Funeral Financial Systems v. United States of America

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1404
Funeral Financial Systems,
Plaintiff-Appellant,
v.
United States of America,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 7905--James B. Zagel, Judge.
Argued September 15, 2000--Decided December 13, 2000
Before Flaum, Chief Judge, Kanne, and Williams,
Circuit Judges.
Kanne, Circuit Judge. Plaintiff-Appellant,
Funeral Financial Systems ("Funeral Financial"),
asks this Court to find that the district court
incorrectly held the assignment of a World War II
veteran’s insurance benefits to Funeral Financial
violative of the policy’s terms and, thereby,
erroneously granted the United States’ motion for
summary judgment. For the reasons stated below,
we agree with the district court’s determination
regarding the validity of the assignment, and we
affirm that court’s decision.
I. History
World War II veteran Chafois Gilliam ("Gilliam")
died on January 9, 1998. As a result of his
service to his country, Gilliam obtained a
National Service Life Insurance ("NSLI") policy
from the United States Government in 1947, valued
at $10,000, pursuant to the National Service Life
Insurance Act of 1940, 38 U.S.C. sec.sec. 1901-
1963 (1994). Gilliam designated his wife, Shirley
Gilliam, and son, Dwight Gilliam, as joint
beneficiaries of the policy.
Four days after Gilliam’s death, Shirley and
Dwight Gilliam assigned all rights, title, and
interest in $6,517.22 of the insurance benefits

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available to them/1 as joint beneficiaries of
the policy to another of Gilliam’s sons, Keith
Gilliam. On the very next day, Keith Gilliam
purported to assign the interest he had just
acquired to the Hall-Jordan Funeral Home ("Hall-
Jordan") in return for funeral services for
Gilliam. Hall-Jordan, in turn, purported to
assign this interest to Funeral Financial in
exchange for immediate funds from Funeral
Financial to pay for Gilliam’s funeral expenses.
Funeral Financial attempted to collect the life
insurance policy proceeds by contacting the
United States Department of Veterans Affairs
("the Veterans Administration"). Funeral
Financial provided the Veterans Administration
with written notice of the purported assignment
from Hall-Jordan, and copies of the preceding
purported assignments of the insurance benefits.
Upon review of this information, the Veterans
Administration notified Funeral Financial that
"the proceeds of a Government Life Insurance
policy cannot be assigned to a funeral home or to
any funeral financial service company."
Responding to the government’s refusal to pay
Funeral Financial the proceeds from Gilliam’s
NSLI policy, Funeral Financial filed a civil
action in the Chancery Division of the Circuit
Court of Cook County, Illinois, seeking
declaratory relief against National Service Life
Insurance Company. Funeral Financial urged a
determination that the assignments were valid and
that the Veterans Administration must pay Funeral
Financial $6,517.23. The United States removed
the case to the United States District Court for
the Northern District of Illinois, Eastern
Division, pursuant to 28 U.S.C. sec. 1441(a).
Additionally, because National Service Life
Insurance is not a separate entity, but instead
is a program implemented by the Department of
Veterans Affairs, the United States was
substituted as the proper party defendant.
Funeral Financial then sought relief pursuant to
38 U.S.C. sec. 1984(a), which provides for
federal district court review of claims against
the United States involving NSLI policies.
The United States filed a motion for summary
judgment arguing that the assignment clause in
Gilliam’s policy restricts the assignability of
his NSLI death benefits and renders the purported
assignments invalid. Additionally, the government
argued that 38 U.S.C. sec. 5301 prohibits any
assignment of NSLI benefits that is not
"specifically authorized by law," and mandates
that these benefits "shall be exempt from the
claim of creditors," such as Funeral Financial.
The district court agreed with the government

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that the purported assignments were invalid. In
explaining its conclusion, the district court
focused on the assignment clause in Gilliam’s
policy, which states, "This policy is not
assignable by the Insured. A beneficiary may
assign all or any part of his/her interest in
this policy to the Insured’s widow, widower,
child, father, mother, grandfather, grandmother,
brother, or sister, when the designated
contingent beneficiary, if any, joins in the
assignment." The district court found that this
language, which is taken from the language of 38
U.S.C. sec. 1918(a) (1994), clearly prohibits the
assignment from Keith Gilliam to Hall-Jordan, as
well as the subsequent assignment from Hall-
Jordan to Funeral Financial.
The district court further held that 38 U.S.C.
sec. 5301 rendered the assignments invalid.
Referring to sec. 5301, the court explained that
"the statute makes clear that veteran’s benefits
are assignable only as specifically authorized by
law, and no such specific authorization exists
for the assignments at issue here." Funeral Fin.
Serv., Ltd. v. United States, No. 98 C 7905, 2000
WL 91919, at *2 (N.D. Ill. Jan. 18, 2000). Having
found the assignments allegedly obligating the
Veterans Administration to pay Funeral Financial
invalid, the district court granted the United
States’ motion for summary judgment.
II. Analysis
We review the district court’s decision to
grant summary judgment de novo. Wyatt v. Unum
Life Ins. Co. of America, 223 F.3d 543, 545 (7th
Cir. 2000). Summary judgment is proper when the
"pleadings, depositions, answers to
interrogatories, and admissions on file, together
with the affidavits, if any, show that there is
no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a
matter of law." Fed. R. Civ. P. 56(c); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23,
106 S. Ct. 2548, 91 L. Ed.2d 265 (1986). In
determining whether summary judgment is
appropriate, that is to say when deciding whether
a genuine issue of material fact exists, we must
review the record in the light most favorable to
the non-moving party, in this case Funeral
Financial, and make all reasonable inferences in
its favor. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed.2d
202 (1986). If, after having reviewed the record
in this manner, we were to conclude that the
evidence is such that a reasonable jury could
return a verdict for Funeral Financial, then the
district court incorrectly granted the United
States’s motion for summary judgment. See id. at
249. If, however, we conclude that the evidence

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favoring Funeral Financial is insufficient for a
jury to return a verdict for that party, then
summary judgment was properly granted. See id. at
250.
Funeral Financial asserts numerous arguments in
support of its position that summary judgment was
improperly granted because the attempted
assignment of $6,517.23 of Gilliam’s insurance
benefits to Funeral Financial was valid. We find
all of these arguments unpersuasive. Thus, we
need only address three of Funeral Financial’s
strongest arguments in explaining why the
district court correctly granted the government’s
motion for summary judgment.
A. The Language of the Assignment Clause
The validity of the assignment at issue can be
determined by examining the language of the
assignment clause in Gilliam’s insurance policy.
Gilliam’s policy, issued pursuant to a federal
statute providing military veterans with
insurance, is a written government contract. See
Prudential Ins. Co. of America v. Athmer, 178
F.3d 473, 475 (7th Cir. 1999) (discussing life
insurance policy issued pursuant to the
Servicemen’s Group Life Insurance Act of 1965, 38
U.S.C. sec.sec. 1965-1979). Interpreting the
meaning of a provision in a federal government
contract is a matter of federal common law, and
therefore, we must apply federal common law rules
of contract interpretation to determine whether
the purported assignments of Gilliam’s insurance
proceeds were valid. See id. at 475; see also
Pitcher v. Principal Mut. Ins. Co., 93 F.3d 407,
411 (7th Cir. 1996).
When applying the federal common law rules of
contract interpretation we must first determine
whether the clause of the contract at issue is
ambiguous. Grun v. Pneumo Abex Corp., 163 F.3d
411, 420 (7th Cir. 1998) (citing Ryan v.
Chromalloy American Corp., 877 F.2d 598, 602 (7th
Cir. 1989)). The language of a contract is
ambiguous if a section of that contract "is
subject to reasonable alternative
interpretations." Id. (citing Hickey v. A.E.
Stanley Mfg., 995 F.2d 1385, 1389 (7th Cir.
1993)). In reviewing contract language for other
possible interpretations, we are required to
interpret the language "’in an ordinary and
popular sense as would a person of average
intelligence and experience.’" Id. (quoting
Pitcher, 93 F.3d at 411). If a contract is not
open to any other reasonable interpretations, and
is therefore unambiguous, then the written words
of the contract must dictate the disposition of
a dispute involving that contract. Central
States, Southeast and Southwest Areas Pension

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Fund v. Kroger Co., 226 F.3d 903, 911 (7th Cir.
2000). Furthermore, except for the highly unusual
instance "where literal application of a text
would lead to absurd results or thwart the
obvious intentions of its drafters," if a
contract is found to be unambiguous, then we are
not to examine any extrinsic evidence. Grun, 163
F.3d at 420 (internal quotation marks and
citations omitted). When the language of an
unambiguous contract "provides an answer, then
the inquiry is over." Id. (citing Wikoff v.
Vanderveld, 897 F.2d 232, 238 (7th Cir. 1990)).
There is nothing ambiguous about the assignment
clause in Gilliam’s NSLI policy. The clause
provides that "[a] beneficiary may assign all or
part of his/her interest in the policy." The
clause also provides, however, a very specific
and limited list of individuals to whom such a
beneficiary may assign all or part of his or her
interest. A beneficiary of an NSLI policy may
only assign his or her interest to "the Insured’s
widow, widower, child, father, mother,
grandfather, grandmother, brother or sister."
Applying the limitations of the unambiguous
assignment clause, we conclude that the two
assignments at issue are invalid. Although the
initial assignment from Shirley and Dwight
Gilliam to Keith Gilliam was proper, the next two
assignments are clearly prohibited by the
policy’s assignment clause. Keith Gilliam is the
son of Gilliam and is, therefore, one of the
limited individuals to whom the assignment clause
permits Shirley and Dwight Gilliam to assign all
or part of their interest in the policy’s
proceeds. Neither Hall-Jordan, to whom Keith
Gilliam attempted to assign his interest in the
policy, nor Funeral Financial, to whom Hall-
Jordan tried to assign its purported interest in
the policy, however, can claim to be included in
the limited group of individuals to whom Shirley
and Dwight Gilliam could permissibly assign their
interest in the policy. Thus, we find these two
assignments to be in direct violation of the
assignment clause and invalid.
Funeral Financial asserts that the restrictions
on the assignability of Gilliam’s NSLI proceeds
only apply to the first assignment, from the
initial beneficiary, Shirley and Dwight Gilliam,
to the initial assignee, Kevin Gilliam. Funeral
Financial contends that any re-assignment of the
insurance proceeds is not hindered by the
restrictions placed on the original beneficiary.
This argument fails for two reasons. First, when
a party to a contract assigns its interest in
that contract to another party, the assignee,
then that second party "stands in the shoes of
the assignor and assumes the same rights, title

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and interest possessed by the assignor." Perry v.
Globe Auto Recycling, Inc., 227 F.3d 950, 953 (7th
Cir. 2000) (internal quotation marks and
citations omitted). When Shirley and Dwight
Gilliam properly assigned their interest in
Gilliam’s policy to Keith Gilliam, he stepped
into the role of beneficiary, and the
restrictions of the assignment clause limited his
ability to assign his newfound interest in the
insurance proceeds. Thus, Keith Gilliam’s
assignment of his interest in his father’s policy
to Hall-Jordan is forbidden by the assignment
clause. It follows that the attempted assignment
from Hall-Jordan, who never actually obtained any
interest in the policy, to Funeral Financial, an
impermissible assignee, is also invalid.
Secondly, Funeral Financial’s interpretation of
who is bound by the assignment clause undermines
the purpose of including any assignment
restrictions in the insurance policy. The
assignment clause in Gilliam’s policy,
implemented pursuant to 38 U.S.C. sec. 1918(a),
is one of several steps Congress has taken to
ensure that NSLI proceeds reach those individuals
Congress and the policyholders intended these
policies to benefit./2 Applying the same
restrictions to those individuals who have
themselves been assigned an interest in the
policy through a proper assignment protects the
rights of those individuals who stand ready to
benefit from future valid assignments. As the
district court pointed out, allowing an initial
assignee to re-assign the interest in the
proceeds he or she received from the designated
beneficiary without any restrictions whatsoever
"would create an end-run around the anti-
assignment provisions of the statute." Funeral
Fin. Serv., Ltd. v. United States, No. 98 C 7905,
2000 WL 91919, at *2 (N.D. Ill. Jan. 18, 2000).
We will neither create nor endorse a method for
individuals to bypass restrictions intentionally
implemented by Congress.
B. 38 U.S.C. sec. 5301
The assignments at issue in this case are also
rendered invalid by 38 U.S.C. sec. 5301. Section
5301, a part of the "special provisions relating
to benefits," states that:
Payments of benefits due or to become due under
any law administered by the Secretary shall not
be assignable except to the extent specifically
authorized by law, and such payments made to, or
on account of, a beneficiary shall be exempt from
taxation, shall be exempt from the claim of
creditors, and shall not be liable to attachment,
levy, or seizure by or under any legal or
equitable process whatever, either before or

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after receipt by the beneficiary.
38 U.S.C. sec. 5301(a) (1994) (emphasis added).
The "Secretary" referred to in this provision is
the Secretary of the United States Department of
Veterans Affairs. 38 U.S.C. sec. 101(1) (1994).
The NSLI is one of many programs implemented by
the Secretary and the Department of Veterans
Affairs, and the benefits from Gilliam’s NSLI
policy are part of that group "of benefits due or
to become due under law administered by the
Secretary." 38 U.S.C. sec. 5301; see 38 U.S.C.
sec. 1904(b) (1994). Thus, for any of the
assignments at issue to be valid, they must be
"specifically authorized by law." 38 U.S.C. sec.
5301. As we have previously explained, however,
no such authorization exists for either Keith
Gilliam’s purported assignment to Hall-Jordan, or
Hall-Jordan’s purported assignment to Funeral
Financial. The assignment clause in Gilliam’s
policy describes a limited group of individuals
to whom an assignment can be considered as being
"specifically authorized by law." Id. The two
assignments at issue are not included in this
group, and they are therefore barred by 38 U.S.C.
sec. 5301.
C. Congressional Intent
Although we have already explained several
reasons why the purported assignments at issue
are invalid, we feel compelled to briefly express
our disagreement with Funeral Financial’s final
assertion that the district court’s decision
fails to effectuate congressional purposes and,
more importantly, fails to serve veterans and
their families in a proper manner. Funeral
Financial highlights a situation that may arise
when the Veterans Administration enforces the
restrictions on the assignment of insurance
proceeds like those from Gilliam’s policy. There
may be instances where the families of recently
deceased veterans are unable to immediately
produce the funds needed to pay for a proper
funeral service and burial. Although most of
these families would be receiving the proceeds
from their relatives’ policies, a time delay in
the distribution of those benefits could
admittedly create a gap in time from when funeral
expenses must be paid and when insurance benefits
would be received. Thus, Funeral Financial argues
that a determination that the assignment clause
prohibits assignments like those at issue in this
case would dishonor veterans by preventing their
families to provide appropriate funeral
arrangements.
We first note that Congress has provided NSLI
policyholders and their families the means to
avoid this situation. A 1946 amendment to the

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NSLI program enabled insured veterans to
designate policy beneficiaries outside of the
limited group of relatives originally
established. See 38 U.S.C. sec. 1917(a) (1994).
Furthermore, policyholders are able to have these
insurance proceeds paid to their selected
beneficiaries in "one sum" or in monthly
installments. 38 U.S.C. sec. 1917(b) (1994).
Thus, an NSLI policyholder could anticipate
funeral expenses, even make specific
arrangements, and then designate a funeral
services provider as the direct beneficiary of
the amount of money needed for those services.
Although the funeral services provider would
encounter a delay in distribution as do all
beneficiaries, the provider could spend or borrow
the immediate funds needed knowing that it would
be paid by the government. Thus, the situation
described by Funeral Financial only arises where
no such arrangements are made, or where a funeral
services provider refuses such an arrangement.
When formulating the NSLI program, Congress was
undoubtedly aware of the delay that might occur
between the death of a veteran with an NSLI
policy and the distribution of that veteran’s
benefits to his designated beneficiaries. The
Supreme Court stated as much in United States v.
Henning, 344 U.S. 66, 73 S. Ct. 114, 97 L. Ed.
101 (1952), where, in analyzing an issue
involving an NSLI policy, the Court noted that
Congress was "fully aware of the sometimes
inevitable delays in payment." Id. at 75. The
Court also explained that in developing programs
like the NSLI, Congress works to avoid certain
problems, knowing that other difficult situations
may arise. See id. at 75-76. Specifically, with
regard to the NSLI program, the Court stated that
in putting together this legislation, Congress
"preferred the occasionally harsh result" that
might arise from a delay in payment under the
current program, to an alternative program that
would allow funds from NSLI policies to fall into
the hands of individuals or entities Congress did
not intend to benefit. Id. at 76. Although
Congress did not intend for any individual or
family to encounter difficulties when dealing
with the NSLI program, Congress ultimately
designed the program to operate in a way that it
believed would best serve veterans and their
families. Therefore, our decision does not
dishonor veterans, rather, it merely ensures that
the policies and programs designed by Congress to
reward veterans’ commitment are interpreted and
enforced consistent with the intent of Congress.
III. Conclusion
Because we agree with the district court’s
conclusion that the assignment clause in

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Gilliam’s insurance policy prohibits the
assignments at issue in this case, we AFFIRM.
/1 Although the NSLI policy included proceeds of
$10,000, at the time of Gilliam’s death, the
policy was subject to an outstanding loan of
$2,213.20. Thus, $7,786.80 of the policy’s
proceeds was available to Shirley and Dwight
Gilliam.
/2 "From the beginning, the underlying policy of
National Service Life Insurance has been to
benefit living people and to care for the
families and friends of men who gave their lives
for their country." United States v. Short, 240
F.2d 292, 298 (9th Cir. 1956).

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