Annuities

In Ross v. Venerable Insurance & Annuity Co., a Missouri appellate court reversed judgment in favor of the named beneficiary of a flexible premium deferred annuity contract. Following the annuitant’s death, the beneficiary sued for breach of contract, claiming that she was entitled to all payments that the annuitant would have received under the contract had he lived. The appellate court disagreed, concluding that the company had no further obligation to pay proceeds under the contract’s plain language.

Prior to the annuitant’s death, the contract had matured, and the annuitant had received 121 monthly annuity payments. He did not, however, elect one of the payment plans set out in the contract specifying how the annuity’s proceeds would be paid at the time of his death. As a result, the contract’s “automatic option” for payment of the proceeds governed.

The “automatic option” provided that “monthly income for a minimum of 120 months and as long thereafter as the Annuitant lives will be applied to the Accumulation Value.” The court concluded that the company’s obligation to pay under the “automatic option” ceased at the time of the annuitant’s death, given the company’s payment of more than the minimum 120 payments. The court rejected the beneficiary’s request for continued payment of whatever the annuitant would have been paid had he lived, explaining that the contract contained “no provision permitting a judgment for [the beneficiary] for payment of some unknown dollar amount for some unknown time period assuming [the annuitant] had lived.”

Disability Insurance

In Perez v. Unum Life Insurance Company of America, the Ninth Circuit Court of Appeals affirmed the district court’s judgment that an insurer did not violate ERISA when it concluded the insured was no longer “totally disabled” because he could do sedentary work and terminated his long-term disability benefits.

The court rejected the insured’s argument that the district court had adopted new rationales presented for the first time during litigation, finding that the challenged rationales reflected reasoning stated in the insurer’s denial letters and were direct responses to the insured’s litigation arguments.

The court also declined to interpret the long-term disability policy’s consideration of the insured’s “station in life” to require that alternative occupations pay at least 80% of his pre-disability earnings, noting that doing so would require the court to add a contract term to the policy.

Finally, the court rejected the insured’s argument that the policy barred consideration of alternative occupations that required minimal on-the-job training. The policy defined alternative occupations as those the insured “could reasonably be expected to perform satisfactorily.” This provision was not limited, as the insured advocated, to jobs he “can do now.” Rather, the court found it was “reasonable to expect an insured who has the overall qualifications and skills to perform a job to undergo the typical on-the-job training for any new hire.”

ERISA

In Steigleman v. Symetra Life Insurance Co., the U.S. District Court for the District of Arizona resolved a dispute as to whether the plaintiff’s long-term disability policy was part of an employee welfare benefit plan under ERISA. Jill Steigleman, an insurance agent who owned and operated her own insurance agency, obtained a variety of insurance benefits for herself and her employees through the Agents Association, a nonprofit organization of agents.

The court applied what it characterized as a “relatively simple test” that the Ninth Circuit uses to determine whether benefits are being provided pursuant to an employee welfare benefit plan, focusing largely on whether the benefits package implicates an ongoing administrative scheme and whether the employer exercises discretionary decision-making in operating the scheme.

After a bench trial, the court found that Steigleman had decided her agency needed to offer a benefits package to recruit and retain staff. In doing so, she “assessed the quality” of the coverages offered by the association and determined which would be paid by the agency and which would be the responsibility of the employees. For the coverages paid by the agency, she decided that the agency would pay only for employees and not their families and that the premiums would be paid out of her commission checks and not recouped from her employees. The benefits would end if the employees left the agency. The court found that both Steigleman and the agency’s employees considered the coverages to be employee benefits.

In light of these findings, the court concluded that the agency had an “ongoing administrative scheme regarding employee benefits that required the exercise of discretionary decision-making” and “ongoing monitoring by Steigleman,” which went beyond “the simple purchase of insurance on behalf of its employees.” As such, ERISA applied to the long-term disability policy at issue. The agency’s involvement in the provision of benefits also raised the possibility of abuse (such as failure to pay premiums leading to loss of expected coverage), further warranting the application of ERISA. The agency’s failure to comply with ERISA’s administrative and reporting requirements did not prevent an ERISA-governed plan from existing.

Life Insurance

In American General Life Insurance Co. v. O.H.M., the Eleventh Circuit Court of Appeals resolved a beneficiary dispute over proceeds of a life insurance policy. Following a divorce and remarriage, the decedent submitted a beneficiary change request. The insurer advised the decedent, however, that it was unable to complete this request because, among other things, entirely different parties needed to be assigned as primary and contingent beneficiaries. The insurer enclosed a beneficiary change form with instructions, but the decedent never responded.

After the decedent passed years later, the insurer received competing claim submissions and filed a complaint for interpleader relief. The Eleventh Circuit affirmed the district court’s entry of judgment in the original beneficiary’s favor.

Applying Florida law, the court noted that insureds must strictly comply with the terms of the insurance policy to effectuate a change in beneficiary. The policy at issue provided:

While this policy is in force the owner may change the beneficiary or ownership by written notice to us. When we record the change, it will take effect as of the date the owner signed the notice, subject to any payment we make or other action we take before recording.

The court rejected an argument that this language was ambiguous. According to the court, Florida law required it to read the “other action” phrase of the policy “as creating some objectively reasonable standard.” Strict compliance with such a standard “may require the insured to respond appropriately in curing any defects.”

The court concluded that the insurer acted objectively reasonably after receiving the decedent’s defective beneficiary change request by responding with written notice explaining the defect and how to cure it, and by providing the decedent with necessary change forms and instructions. Because the decedent neither responded nor took any action with respect to the notice of defect in the years that followed, he did not strictly comply with the policy’s terms. So the beneficiary change never went into effect, and the originally designated beneficiary was entitled to the policy’s proceeds.

Long-Term Care Insurance

In Clark v. SILAC Insurance Co., the Ninth Circuit Court of Appeals affirmed the district court’s grant of summary judgment to the insurer on claims that the insurer had denied benefits due to the plaintiffs under a long-term care insurance policy and a home-care recovery policy.

With respect to the long-term care policy, the appeal centered on the plaintiffs’ argument that the policy’s “home again benefit” contained a prior institutionalization requirement that was prohibited by Montana law. Montana’s insurance code, section 33-22-1115(3), prohibits an insurance company from including a prior institutionalization requirement in a long-term care policy when the policy contains a benefit that is “advertised, marketed, or offered as a home health care benefit.” “Home health care” is defined under Montana law as “services provided by a licensed home health agency to an insured in the insured’s place of residence that is prescribed by the insured’s attending physician as part of a written plan of care.”

The court distinguished the home again benefit provided by the long-term care policy at issue from the home health care benefits envisioned by the insurance code, explaining that the policy offered “a broader array of services in a narrower set of circumstances: i.e., when coming home again after a long-term care stay.” Unlike the statutory definition of home health care, which is limited to “services provided by a licensed home health agency,” the home again benefit would “be paid regardless of who provides for [the insured’s] care, including family members, friends, and home health agencies.” As a result, the court concluded that the policy’s prior institutionalization requirement was not prohibited by Montana law.

One judge dissented from the court’s conclusion on this point, describing it as “puzzling.” The judge argued that the long-term care policy showed “a clear violation” of the statute prohibiting prior institutionalization requirements because it contained a statutorily defined “home health care” benefit. The fact that the policy also provided other benefits did not, in the judge’s view, render the statute inapplicable.

The majority of the court also held that the policy’s failure to disclose the prior institutionalization requirement in a separate, titled paragraph as required by the insurance code was only a “technical violation,” which did not invalidate the provision because it was otherwise “unambiguously and prominently disclosed.”

Finally, with respect to the home-care recovery policy, the court rejected the plaintiffs’ argument that they were entitled to unlimited home-care benefits, noting that the first page of the policy stated that it was a “limited benefit policy” and that the second page explained that benefits would be received only under limited circumstances.