Life insurers’ use of retained asset accounts (in which checkbooks are provided to beneficiaries of life policies) have given rise to a rash of class action lawsuits in which courts have reached disparate results.  I have blogged about these cases on a number of occasions.  In my February 22, 2012 post, I discussed decisions by federal district courts in Maine and Pennsylvania focusing on whether insurers owed fiduciary duties under ERISA in connection with group life policies included in employee benefit plans, and whether there was a viable claim for breach of fiduciary duty.  Judge Saylor of the District of Massachusetts has now weighed in on this issue, granting partial summary judgment in favor of an insurer but leaving some significant issues open for further litigation.

In Vander Luitgaren v. Sun Life Assurance Co. of Canada, Civ. A. No. 09-11410-FDS, 2012 U.S. Dist. LEXIS 164983 (D. Mass. Nov. 19, 2012), the group life policy provided that “[t]he Death Benefit may be payable by a method other than a lump sum.  The available methods of payment will be based on the benefit options offered by Sun Life at the time of election.”  Id. at *4.  The policy (and apparently other plan documents, although that is not clear from the opinion) did not explain the retained asset account option or what interest rate would be credited on such an account.  The named plaintiff received death benefits in the form of a retained asset account, promptly thereafter withdrew the full benefits, and was paid a small amount of interest.  The parties proceeded with summary judgment motions prior to briefing on class certification.  On cross-motions for summary judgment, the issues in dispute were whether the insurer was acting as a fiduciary under ERISA when it established and maintained a retained-asset account for the named plaintiff, and whether there was a breach of fiduciary duty.

The court held that when the plaintiff’s retained asset account was created, the assets in that account were not “plan assets,” and therefore granted partial summary judgment for the insurer on the claim based on ERISA Section 406(b).  In reaching this result, the court distinguished First Circuit authority, and relied upon decisions by the Second Circuit and the Maine and Pennsylvania federal courts:

Given that the Perini [employer group] policy did not promise a lump-sum payment, this case presents a different factual scenario than that addressed in Mogel [v. UNUM Life Ins. Co., 547 F.3d 23 (1st Cir. 2008)]. In that case, the plan at issue specifically called for payment by lump sum. The insurer failed to comply with the terms of the plan when it provided the benefits in the form of a retained-asset account, and the court found that the creation of the retained-asset account did not discharge the insurer’s fiduciary obligations. In contrast, the policy at issue here did not specify a particular method by which death benefits were to be paid. Indeed, it explicitly stated that payment might be made in a form other than a lump sum, and that the method of payment would be determined based on benefit options offered by Sun Life.  There is no dispute that, at all relevant times, retained-asset accounts were one of the benefit options offered by Sun Life. Thus, when defendant set up and credited a retained asset account, the insurer provided all the benefits promised in the policy in a form that complied with the terms of the policy. At that time, all fiduciary duties involving the management and disposition of plan assets were discharged. Defendant remained obligated to honor plaintiff’s drafts, but its responsibility was no longer that of a fiduciary. Rather, “this arrangement constituted a straightforward creditor-debtor relationship governed by the [policy documents] and state law, not ERISA.” Faber [v. Metropolitan Life Ins. Co., 648 F.3d 98, 105 (2d Cir. 2011)].

Further, as was true in Faber, Merrimon, and Edmonson, the assets at issue here are not “plan assets.” The Perini policy did not grant plan participants or beneficiaries any ownership interest in Sun Life’s assets. Nothing in the plan descriptions or policy agreements suggests that Sun Life’s funds would become “plan assets” once Sun Life gave a beneficiary access to his benefits. Applying ordinary notions of property rights, the funds remained Sun Life’s assets, subject to the insurer’s obligations under the policy to honor plaintiff’s drafts against his retained-asset account.

Id. at *23-25.

Judge Saylor concluded, however, that the insurer acted as a fiduciary in other respects:  “plaintiff has set forth two ways in which defendant exercised discretionary authority in the administration of the plans, and thus acted as a fiduciary: (1) in selecting to pay benefits through retained-asset accounts; and (2) in determining the interest rates to be credited to the retained-asset accounts. Because defendant retained discretion with respect to these two elements of plan administration, defendant was acting as a fiduciary under ERISA when taking these actions.”  Id. at *31.  The court, however, denied the plaintiff’s motion for summary judgment on this claim because “At this stage in the litigation, there is not sufficient uncontested evidence to support the conclusion that defendant breached its fiduciary duty by creating a retained-asset account and providing a 2% interest rate.”  Id. at *32-33.  That issue will require further factual development and perhaps lead to further motion practice.

While it remains to be seen how this case will turn out, structuring these retained asset account programs in a manner that attempts to avoid litigation will remain a challenge for insurers in light of the disparate court opinions that have been issued in these cases, many of which have tended to turn on subtle distinctions in the policy and plan documents.

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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.