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Huffman v. Prudential Insurance Co. of America

United States District Court, E.D. Pennsylvania

December 6, 2017

CLARK R. HUFFMAN; PATRICIA L. GRANTHAM; LINDA M. PACE; and BRANDI K. WINTERS, individually and on behalf of a class of all others similarly situated, Plaintiffs,

         Plaintiffs' Motion for Partial Summary Judgment, ECF Nos. 149-50-Granted in Part and Denied in Part

         Defendant's Motion for Summary Judgment, ECF No. 151-Granted in Part and Denied in Part




         This case hinges on a narrow but subtle question: when the terms of a life insurance policy included in an ERISA[1] plan provide that payment shall be made to the beneficiary in “one sum, ” does the insurer violate ERISA by choosing to pay the beneficiary by giving him or her access to a retained asset account, which allows the insurer to retain funds and earn interest on them until the beneficiary withdraws them? Plaintiffs are the beneficiaries of life insurance plans obtained by deceased family members, who worked for two separate companies, JPMorgan Bank and Con-way Incorporated. Defendant Prudential Insurance Company of America contracted to provide the plans for both companies. When benefits became due, Prudential's default practice was not to send the beneficiaries a single check for the amount of benefits due, but instead to open a bank account, called an Alliance Account, [2] containing the amount of benefits due against which the beneficiaries could draw checks. This arrangement allowed Prudential to retain and invest the funds until drawn upon, and thereby make a profit. Plaintiffs contend that this means of payment violated Prudential's fiduciary duties under ERISA or, in the alternative, state law, and also violated ERISA's prohibited transaction provisions. The parties present cross-motions for summary judgment as to each of the three counts. First, the Court finds that the unambiguous language of the plan documents required payment in “one sum, ” that payment by giving the beneficiary access to a bank account does not satisfy this requirement, and that Prudential breached its fiduciary duties by establishing the accounts. Therefore, the Court grants summary judgment on liability in favor of Plaintiffs with respect to the breach of fiduciary duty claims under ERISA. Second, because issues of fact remain as to whether Prudential's arrangement violated ERISA's prohibited transaction provisions, this Court denies both parties' motions for summary judgment as to that claim. Third, the ERISA claim preempts the state law breach of fiduciary duty claims, and summary judgment is granted in favor of Prudential on that claim.


         A. Procedural Background

         Plaintiffs filed their Complaint on September 30, 2010, as a putative class action alleging ERISA violations. ECF No. 1. This case was placed in civil suspense from April 20, 2012, through August 22, 2014, pending the decision of the Third Circuit Court of Appeals in Edmonson v. Lincoln Nat'l. Life Ins. Co., 725 F.3d 406 (3d Cir. 2013). Afterward, Plaintiffs filed an amended class action complaint on July 22, 2015. ECF No. 103. In the three-count amended class action complaint, Plaintiffs allege first that Prudential violated its fiduciary duties under ERISA Section 404(a)(1), 29 U.S.C. § 1104(a)(1). Second and in the alternative in the event that ERISA does not apply, Plaintiffs allege that Prudential breached common law fiduciary duties. Third, Plaintiffs allege that Prudential engaged in a prohibited transaction under ERISA Section 406(a)(1)(C), 29 U.S.C. § 1106(a)(1)(C). The Plaintiffs moved to certify a class, and the Court denied certification on September 30, 2016, ECF Nos. 138-39, and denied reconsideration of its decision on December 13, 2016. ECF No. 146. Plaintiff moved for partial summary judgment on the issue of liability on February 16, 2017, ECF Nos. 149-50, and Defendant filed a motion for summary judgment on the same date. ECF No. 151. After another period of civil suspense culminating in an unsuccessful private mediation, the motions are ripe for decision.

         B. Factual Background

         Prudential contracted with two companies, JPMorgan Bank and Con-way Inc. to provide group life insurance benefits to the two companies' employees. Plaintiff Clark R. Huffman and his sister Plaintiff Brandi K. Winters were the beneficiaries of the life insurance benefits that their mother received through the JPMorgan program. Statement of Material Facts (SMF) ¶ 2, ECF No. 154-1.[3] The remaining two plaintiffs were beneficiaries under the Con-way plan: Plaintiff Patricia L. Grantham and Plaintiff Linda M. Pace were the beneficiaries of the life insurance benefits that their deceased husbands each received from Con-way. SMF ¶¶ 3-4.

         1. The JPMorgan Plan

         The terms of the JPMorgan plan were established through a written plan document, called the Health & Income Protection Program for JPMorgan Chase Bank and Certain Affiliated Companies. SMF ¶ 6. As part of the plan, Prudential issued two group life insurance policies to JPMorgan. SMF ¶ 19. With respect to the means by which beneficiaries will be paid, or “settlement method, ” the JPMorgan Group Insurance certificates provide:

The rules in this section apply to Employee Life Insurance payable on account of your death. But these rules are subject to the Limits on Assignments section.
Mode of Settlement” means payment other than in one sum.
Employee Life Insurance is normally paid to the Beneficiary in one sum. But a Mode of Settlement may be arranged with Prudential for all or part of the insurance, as stated below.
Arrangements for Mode of Settlement: You may arrange a mode of Settlement by proper written request to Prudential. If, at your death, no Mode of Settlement has been arranged for an amount of your Employee Life Insurance, the Beneficiary and Prudential may then mutually agree on a Mode of Settlement for that amount.

SMF ¶ 20 (emphasis added); Def.'s Exs. 18-19. Pls.' Exs. 1-2, ECF No. 150.

         One mode of settlement was the establishment of a retained asset account, which Prudential called an Alliance Account, for life insurance beneficiaries. SMF ¶ 13. When paid through an Alliance Account, the beneficiary receives a draft book that she can use to write drafts against the funds in the account; a beneficiary can obtain the full value of the account at any time by writing a draft to herself for the full account balance. SMF ¶ 14. Interest accrues on the account daily and is credited monthly. SMF ¶¶ 13, 15. Until the drafts written by beneficiaries clear, Prudential can invest the funds it holds, the “retained assets, ” and retain any profit or loss, minus the interest credited to the Alliance Accounts. ¶ 17.

         JPMorgan updated the summary plan description (SPD) that applied to its plans effective January 1, 2008, to reflect the use of the Alliance Account:

How Benefits Are Paid
Generally, benefits will be paid to your beneficiary through Prudential's Alliance Account. The Alliance Account® is a personalized interest-bearing account for beneficiaries of group life or AD&D [accidental death & dismemberment] insurance. Prudential will open an interest-bearing account in your beneficiary's name (or your name in the event of the accelerated benefit option) the next business day after the claim is paid. An Alliance Account® is not available for payments less than $10, 000, payments to individuals residing outside the United States and its territories, and certain other payments. Such payments will be paid in a single lump-sum check.

SMF ¶ 24 (emphasis added); Def.'s Ex. 23, ECF No. 151-14. The JPMorgan Plan Document governing the JPMorgan plans states that “Each Plan shall be evidenced by an SPD describing its terms and conditions, which are hereby incorporated into the Program by reference.... To the extent that terms of this Program document and an SPD or Plan document conflict, the terms of this document shall apply.” SMF ¶ 25; Def.'s Ex. 1, ECF No. 151.

         Upon Susan Winters' death, her beneficiaries, Plaintiffs Huffman and Winters each became entitled to $96, 666.66 in benefits under the JPMorgan plan. SMF ¶ 42. Winters received two Alliance Payment Notifications reflecting establishment of the Alliance Account benefits due, which explained that Winters could withdraw the entire amount immediately, that her Alliance Account would earn interest, and that her Alliance Account was a “contractual obligation of The Prudential Insurance Company of America.” SMF ¶ 45. After Winters received an Alliance Account Kit, which included a settlement confirmation, book of blank drafts, and further information about the account, she wrote one draft for the balance of the account. SMF ¶¶ 46, 48. Huffman also received the Alliance Account Kit, and wrote a total of eleven drafts from his account. SMF ¶¶ 51, 54.

         2. ...

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