United States District Court, E.D. Pennsylvania
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,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant.
Motion for Partial Summary Judgment, ECF Nos. 149-50-Granted
in Part and Denied in Part
Motion for Summary Judgment, ECF No. 151-Granted in Part and
Denied in Part
F. LEESON, JR. UNITED STATES DISTRICT JUDGE
case hinges on a narrow but subtle question: when the terms
of a life insurance policy included in an ERISA 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,  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.
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
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. 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.
The JPMorgan Plan
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:
MODE OF SETTLEMENT RULES
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.
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.
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.
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.