing a constructive trust under state law. Mary Jo also advanced an alternative argument: she claimed that in the event Phyllis and the grandchildren were entitled to assert their claims, they were limited to the policy's value at the time of Carlos and Phyllis's divorce. The trial court granted Mary Jo's motion for summary judgment, agreeing with her preemption argument. The trial court accordingly awarded all of the FEGLI policy proceeds to Mary Jo. Phyllis and the grandchildren appealed, and Mary Jo argued that the case was not ripe for review. After determining that the case was, in fact, ripe for review, the Court of Appeals affirmed the trial court. Hardy v. Hardy, 942 N.E.2d 838, 842, 848 (Ind. Ct. App. 2011).
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5 U.S.C.

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