WASHINGTON BUREAU – A life insurer’s fiduciary duty under the Employee Retirement Income Security Act (ERISA) ends once it deposits group life policy benefits into a retained asset account (RAA), according to a federal appeals court.
A 3-judge panel at the 2nd U.S. Circuit of Appeals came to that conclusion in a ruling on Faber vs. Metropolitan Life Insurance Company, Number 09-4901, a suit filed on behalf of beneficiaries of group life policies written by Metropolitan Life Insurance Company, a unit of MetLife Inc., New York (NYSE:MET).
The plaintiffs in the Faber case are seeking class-action status.
The 2nd Circuit panel ruling conflicts with a ruling issued by the 1st U.S. Circuit Court of Appeals in another RAA case, Mogel vs. Unum, Number 08-1334. That decision was handed down in December 2008.
Because of the conflict, the plaintiffs will immediately seek a rehearing, according to John Bell, an Augusta, Ga., lawyer who represents the plaintiffs in the 2nd Circuit case.
Bell says he also has similar suits under way in Boston, Philadelphia and Maine.
MetLife says in a statement that it is pleased that the 2nd Circuit affirmed the dismissal of the suit.
“The 2nd Circuit agreed with the district court that the complaint failed to state a claim for breach of fiduciary duties under ERISA,” MetLife says.
An RAA is an arrangement for paying insurance benefits through a vehicle that resembles a checking account rather than sending the beneficiary a check for the whole amount.
Critics say RAAs often pay lower interest rates than bank accounts and are not insured by the Federal Deposit Insurance Corp.
Supporters say RAAs pay rates comparable to the rates provided by other safe, highly liquid accounts, are backed by state insurance guaranty funds, and give grieving beneficiaries time to postpone making complicated financial decisions.
In the New York RAA case, the lead plaintiffs are Carol D. Faber and the estate of Russell E. Young.