Insurance Coverage and Bad Faith

Interpleader: Court Holds Plan Benefits Must Be Distributed to Beneficiary and Insured’s Estate May Not Assert Claims Against Plan Trustee Regarding Distribution of the Death Benefits

Interpleader: Court Holds Plan Benefits Must Be Distributed to Beneficiary and Insured’s Estate May Not Assert Claims Against Plan Trustee Regarding Distribution of the Death Benefits

Originally published by DRI’s Life, Health and Disability Committee in The ERISA Report, Volume 13, Issue 2

In MetLife and Annuity Co. of Conn. v. Akpele, 886 F. 3d 998 (11th Cir. 2018), the substantive issues on appeal were (1) whether MetLife deposited the correct amount of life insurance proceeds into the district court’s registry and (2) which defendant was entitled to the proceeds. In addition, the Court was to determine whether a party that is not a named beneficiary of an ERISA plan, here the deceased’s estate, could assert a claim against the Plan or the Plan Trustee for plan benefits.

MetLife instituted the interpleader action because it could not determine the proper beneficiary under a life insurance policy for Dr. Ignatious Akpele. By its terms, the sole beneficiary of the policy was Dr. Akpele’s employee welfare benefit plan, the AIE Surgical Practice Defined Benefit Plan (“Plan”). The minor children of Dr. Akpele’s widow and one of their minor children (the “Akpeles”) claimed they were entitled to the policy death benefit and the trustee for the Estate of Dr. Akpele (the “Estate Trustee”) claimed the Estate was entitled to the death benefit. The Plan was also an interpleader defendant. Complicating the matter, prior to his death, Dr. Akpele had executed a will that established a trust for his two minor children and he had begun divorce proceedings against his widow, but the divorce was not finalized before his death.

The Estate Trustee filed a motion to enforce a settlement agreement and/or motion for partial motion for summary judgment against the Akpeles stating the Estate and the Akpeles had reached a compromise or the equal division of the policy proceeds although they never executed a final settlement agreement. The Akpeles claimed that they were entitled to the death benefit and, further, that such benefit was $5,418,206, not the $635,562.25 MetLife had deposited in the district court’s registry. The district court entered summary judgment for MetLife, and discharged it from all liability and enjoined further litigation against it related to the policy. The court also denied the Akpeles’ motion for summary judgment as to the proceeds due under the policy. And, after denying the Estate Trustee’s motion to enforce settlement agreement and/or partial summary judgment, during an evidentiary hearing to resolve the settlement issue, the district court ended the hearing and ordered the Plan Trustee to file a motion to disburse the death benefit to the Plan, which the court granted over the objection of the Estate. The funds remained deposited with the court’s registry during the appeal that followed.

The Eleventh Circuit held that the trial court correctly determined the amount of death benefit was $635,562.25, not the $5,418,206 full face value of the policy. The decedent purchased a “pension whole life” policy with a death benefit of $5,148,206 with annual premiums of $204.383.78. The policy established both a death benefit and a cash value in the event that annual premiums were paid. In the event the annual premiums were not paid, the policy contained a non-forfeiture provision and a “Paid-Up” provision, which reduced the applicable benefits. The decedent paid the premiums for 2005–2008, but failed to pay the 2009 yearly premium. The insurer timely informed the decedent of the missed payment and that, pursuant to the non-forfeiture provision, the policy was converted to a “Paid-Up” policy and the death benefit was reduced to $516,108. The insured’s widow had submitted an affidavit averring the decedent had ceased making premium payments pursuant to advice given to him by the plan sponsor and others that the fund was overfunded and that additional premiums could not be made. Accordingly, the Court determined that there was no material issue of material fact that after 2008 no premiums were received and that MetLife had properly converted the policy to a “Paid-Up” policy and reduced the death benefits. The Court further rejected arguments made by Uzo Akpele that the decedent failed to pay the 2009 premium because he did not receive the premium notice, he was sick at the time the premium was due, and that the decedent had intended to include a “Lapse of Protection Guarantee” rider to the policy.

The Eleventh Circuit also affirmed the district court’s determination that the Plan Trustee was entitled to receive the policy benefit, and that, as the Plan documents and ERISA require, the Plan Trustee must then distribute the funds to the surviving spouse, citing 29 U.S.C. §1055. The Court further held in accordance with Supreme Court precedent in Kennedy v. Plan Administrator for DuPont Sav. & Inv. Plan, 555 U.S. 285 (2009), that the Estate Trustee could not bring claims directly against the Plan or the Plan Trustee because “a party who is not a named beneficiary of an ERISA plan may not sue the plan for any plan benefits.” While the Supreme Court in Kennedy left open the question of whether a separate action or other avenue of recovery could be pursued against an ERISA plan beneficiary, other Circuits and district courts have held that after the funds have been distributed to a plan beneficiary, a lawsuit could be brought against the beneficiary to recover ERISA benefits. In accordance with these decisions, the Court held that any claims of the Estate Trustee against the Akpeles to enforce the settlement agreement or for breach of contract were not ripe, in part, because the Plan Trustee had not yet distributed the funds but that after the funds are distributed, the Estate Trustee could bring separate claims—not involving the Plan or the Plan Trustee—for breach of contract or to enforce the alleged settlement agreement against the insured’s widow. In so holding, the Court stated: “[the Estate Trustee] is free to sue the Akpeles to enforce any settlement in a separate action in which the Plan trustee is not a party but may do so only after the Plan benefits have been distributed to the ultimate beneficiary under the Plan.”

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