On August 26, the U.S. Court of Appeals for the First Circuit held in Vander Luitgaren v. Sun Life Ass. Co. of Canada, No. 13–2090, 2014 WL 4197947 (1st Cir. Aug. 26, 2014), that an insurer, acting as a claims administrator, properly discharges its duties under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461, when it pays life insurance proceeds through establishing a retained asset account so long as the employee benefit plan allows payment in that manner. (Please click here for the opinion.) Relying on its July 2, 2014, decision in Merrimon v. Unum Life Ins. Co. of Am., Nos. 13-2128, 13-2168, 2014 WL 2960024 (1st Cir. 2014) (please click here for opinion), the First Circuit affirmed the grant of summary judgment by the District Court of Massachusetts in favor of the insurer.

The plaintiff was a beneficiary of an employee welfare benefit plan sponsored by his late brother’s employer. The defendant-insurer provided the group life insurance and served as the claims administrator under the plan. The plaintiff brought a putative class action alleging that the insurer breached its fiduciary duties under ERISA when it established retained asset accounts to pay life insurance proceeds to beneficiaries and invested the funds backing those accounts in its general account because it was (i) self-dealing in plan assets in violation of ERISA § 406(b), and (ii) failing to act “solely in the interest of the participants and beneficiaries” in violation of ERISA § 404(a).

Applying Merrimon, the First Circuit held that the insurer had not violated ERISA § 406(b)’s prohibition against self-dealing in plan assets because the funds backing the plaintiff’s retained asset account “‘were not and never became, plan assets.’” Id. at *3 (quoting Merrimon, 2014 WL 2960024 at *8). The First Circuit further applied its holding in Merrimon that an insurer does not breach its fiduciary duty to act solely in the interest of plan beneficiaries when it pays life insurance proceeds through a retained asset account so long as the plan provides for this method of payment.

With the Merrimon and Vander Luitgaren decisions, the First Circuit joins the Second and Third Circuits in declining to find that ERISA was violated when an insurer paid life insurance proceeds through a retained asset account rather than a single check in circumstances where the ERISA plan either expressly called for or did not prohibit this method of payment. See Faber v. Metropolitan Life Ins. Co., 648 F.3d 98 (2d Cir. 2010) and Edmonson v. Lincoln Nat. Life Ins. Co., 725 F.3d 406 (3d Cir. 2013), cert. denied, 134 S. Ct. 2291 (2014).


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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