Young America v. Union Central Life

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No. 96-1773ND
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Young America, Inc., *
*
Appellee, * Appeal from the United States
* District Court for the District
v. * of North Dakota.
*
Union Central Life Insurance *
Company, *
*
Appellant. *
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Submitted: November 21, 1996

Filed: November 29, 1996
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Before FAGG, WOLLMAN, and HANSEN, Circuit Judges.
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FAGG, Circuit Judge.

In 1981, Manhattan Life Insurance Company sold a group term life
insurance policy to a business owned by the Fink family, Young America,
Inc. As part of Young America's welfare benefit package, the policy is
governed by the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-
1461 (1994) (ERISA). Corporate officers Selma and Robin Fink were intended
insureds under the policy. In 1988, Union Central Life Insurance Company
purchased Manhattan Life. Union Central notified Young America that the
Manhattan Life policy was terminated, Union Central had issued a new
policy, and eligibility requirements remained the same.

After the 1991 death of Stanley Fink, Young America's chief executive
officer and Selma Fink's spouse, Union Central refused to pay life
insurance benefits because Stanley was not an active, full-time employee
at the time of his death. Union Central asserts
that both the Manhattan Life and Union Central policies required active,
full-time employment in addition to status as a corporate officer. The
Union Central policy states, "[N]o corporate officer or director will be
eligible [for life insurance] solely due to his or her title. . . . All of
these persons must be active full-time employees to be eligible."
Similarly, the Manhattan Life policy only insured "individuals" who were
"actively perform[ing] . . . services . . . on a full-time basis consisting
of at least a 5-day week of at least 30 total hours at [Young America's]
regular place of business." In an earlier lawsuit, we held Union Central
did not abuse its discretion in denying benefits for Stanley Fink. Fink
v. Union Central Life Ins. Co., 94 F.3d 489, 491 (8th Cir. 1996).

Young America later requested the return of premiums paid on behalf
of Selma and Robin Fink, claiming Young America had paid the premiums under
the mistaken belief that Selma and Robin were eligible insureds as
corporate officers regardless of whether they were active, full-time
employees. Union Central canceled the policy in 1994, and offered to
refund one year's premiums. Young America rejected the offer and brought
this action seeking recovery of all the premiums paid between 1981 and
1994. Union Central moved for summary judgment, contending Young America
cannot recover more than one year's premiums under the policy's one-year
limit on premium refunds for erroneous continuation of insurance on living
persons. Before Young America responded, the district court granted
summary judgment to Young America, holding Young America was entitled to
recover premiums under the federal common law of ERISA. The district court
concluded the insurance policy's one-year limit on refunds was arbitrary
and capricious and ordered Union Central to refund all premiums paid by
Young America between 1981 and 1994. Union Central appeals. We affirm in
part and remand in part.

At the outset, we agree with the district court that an

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employer has a federal common law action for restitution of mistakenly made
payments to an ERISA plan. See UIU Severance Pay Trust Fund v. Local Union
No. 18-U, 998 F.2d 509, 512-13 (7th Cir. 1993); Whitworth Bros. Storage Co.
v. Central States, S.E. & S.W. Areas Pension Fund, 982 F.2d 1006, 1016 (6th
Cir. 1993); Jamail, Inc. v. Carpenters Dist. Council, 954 F.2d 299, 304-05
(5th Cir. 1992); Kwatcher v. Massachusetts Serv. Employees Pension Fund,
879 F.2d 957, 966-67 (1st Cir. 1989); Plucinski v. I.A.M. Nat'l Pension
Fund, 875 F.2d 1052, 1053, 1057-58 (3d Cir. 1989); Dumac Forestry Servs.,
Inc. v. International B'hood of Elec. Workers, 814 F.2d 79, 82-83 (2d Cir.
1987). This principle encompasses restitution of insurance premiums
mistakenly paid for employees who are not eligible for insurance. See
Construction Indus. Retirement Fund v. Kasper Trucking, Inc., 10 F.3d 465,
467 (7th Cir. 1993). Restitution is granted when the remedy is equitable
under the circumstances. See UIU Severance Pay Trust Fund, 998 F.2d at 513
(listing factors).

Union Central contends the district court improperly found that
restitution is appropriate in this case. Union Central complains the
district court failed to make specific findings about certain equitable
factors: whether laches bars the claim for a refund, whether the Finks were
attempting to defraud the insurance fund by obtaining insurance for
ineligible persons, and whether a refund would harm the insurance fund's
actuarial soundness.

We reject Union Central's contention. The district court examined
the situation and decided the undisputed facts in the record supported an
award refunding mistaken premium payments to Young America. There is no
genuine issue of material fact about whether Young America paid premiums
for life insurance coverage under the mistaken belief that Selma and Robin
Fink were eligible insureds. Union Central did not dispute that Young
America was mistaken about eligibility, or that Selma and Robin were
ineligible when Union Central canceled the policy. Indeed, Union Central

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offered to refund one year of premiums paid to insure Selma and Robin Fink.
We agree with the district court that Young America is entitled to
restitution.

The appropriate amount of restitution is unclear, however. According
to Union Central, "[I]t appears that [Selma and Robin] were eligible
insureds at some point between 1981 and 1994" as active, full-time
employees, and thus, Young America should not receive a refund of premiums
paid during the time Selma and Robin were actually insured. This may be
correct. In its statement of material facts supporting its summary
judgment motion, Union Central asserts Selma and Robin are former full-time
employees of Young America. The record shows that at one time, Robin was
employed as an assistant manager at Young America, and Selma was Young
America's buyer for several years during the 1980's. The record does not
reflect whether these jobs involved more than thirty hours of work per week
or satisfied the other requirements of active, full-time employment. We
simply cannot tell whether Selma and Robin were actually insured anytime
between 1981 and 1994. The district court apparently did not consider this
possibility, so we remand for resolution of this issue. Premiums for any
periods of coverage were not mistakenly paid and should not be refunded.
See Construction Indus. Retirement Fund, 10 F.3d at 467 (despite lack of
claims, restitution of health insurance premiums inappropriate because
employees received coverage).

Union Central also contends the district court committed error in
finding the plan's one-year limit on premium recovery is arbitrary and
capricious. The limiting provision states, "If a person's insurance is
continued in error beyond the date it should have terminated, . . . the
Insurer will declare it void and premiums paid on or after that date will
be refunded. However, refund is limited to a period of 12 consecutive
months for a living person." If Selma and Robin Fink were not active,
full-time employees of Young America at any time, the limit may not apply

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because Selma and Robin were never insured in the first place, and thus,
their insurance was not "continued in error." If Selma and Robin were once
insured but later became ineligible because they no longer worked full
time, Union Central would be unjustly enriched if allowed to retain the
mistakenly paid premiums. See Whitworth Bros. Storage Co., 982 F.2d at
1013. Further, Young America's policy was in effect for several years
without any limit on refunds, then the limit was added in 1990 and applied
retroactively. See Jamail, 954 F.2d at 305-06. We agree with the district
court that under the circumstances of this case, Union Central's one-year
limit on premium refunds is arbitrary and capricious. See Whitworth Bros.
Storage Co., 982 F.2d at 1013; Jamail, 954 F.2d at 305-06.

In sum, we affirm the district court's holding that the common law
of ERISA provides an employer with an action for a refund of mistakenly
paid insurance premiums, and that a refund to Young America is equitable
in this case. We remand for further proceedings on the amount of Young
America's refund.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

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