MetLife Defends Retained Asset Accounts at Appeal
MetLife Inc. doesn’t owe a fiduciary duty to the owners of retained asset accounts, a lawyer told an appeals court as a judge overseeing the case showed support for the insurer’s claim.
A three-judge panel of the U.S. Court of Appeals in New York heard arguments today in a case that may decide whether some insurers can profit by retaining and investing the proceeds of insurance policies issued under employee-benefit plans. A key issue is whether New York-based MetLife, the biggest U.S. life insurer, owes a fiduciary duty to beneficiaries of the accounts.
U.S. Circuit Court Judge Richard Wesley indicated that he agreed with MetLife that the insurer doesn’t have a fiduciary duty. Wesley said the relationship between MetLife and the beneficiary of the retained asset accounts was closer to a contractual guarantee, rather than a fiduciary one.
“It’s a contract, yes?” Wesley said in court.
Another appeals court judge, Barrington Parker, suggested that a fiduciary duty may exist between MetLife and the beneficiary. U.S. Circuit Court JudgeWilfred Feinberg was silent.
“Fiduciaries are required to act solely in the interest of beneficiaries, and all kind of self-dealing is prohibited,” Parker said in court.
The panel didn’t issue a ruling.
Investment Income
MetLife is among more than 100 insurance carriers that earn investment income on a total $28 billion owed to life insurance beneficiaries, Bloomberg Markets magazine reported in July. In these so-called retained asset accounts, insurers keep the money in their general account, paying only when the beneficiaries write drafts, or “checks” on the account.
In lawsuits across the country, beneficiaries are arguing that they are entitled to the full amount that insurers earn by investing the retained assets. Insurers say beneficiaries are entitled only to the amount they have been guaranteed under contracts.
A federal appeals court in Boston ruled last year that Unum Life Insurance Co. of America, a unit of Chattanooga, Tennessee- based Unum Group, owed a fiduciary duty to beneficiaries with retained-asset accounts created by an employee-benefit plan.
In July, the New York-based appeals court said there was no fiduciary duty for retained-asset accounts created by the purchase of insurance directly from an insurer.
Plan Assets
Today’s argument in New York focused on retained asset accounts created by an employee-benefit plan. The case was brought by Carol Faber, a beneficiary of a retained-asset Total Control Account created by MetLife. A lower court judge previously ruled in MetLife’s favor.
At today’s appeal, John Bell, a lawyer for Faber, argued that retained asset accounts are assets of employee benefit plans and that MetLife violated its fiduciary duty to Faber by retaining profit generated by plan assets.
“One has the right to a fiduciary duty of the plan administrator,” Bell said, referring to MetLife.
MetLife lawyer Michael Bernstein argued that retained asset accounts are no longer part of an employee-benefit plan after the insurer issues the checkbook, giving the beneficiary control over the funds.
“The fiduciary relationship ends once the Total Control Account is funded,” Bernstein said.
The case is Faber v. MetLife, 09-4901, 2nd U.S. Circuit Court of Appeals (New York).
To contact the reporter on this story: David Glovin in New York State Supreme Court in Manhattan at dglovin@bloomberg.net.
To contact the editors responsible for this story: David E. Rovella at drovella@bloomberg.net
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