The Latest On The Use Of Retained Asset Accounts To Pay Life Insurance Benefits

In Merrimon v. Unum Life Insurance Co. of America, 2014 WL 2960024 (1st Cir. July 2, 2014), the U.S. Court of Appeals for the First Circuit became the third circuit court to approve an insurance company's use of a retained asset account (RAA) to pay life insurance benefits where the use of an RAA was expressly provided for under the ERISA plan. In so doing, it reversed a $12 million judgment in a class action alleging that the use of RAAs to pay such proceeds violated certain self-dealing and fiduciary duty provisions of the Employee Retirement Income Security Act of 1974 (ERISA).

Background

Plaintiffs Denise Merrimon and Bobby S. Mowrey represented a class of beneficiaries of ERISA-regulated employee welfare benefit plans funded by group life insurance policies issued by Unum. Plaintiffs alleged that Unum violated certain provisions of ERISA in the way it paid life insurance benefits. Instead of paying the benefits in a lump sum, Unum established RAAs for the plaintiffs. Plaintiffs could withdraw all or part of the funds in the account. The accounts were managed by Unum, and Unum paid 1 percent interest on the funds reflected in the account. Plaintiffs alleged that Unum did not place the entirety of the funds in the account. Instead, Unum allegedly kept excess funds in its general account and continued to invest for its own benefit. When a draft was presented to a bank, Unum transferred the funds needed to pay the draft to the RAA account. Plaintiffs liquidated their RAAs, and the accounts were closed.

Plaintiffs claimed that Unum's method of paying claims violated ERISA's prohibition against self-dealing in plan assets and that Unum had violated its fiduciary duties under ERISA. Following discovery in the district court, both parties moved for summary judgment and plaintiffs moved for class certification. The District Court of Maine granted partial summary judgment for plaintiffs on their fiduciary duty claims, but granted partial summary judgment in favor of Unum regarding the self-dealing claims. The district court certified the class and subsequently held a bench trial to determine the damages to which plaintiffs were entitled on their fiduciary duty claims. The district court awarded plaintiffs $12,000,000. Both plaintiffs and defendant appealed to the First Circuit.

Standing

As an initial matter, Unum argued that plaintiffs lacked the requisite constitutional standing to bring their claims because they suffered no financial loss as a...