United States Court of Appeals
For the First Circuit
No. 08-1334
ROY MOGEL, ET AL.
Plaintiffs, Appellants,
v.
UNUM LIFE INSURANCE CO. OF AMERICA,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, District Judge]
Before
Torruella and Boudin, Circuit Judges,
and Schwarzer,* District Judge.
Stuart T. Rossman with whom Charles M. Delbaum and National
Consumer Law Center were on brief for appellants.
Byrne J. Decker with whom William J. Kayatta, Jr., Gavin G.
McCarthy, and Pierce Atwood LLP were on brief for appellee.
November 6, 2008
*
Of the Northern District of California, sitting by
designation.
SCHWARZER, District Judge. This is an appeal from a
judgment of the district court granting a motion to dismiss
plaintiffs’ action against UNUM Life Insurance Company of America
(“UNUM”). Plaintiffs Roy Mogel, Todd D. Lindsay and Joseph R.
Thorley, who are beneficiaries under employee welfare benefit
plans, brought this action on behalf of themselves and a class of
beneficiaries. They allege breaches of fiduciary duties under the
Employee Retirement Income Security Act (“ERISA”),
29 U.S.C. §§ 1104(a)(4) and 1106(b). Because we conclude that
plaintiffs have stated a valid claim under ERISA, we vacate the
judgment and remand for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
The district court dismissed the complaint for failure to
state a claim. Our review is therefore de novo. Centra Medico del
Turabo v. Feliciano de Melecio, 405 F.3d 1, 5 (1st Cir. 2005). We
assume the truth of all well pleaded facts. Id.
The complaint alleges that plaintiffs were beneficiaries1
of group life insurance policies issued by UNUM.2 These policies
are “employee welfare benefit plans” within the meaning of
1
29 U.S.C. § 1002(8) defines “beneficiary” as a “person
designated by a participant, or by the terms of an employee benefit
plan, who is or may become entitled to a benefit thereunder.”
2
The claims arise under policies issued to Xerox Imaging
Systems, Inc., Sideshow USA and South Shore Mental Health Center,
Inc.
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29 U.S.C. § 1002(1) and (3). Under 29 U.S.C. § 1002(21)(A), UNUM
is a fiduciary with respect to the policies. The policies provide
that “all benefits payable . . . will be paid as soon as the
Insurance Company receives proof of claim acceptable to it” and
“[u]nless otherwise elected, payment for loss of life will be made
in one lump sum.” Plaintiffs submitted valid claims for death
benefits to UNUM in accordance with the terms of the policies. In
response, UNUM approved the claims and mailed each plaintiff a
checkbook and a letter. The letter advised that (1) plaintiffs’
death benefits plus applicable interest had been deposited in a
UNUM Security Account, (2) plaintiffs could write checks from $250
up to the balance in the account, and (3) interest would be paid on
the accounts at a variable rate.
In this action plaintiffs charge that UNUM breached its
fiduciary duties in two respects: by failing to tender a full lump
sum payment for the amount of the claim in violation of
29 U.S.C. § 1104(a)(1) which requires that “a fiduciary shall
discharge his duties with respect to a plan solely in the interest
of the participants and beneficiaries,” and by wrongfully
converting to its own use and benefit the claim amounts owed to
plaintiffs in violation of 29 U.S.C. § 1106(b)(1) which prohibits
a fiduciary with respect to a plan to “deal with the assets of the
plan in his own interest.”
The district court granted UNUM’s motion to dismiss the
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action. It held that either UNUM’s Security Accounts were
“separate accounts” as defined in 29 U.S.C. § 1002(17)3 in which
case “they were, by definition, credited with all gains and losses
from the assets in those Accounts and the Plaintiffs cannot allege
a breach of fiduciary duty.”4 540 F. Supp. 2d 258, 265 (D. Mass.
2008). Alternatively, if the Security Accounts were not “separate
accounts,” they fell within the guaranteed benefit exemption under
29 U.S.C. § 1101(b)(2)(B).5 Id. This timely appeal followed. We
have subject matter jurisdiction under 28 U.S.C. § 1331 and
29 U.S.C. § 1132(e), and appellate jurisdiction under 28 U.S.C. §
1291.
ANALYSIS
The question we must decide is whether UNUM acted as an
3
29 U.S.C. § 1002(17) states: “The term ‘separate account’
means an account established or maintained by an insurance company
under which income, gains, and losses, whether or not realized,
from assets allocated to such account, are, in accordance with the
applicable contract, credited to or charged against such account
without regard to other income, gains, or losses of the insurance
company.”
4
Because UNUM does not claim that the Security Accounts were
“separate accounts,” we do not reach this portion of the district
court’s holding.
5
29 U.S.C. § 1101(b)(2)(B) states: “The term ‘guaranteed
benefit policy’ means an insurance policy or contract to the extent
that such policy or contract provides for benefits the amount of
which is guaranteed by the insurer. Such term includes any surplus
in a separate account, but excludes any other portion of a separate
account.”
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ERISA fiduciary when, by establishing the Security Accounts, it
retained and invested death benefits presently due beneficiaries
under UNUM’s ERISA plan and not paid until drawn down as
beneficiaries wrote checks on their Security Accounts.
UNUM contends first that the conduct that is the subject
of this appeal had nothing to do with UNUM’s fiduciary function and
could not have occurred until after that function had been
performed. It argues that it acted as a fiduciary under UNUM’s
benefit plan when it determined that plaintiffs were entitled to
benefits. But it then performed the non-discretionary ministerial
task of “paying the benefits,” giving plaintiffs full power to use
the funds as they saw fit.
UNUM’s contention rests on quicksand. The district court
found, and we agree, that delivery of the checkbook did not
constitute a “lump sum payment” called for by the policies. As the
district court put it, “[t]he difference between delivery of a
check and a checkbook . . . is the difference between UNUM
retaining or UNUM divesting possession of Plaintiffs’ funds.” 540
F. Supp. 2d at 262. Thus UNUM cannot be said to have completed its
fiduciary functions under the plan when it set up the Security
Accounts and mailed the checkbooks, retaining for its use the funds
due until they were withdrawn. UNUM’s theory that its mailing of
the checkbooks to the beneficiaries and their acceptance formed a
unilateral contract is unpersuasive, for until the beneficiaries
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received the lump sum payments to which they were entitled, UNUM
remained obligated to carry out its fiduciary duty under the plan.
More importantly, when UNUM says that plaintiffs had been
paid, referring to “the sums already deemed to belong to
Plaintiffs,” it obscures reality. Until a beneficiary draws a
check on the Security Account, the funds represented by that check
are retained by UNUM and UNUM had the use of the funds for its own
benefit.6 To say that the funds are “deemed to belong” to the
beneficiaries obscures the reality that UNUM had possession of them
and enjoyed their use. Commonwealth Edison Co. v. Vega, 174 F.3d
870, 872-73 (7th Cir. 1999), is squarely on point. In that case,
Illinois sought to apply its Uniform Disposition of Unclaimed
Property Act to funds payable under Com Ed’s pension plan but not
yet claimed by a plan beneficiary. The plan issued checks to
beneficiaries which frequently were not cashed or deposited. The
Seventh Circuit held that ERISA preempted the Act, reasoning that
“until the check to the beneficiary is actually presented to the
plan for payment through the banking system, and paid, the money
due to the beneficiary is an asset of the plan.” Id. at 873. So
here the sums due plaintiffs remain plan assets subject to UNUM’s
fiduciary obligations until actual payment.
6
While UNUM says it paid an agreed amount of interest to the
beneficiaries, the crux of appellants’ claim is that UNUM failed to
credit the accounts with the full amount UNUM earned investing the
funds. Because this case is still at the dismissal stage, we must
accept the appellants’ argument as being true.
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As a second string to its bow, UNUM advances the argument
that even if its use of the beneficiaries’ funds were subject to
ERISA’s fiduciary duties, “Congress,” it says, “chose to exempt
insurers from fiduciary duties in their handling of funds used to
pay guaranteed ERISA benefits.” Again, UNUM paints with too broad
a brush.
The guaranteed benefit policy exemption by its terms does
not exempt insurers from fiduciary duties. What it does is to
exclude an insurance policy from plan assets “to the extent that
such policy . . . provides for benefits the amount of which is
guaranteed by the insurer.” 29 U.S.C. §1101(b)(2)(B). Speaking of
this provision, the Supreme Court has observed:
[E]ven were we not inclined, generally, to
tight reading of exemptions from comprehensive
schemes of this kind, . . . Congress has
specifically instructed, by the words of
limitation it used, that we closely contain
the guaranteed benefit policy exclusion.
John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510
U.S. 86, 97 (1993) (internal citations omitted). That exemption
(or exclusion) was intended to free insurance companies from the
potential conflict between managing plan assets for the benefit of
participants and beneficiaries, on one hand, and, on the other, the
operation of the insurer’s general account which requires the
equitable spreading of risks among all policy holders. See
Trustees of Laborers’ Local No.72 Pension Fund v. Nationwide Life
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Ins. Co., 783 F. Supp. 899, 904 n.7 (D.N.J. 1992). It does not
alter the fiduciary duties imposed on an insurer with respect to
the management and administration of a plan as opposed to the
oversight of investment policy and has no application here.
Specifically, once an insured’s death occurs, we are no longer
concerned with the management of plan assets in an insurance
company’s general account (which is all the guaranteed benefit
exemption covers) but rather with the insurance company’s duties
with respect to the payment that is now due the beneficiary. ERISA
spells out those duties, providing that a person is a fiduciary
with respect to an employee benefit plan
to the extent (i) he exercises any
discretionary authority or discretionary
control respecting management of such plan or
exercises any authority or control respecting
management or disposition of its assets, . . .
(iii) he has any discretionary authority or
discretionary responsibility in the
administration of such plan.
29 U.S.C. § 1002(21)(A). UNUM’s disposition to the beneficiaries
of benefits under the plan falls comfortably within the scope of
ERISA’s definition of fiduciary duties with respect to plan
administration. See Varity Corp. v. Howe, 516 U.S. 489, 502
(1996).
CONCLUSION
In sum, the euphemistically named “Security Account,”
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accompanied with a checkbook, was no more than an IOU which did not
transfer the funds to which the beneficiaries were entitled out of
the plan assets and hence UNUM remained a fiduciary with respect to
those funds.
Because plaintiffs have stated a viable claim of breach
of fiduciary duties, we need go no further to address their
misrepresentation claim.
Vacated and remanded. No costs are awarded.
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