I previously posted on class actions involving life insurance “checkbook” accounts, where an insurer, instead of paying the proceeds of a life insurance policy in one payment, provides a beneficiary with a “checkbook” from which they can draw on the policy proceeds all at once or over time. On April 27, 2011, a Nevada federal court recently denied MetLife’s motion to dismiss in one of these class actions, Keife v. Metropolitan Life Insurance Company.
MetLife calls these accounts “Total Control Accounts.” The court concluded that the agreement governing these accounts was not part of the insurance policy because the policy contained provisions stating that the policy was the entire contract and could be amended only in a writing signed by the policyholder and the insurer. The policy provided that:
Upon receipt by the Office of satisfactory proof, in writing, that any Employee shall have died while insured hereunder, the Office shall pay, subject to the terms hereof, the amount of Life Insurance, if any (plus interest, if any, as determined by the Insurance Company) in force hereunder on account of such Employee in accordance with Section 4 hereof, at the date of his death. Payment shall be made to the Beneficiary of record of the Employee or otherwise as provided in Section 11 hereof immediately after receipt of such proof and of proof that the claimant is entitled to such payment. (emphasis in court opinion)
The court concluded that this provision required MetLife to pay the benefits “(1) immediately, and (2) in one sum.” The court found that MetLife had not complied with that obligation by providing a checkbook “because MetLife maintained possession and control of the funds,” relying on the First Circuit decision in Mogel v. UNUM Life Ins. Co. The court found that the plaintiff had adequately alleged damages based on the difference in the interest rate paid by MetLife and the interest rate that he could have obtained elsewhere.
The bottom line here is that the growing number of putative class actions being filed on this issue should be of some concern to life insurance companies. Of course, each policy’s provisions will have to be examined separately by the courts, and a denial of a motion to dismiss does not mean that the case will be appropriate for class certification. But any life insurance company using these “checkbook” accounts should carefully review its policy terms and any other agreements pertaining to the use of these accounts.