I’ve covered before on this blog a series of class actions brought against life insurers involving the use of retained asset accounts, in which checkbooks are provided to beneficiaries of life insurance policies, from which any or all proceeds can be withdrawn at any time, rather than providing a lump sum payment. (For more on these cases, see the Life Insurance page of this blog.) These cases have typically turned on the particular language of the policy and other related documents. The latest development is a decision by the Seventh Circuit affirming dismissal of a class action against Prudential.
In Phillips v. Prudential Insurance Company of America, No. 11-03870, 2013 U.S. App. LEXIS 9130 (7th Cir. May 6, 2013), the insurance policy provided that the insured “may choose to have any death benefit paid in a single sum or under one of the optional modes of settlement described below,” which included the retained asset account and several other options. With respect to the policy at issue, the insured never selected a payment method. After he died, the plaintiff (beneficiary) was provided with a claim form that gave her the opportunity to select a payment method, and stated that, if she did not select a payment method, the benefits would be paid through an Alliance Account. The plaintiff returned the form without making a selection.
The Seventh Circuit affirmed the district court’s conclusion that there was no breach of contract, explaining that:
Prudential’s establishment of the Alliance Account as the default option, and its enrolling Phillips in an Alliance Account rather than providing her a lump-sum benefit payment, did not breach the insurance policy. The policy allowed Phillips to choose any available payment method—those listed in the Settlement Options brochure, those listed in the policy, or those, like the Alliance Account option, that Prudential “may have available at the time the proceeds become payable”—and by leaving the two lines blank on the Claim Form, Phillips chose to enroll in the Alliance Account option.
. . .
Contrary to Phillips’s suggestion, the policy did not make lump-sum payment the default payment method, such that Prudential was required to pay Phillips a lump sum unless she told them otherwise; the policy entitled her to “choose” how she would be paid, and she did just that.
The Seventh Circuit distinguished the First Circuit’s opinion in Mogel v. UNUM Life Ins. Co., 547 F.3d 23 (1st Cir. 2008), which ruled in favor of the plaintiff in a case involving a similar issue, but involved an ERISA claim, and different policy language.
Although there have been some notable decisions unfavorable to the life insurance industry in these cases, the tide seems to be turning in favor of the industry in these cases, perhaps based in part on some improvements to policy language and/or company procedures.