Merrimon v. Unum Life Insurance Co. of America
758 F.3d 46
1st Cir.2014Background
- Plaintiffs (Merrimon and Mowery) are beneficiaries of ERISA-covered group life policies issued by Unum; each received death benefits in 2007 that Unum paid by establishing retained asset accounts (RAAs) at a bank and mailing drafts to the beneficiaries.
- Unum credited the full benefit amounts to the RAAs but retained the funds in its general account while paying beneficiaries 1% interest; plaintiffs promptly withdrew the funds and closed the accounts.
- Plaintiffs sued in 2010 as a putative class, alleging violations of ERISA §§ 404(a) (duty of loyalty) and 406(b) (self-dealing in plan assets); district court granted partial summary judgment for Unum on § 406(b) and for plaintiffs on § 404(a), then awarded class relief of over $12 million after a bench trial on remedies.
- Both parties appealed; the First Circuit reviewed (1) whether DOL guidance merited deference, (2) whether the RAA funds were plan assets for § 406(b), and (3) whether Unum acted as an ERISA fiduciary under § 404(a) when setting RAA interest and retaining/investing funds.
- The court credited the Department of Labor (DOL) amicus guidance as persuasive under Skidmore factors, held RAA backing funds were not plan assets and so no § 406(b) self-dealing occurred, and reversed the district court on § 404(a), concluding Unum did not owe ERISA fiduciary duties after making benefits available via RAAs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs have Article III standing | Plaintiffs assert they suffered concrete harm because Unum wrongfully retained/misused their assets even if no measurable economic loss | Unum contended plaintiffs lacked constitutional standing because they received the full benefits owed | Court: Plaintiffs have colorable, particularized injuries and constitutional standing |
| Whether DOL guidance on RAAs is entitled to deference | Plaintiffs argued the DOL brief was hastily prepared and inconsistent with authority | Unum urged deference under Skidmore; DOL view that furnishing an RAA per plan discharges fiduciary duties | Court: DOL amicus letter is persuasive under Skidmore factors and entitled to weight |
| Whether retained RAA funds are "plan assets" triggering § 406(b) liability | Plaintiffs: funds retained in Unum's general account became plan assets once an RAA was created and were subject to self-dealing prohibitions | Unum: funds remained insurer assets; plan assets are identified by ordinary property rights and the plans treated policy as plan asset only, not insurer assets | Court: Funds backing RAAs are not plan assets; no § 406(b) self-dealing; district court correctly granted summary judgment for Unum on § 406(b) |
| Whether Unum breached ERISA § 404(a) by setting RAA interest and retaining/investing funds | Plaintiffs: Unum retained discretion over RAA interest and management and thus acted as a fiduciary who optimized its own returns, breaching loyalty duty | Unum: by making benefits available via RAAs as required by plan terms, it discharged ERISA duties; subsequent relationship is creditor-debtor and governed by state law | Court: Setting interest and investing retained funds related to management of non-plan RAAs, not plan management; no ERISA fiduciary breach under § 404(a); reversed district court judgment for plaintiffs |
Key Cases Cited
- Skidmore v. Swift & Co., 323 U.S. 134 (agency interpretations entitled to weight based on persuasiveness)
- Varity Corp. v. Howe, 516 U.S. 489 (extra-textual fiduciary duties may arise in certain plan administration contexts)
- Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 510 U.S. 86 (plan assets identification issues under ERISA)
- Faber v. Metropolitan Life Ins. Co., 648 F.3d 98 (2d Cir. decision addressing RAAs and fiduciary duties in light of DOL views)
- Edmonson v. Lincoln Nat'l Life Ins. Co., 725 F.3d 406 (3d Cir. analysis rejecting fiduciary liability where RAA payments followed plan terms)
- Mogel v. Unum Life Ins. Co., 547 F.3d 23 (1st Cir. decision distinguishing situations where plan requires lump-sum payment and insurer instead used RAAs)