Court: District Court, D. Massachusetts; March 24, 2016; Federal District Court
Kent Ng and Sophia Ng, plaintiffs, are pursuing a declaratory judgment against The Prudential Insurance Company of America (Prudential) to establish their status as beneficiaries of a life insurance policy issued under the Xerox Corporation Salaried Plan (G-9790) for the deceased, Kin Fai Ng. This plan is governed by the Employee Retirement Income Security Act (ERISA). The plaintiffs also allege breach of contract and breach of fiduciary duty against Prudential. Prudential, having identified Cynthia Ng, Kin's widow at the time of his death on January 10, 2010, as the designated beneficiary, has deposited the death benefit into an account in her name and filed a third-party complaint against her seeking equitable relief under ERISA, pending a determination of the rightful beneficiaries.
Prudential has moved for summary judgment on two counts of the plaintiffs' amended complaint, arguing that they are not designated beneficiaries as Kin failed to submit a completed beneficiary designation form. The plaintiffs have cross-moved for summary judgment, asserting their claim to be the beneficiaries and alleging Prudential's failure to notify them of benefit denial, provide plan documents, and pay benefits. They seek attorney fees and a daily penalty for Prudential’s noncompliance with ERISA's information requirements.
The standard for summary judgment requires that there be no genuine dispute regarding material facts, allowing the moving party to be entitled to judgment as a matter of law. The court reviews the evidence in favor of the nonmoving party and assesses whether the moving party has met its burden of demonstrating the absence of any genuine material fact issues.
A moving party must demonstrate a lack of sufficient evidence from the nonmoving party to initiate a burden shift, requiring the nonmoving party to present specific facts that indicate a genuine issue for trial, rather than relying on mere allegations or denials. Each essential element must have enough evidence favoring the nonmoving party for a jury to potentially rule in their favor. In the case of cross-motions for summary judgment, the district court must evaluate each motion separately, drawing inferences in favor of each nonmoving party. However, in ERISA cases, where review is limited to the administrative record, summary judgment serves primarily as a means to resolve the issue without granting the usual inferences to the nonmoving party. The document outlines that Kin was an employee of Xerox covered by an ERISA-governed group life insurance plan, the Employee Term Life Coverage Plan, managed by Prudential. Prudential has the discretion to interpret the Plan and administer claims, with its decisions being overturned only if deemed arbitrary and capricious. The Plan permits participants to name and change beneficiaries, with changes taking effect upon signing the appropriate form, although they do not apply to amounts already paid prior to Prudential receiving the form.
Death benefits for a 'Covered Person,' such as Kin, are payable to beneficiaries upon Prudential's receipt of written proof of death. The Plan outlines that Prudential must notify claimants of its decision within forty-five days of receiving a claim, with the possibility of extension. If a claim is denied, Prudential must provide a written notice detailing the reasons for denial, the relevant plan provisions, any additional information needed, and the appeals process, including the claimant's right to pursue a civil action under ERISA. If Prudential fails to respond in a timely manner, the claim is automatically considered denied. Claimants have 180 days from the receipt of the denial notice to file an appeal.
Regarding Kin’s beneficiary designation, he named his wife, Cynthia, as the beneficiary on February 5, 1992, by submitting a signed beneficiary designation form to Prudential. However, on December 24, 2009, Kin submitted only the first page of a new beneficiary designation form, which listed his minor children as beneficiaries, but he did not provide the signed pages. Kin passed away on January 10, 2010. Prudential initially informed the guardians of Kin's children on January 14, 2010, that they were primary beneficiaries. However, upon discovering the missing signature page for the December designation, Prudential reverted to the original designation, confirming Cynthia as the proper beneficiary and asking the guardians to disregard the earlier communication. Prudential then sought necessary information from Cynthia to process the claim but received no response from her.
In 2010, Prudential deposited the death benefit into an Alliance Account solely in Cynthia's name, from which only she can withdraw funds. Prudential informed her of this transaction on June 28, 2010, and the full benefit, along with accrued interest, remains in the account. The Plaintiffs submitted an incomplete beneficiary designation form for a Xerox 401k plan on June 22, 2010, which Prudential clarified was unrelated. A partial life insurance beneficiary form submitted by Kin on December 24, 2009, was deemed ineffective due to lack of a signature page. Despite a call from a Plaintiff's aunt on June 29, 2010, stating Kin had signed a notarized beneficiary form naming his children as primary beneficiaries, Prudential required written documentation, which was never provided.
On July 23, 2010, another relative wrote to Prudential asserting the Plaintiffs as rightful beneficiaries, but without a completed designation form. Prudential has never received a signed life insurance beneficiary form designating the Plaintiffs as beneficiaries. In mid-2009, Kin, diagnosed with terminal lung cancer, sought to ensure his assets passed to his children rather than Cynthia, who had a long history of mental illness. He executed a will disinheriting Cynthia and completed a Beneficiary Designation Form naming his children as 50% beneficiaries. Kin's sister, Sandra, witnessed the completion of the form, which lacked a signature line. Sandra mailed the form to Xerox, and Kin died seventeen days later. Prudential acknowledged the Plaintiffs as primary beneficiaries in condolence letters sent on January 14, 2010, requesting claims paperwork. However, Prudential did not provide necessary documentation for the claims process despite subsequent communication with a Plaintiff's aunt.
On February 4, 2010, Prudential sent letters to Sophia and Kent instructing them to disregard a prior letter dated January 14, 2010, which was acknowledged as sent in error. The letters lacked any explanation for this directive and did not clarify the beneficiaries' status, the denial of death benefits, or the claims process. Kent and Sophia submitted their beneficiary claims in June and July 2010, but Prudential neither paid these claims nor issued a written denial. In July and August 2010, family members sought payment on behalf of the plaintiffs, prompting multiple communications with Prudential. Notably, a June 29, 2010 call indicated an adverse claim, where a family member requested beneficiary designation forms, suggesting intent for benefits to go to the children.
Prudential later determined that Cynthia was the rightful beneficiary without any formal adjudicative process or contact with her. The Plan requires specific claims procedures, including a 45-day determination period, written denial notifications, and an impartial appeal process, none of which were followed. The plaintiffs argue they are entitled to the death benefits as designated beneficiaries, claiming that an unsigned beneficiary form submitted by Kin adheres to Plan provisions or, alternatively, to the doctrine of "substantial compliance." They cite a Fourth Circuit ruling that allows for equitable relief from strict compliance under certain circumstances. Prudential counters that the unsigned form does not meet the Plan's requirements and references a Supreme Court ruling that rejected the substantial compliance doctrine in ERISA cases, asserting that even if applicable, the incomplete form fails to meet the standard. Thus, Prudential argues that the plaintiffs’ claims should be dismissed.
The Court reviews the decisions of ERISA plan administrators de novo unless the plan grants discretionary authority to interpret its terms or determine eligibility for benefits. If such authority is granted, the arbitrary and capricious standard applies, meaning the administrator's decision is upheld if plausible based on the entire record and supported by substantial evidence. If conflicting interpretations of plan provisions arise, the administrator's interpretation prevails unless it imposes a non-required standard, is inconsistent with the plan's language, or makes provisions superfluous. In this case, Prudential, as the Claims Administrator, asserts that it has sole discretion to interpret the Group Contract, thus its decision should receive deference under the arbitrary and capricious standard. Conversely, the Plaintiffs argue that Prudential did not comply with ERISA's minimum requirements, warranting de novo review, and claim that a proper administrative record was not established to support Prudential's decision. The determination of who is entitled to benefits hinges on the applicable standard of review, which is intertwined with other issues raised by the parties. Additionally, while ERISA is comprehensive, it lacks specific rules for every situation, leading courts to apply federal common law in the absence of ERISA provisions, as demonstrated in relevant case law regarding standard of review and beneficiary designations.
The excerpt examines the implications of the Supreme Court's decision in Kennedy regarding the application of the federal common law doctrine of substantial compliance in ERISA beneficiary designation cases. In Kennedy, a participant designated his wife as the beneficiary of his ERISA savings plan but failed to update this designation following their divorce. The plan administrator improperly distributed benefits to the ex-wife, leading to litigation from the estate, which claimed she waived her rights. The Supreme Court ruled that plan administrators must adhere strictly to plan documents, emphasizing that deviations could cause confusion and administrative burdens.
The discussion emphasizes that following Kennedy, it is unclear if the federal common law substantial compliance doctrine is applicable in ERISA cases, particularly in the First Circuit, which has not ruled on this matter. The court in this case intends to apply an abuse of discretion standard, upholding Prudential's decision based on the plan language and relevant documents. The court rejects the plaintiffs' argument that a recent beneficiary designation form submitted to Prudential constitutes valid compliance with the plan's requirements. The Plan explicitly states that a change of beneficiary requires an approved form submitted to Prudential, which must be fully completed and signed. Prudential also mistakenly communicated to Kent and Sophia that they were the primary beneficiaries. This highlights the need for strict compliance with plan terms to avoid complications and duplicative payments.
Prudential discovered that Kin had not submitted a signed beneficiary designation form, confirming Cynthia as the rightful beneficiary per the Plan's terms. After failing to locate Cynthia, Prudential deposited the death benefit into an account, aligning with the Plan's requirements. Plaintiffs reference the Eighth Circuit's decision in Hall v. Metropolitan Life Ins. Co., which suggests that while an administrator can enforce plan terms strictly, a court may apply the substantial compliance doctrine under de novo review to assess the proper beneficiary. This doctrine's applicability post-Kennedy remains uncertain, and if applied, substantial factual questions arise regarding Kin's intent to change his beneficiary. Kin's sister, Sandra, claims he attempted to change the beneficiary but only received part of the required form, while another relative, Helen, stated Kin signed and notarized the complete form. These conflicting accounts complicate the determination of substantial compliance. Additionally, there is a dispute over the total benefits amount, with Prudential stating it is approximately $52,000, while Plaintiffs suggest it might be significantly higher. Finally, issues regarding Prudential's compliance with notice requirements for claim denials under ERISA are highlighted, as they have not adequately informed the parties of the reasons behind any denial of benefits.
Fault for the delay in the Plaintiffs' claims submission lies with both the Plaintiffs and Prudential, as the claims were submitted only at the end of June and beginning of July, after Prudential's beneficiary determination. As a result, much evidence supporting the Plaintiffs' claims was unavailable to Prudential at the time of its decision. The Court mandates Prudential, as claims administrator, to reassess the Plaintiffs' eligibility for death benefits based on a complete evidentiary record, remanding the case for reconsideration.
The Court denies the Plaintiffs' breach of fiduciary duty claim without prejudice, allowing them to renew their summary judgment motion once Prudential issues a final decision on their benefits claim, while expressing doubts about the claim's viability given the current record.
The Court allows Prudential's Motion for Summary Judgment on the breach of contract claim and a related claim for failure to provide plan information, while denying the remainder. The Plaintiffs’ Motion for Summary Judgment is granted to the extent of remanding the case to Prudential but denied without prejudice regarding the breach of fiduciary duty claim. Further proceedings are stayed for 180 days, after which the case will be dismissed unless the Plaintiffs seek relief.
The Plaintiffs have waived their breach of contract claim by not addressing it on the merits. This claim, alleging contract breach for failure to pay death benefits, is preempted by ERISA. Prudential is granted summary judgment on the Plaintiffs’ claim for per diem damages regarding failure to provide ERISA documentation, as the Amended Complaint lacks allegations supporting such a claim, and the factual assertions presented do not establish a written request for documentation as mandated by law. Although Prudential did not provide a written denial of the claims, this omission does not undermine its defense.
The Plan stipulates that if Prudential does not issue a written denial of a claim within forty-five days, the claim is automatically considered denied, allowing the claimant 180 days to appeal. The record indicates that the Plaintiffs did not file an appeal after their claim was denied. Merely sending a letter to the Plaintiffs does not create a legal obligation for Prudential to pay benefits, as established in Green v. ExxonMobil Corp., where a benefits letter was deemed insufficient to constitute a commitment. Under federal common law, an insured meets the requirements for changing a beneficiary in an ERISA life insurance policy by demonstrating intent and taking substantial action akin to that required by the policy. When questioned about discrepancies regarding the claims process, Plaintiffs' counsel suggested that the discussion involved forms for other benefits, but the Court found this explanation unconvincing.
