The class plaintiffs’ challenge to a group life insurer’s use of so-called retained asset accounts (RAAs) in Merrimon v. Unum Life Insurance Company of America has come to an unsuccessful end.
On January 26, the United States Supreme Court denied the Merrimon plaintiffs’ petition for a writ of certiorari seeking review of the First Circuit Court of Appeals’ July 2014 decision affirming that the defendant insurer’s general account funds, which backed the RAAs, were not "plan assets" and thus could not be the object of an ERISA "prohibited transaction" claim. Also left undisturbed was the First Circuit’s holding that Unum did not breach any alleged fiduciary duties under ERISA by virtue of its use of RAAs as a means to disburse death benefits under employer-sponsored benefit plans funded by group life insurance policies that Unum issued to the plans. This follows last year’sEdmonson v. Lincoln National Life decision wherein the Supreme Court denied a petition seeking review of the Third Circuit’s affirmance of summary judgment in favor of another life insurer in a similar ERISA RAA class action.
RAAs operate much like interest-bearing checking accounts. Upon approval of a life insurance beneficiary’s claim, the insurance company provides the beneficiary with a draft book issued by an intermediary bank from which the beneficiary can choose to write a single draft in the entire amount of the benefit, draw the account down via multiple drafts over time, or do nothing, in which case the account continues to accrue interest at a guaranteed rate. In Merrimon, the named plaintiff life insurance beneficiaries alleged that Unum earned more on the "retained assets" backing the RAAs than the one percent guaranteed rate Unum credited to the plaintiffs and other class members through their RAAs, and that by retaining the alleged difference, Unum violated ERISA by: (1) self-dealing in plan assets in violation of ERISA Section 406(b); and (2) violating Unum’s fiduciary duty of loyalty owed to plan beneficiaries under ERISA Section 404(a).
The unanimous First Circuit panel affirmed the trial court’s summary judgment ruling in favor of Unum on the Section 406(b) claim, reversed the trial court’s grant of summary judgment in favor of the plaintiffs on the Section 404(a) claim, and vacated a $12 million judgment in favor of the plaintiff class following a bench trial. In light of the Supreme Court’s petition denial, the First Circuit’s RAA-friendly rulings will stand.