Avid readers of this blog who follow developments in life insurance class actions will recall my posts earlier this year about cases claiming that life insurers improperly used “checkbook” accounts whereby, instead of issuing a check to a beneficiary for the full amount of the policy proceeds, they provide an interest-bearing account from which the beneficiary can withdraw some or all of the benefits at any time.  Earlier this year, courts in Nevada and Massachusetts denied motions to dismiss in these types of cases, and a Massachusetts federal court granted class certification.  For more on this, see my prior posts on May 4, 2011 (denial of motion to dismiss in case against MetLife in Nevada), May 12, 2011 (denial of motion to dismiss in suit against Prudential in Massachusetts) and June 30, 2011 (grant of class certification in suit against the Life Insurance Company of North America in Massachusetts).

The pendulum has recently swung a bit in the other direction, with Prudential prevailing on a motion to dismiss in the Southern District of Illinois.  In Phillips v. Prudential Insurance Company of North America, 2011 U.S. Dist. LEXIS 135982 (S.D. Ill. Nov. 28, 2011), the plaintiff made a claim under a life insurance policy and was provided with a claim form that offered her a number of options for how the payment would be made (a lump sum, installment payments for a fixed period, life income, an interest-bearing “Alliance Account,” etc.).  The form stated that if no option was selected, the claim would be paid using the “Alliance Account.”  The plaintiff signed the form without making any selection for how payment would be made, and she was provided with a checkbook for the “Alliance Account,” from which she could withdraw at any time any amount up to the full amount of the proceeds with any interest that had accrued.  The relevant policy provision stated:

You may choose to have any death benefit paid in a single sum or under one of the optional modes of settlement described below (emphasis added).  If the person who is to receive the proceeds of this contract wishes to take advantage of one of these optional modes, we will be glad to furnish, on request, details of the options we describe below or any others we may have available at the time the proceeds become payable.

Id. at *9. 

The court found no breach of contract because:

When [plaintiff] left the Claim Form blank without specifically stating that she wished to receive the benefits she was due under the Policy, she changed the method by which she would receive those benefits from a single sum to an Alliance Account.  There can be no breach of contract where the contract, by its express terms, allowed plaintiff to elect to receive the benefits in a different manner than specified by [plaintiff].  Prudential thereby distributed the insurance proceeds in accordance with the contract. 

Id. at *11.  The court also concluded that the “Alliance Account” was expressly authorized by an Illinois statute, and that there was no breach of a confidential relationship because under Illinois law there is no fiduciary relationship between an insurer and insured.  Id. at *13-17.  The court distinguished the Nevada case (Keife) on the grounds that the court there concluded that the policy in that case had an entire agreement clause and could not be modified by a separate document.  The Massachusetts case (Lucey) was distinguished on the grounds that the beneficiary in that case had chosen a “lump sum payment” and was provided with an Alliance Account.  See id. at *7-8 n.3.

The bottom line I see here is that, as I’ve predicted in prior posts on this issue, the outcomes in these cases are likely to depend heavily on the particular terms of the insurance contract and any documents that might be considered incorporated into the contract or an amendment thereto.  Whether the contract and any amendments comply with basic contract law also are likely to be central issues.  Life insurers that have this type of program in place and have not revisited it recently may want to have in-house and/or outside counsel take another careful look at their contract terms and other relevant documents that are used.  Having a solid contract in place, or amending it in a legally-defensible way (as well as ensuring compliance with any applicable state statute or regulation), can potentially make a big difference if a company is sued on this issue.  It also may not be too late to “fix” a potential problem depending on the particular circumstances.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.