Union Security Insurance Company v. Hockensmith et al

Filing 36

MEMORANDUM OPINION AND ORDER: (1) The 11 Motion for Judgment on the Pleadings or, alternatively, for Summary Judgment, filed by Dfts Timothy and Maggie Hockensmith is DENIED. (2) The 17 Motion to Dismiss Counterclaims filed by Union Security In surance Company is GRANTED. (3) The 24 Motion for Leave to Amend filed by Dfts Timothy and Maggie Hockensmith is DENIED. (4) The 30 Motion to Dismiss Interpleader by Dfts Timothy and Maggie Hockensmith is DENIED. Signed by Judge Danny C. Reeves on November 14, 2017. (AWD) cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Lexington)
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UNION SECURITY INSURANCE
COMPANY,
Plaintiff,
V.
TIMOTHY T. HOCKENSMITH, et al.,
Defendants.
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Civil Action No. 5: 17-228-DCR

MEMORANDUM OPINION
AND ORDER
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Plaintiff Union Security Insurance Company (“Union Security”) brings this
interpleader action seeking to resolve a controversy concerning the payment of life insurance
proceeds. Defendants Timothy and Margaret (“Maggie”) Hockensmith (“the Hockensmiths”)
have filed motions for judgment on the pleadings [Record No. 11] and to dismiss the
interpleader action [Record No. 30]. Union Security has filed a motion to dismiss the
Hockensmiths’ counterclaims [Record No. 17] and the Hockensmiths have moved for leave to
amend their counterclaims [Record No. 24].
I.
Lucia Mora (“Mora” or the “decedent”) was formerly employed by Vuteq USA, Inc.
(“Vuteq”) and participated in its employee welfare benefit plan (“the Plan”), which provided
life insurance benefits. [Record No. 1, p. 3 ¶ 9] Union Security insured the Plan under Group
Term Life Insurance Policy Number G 5469917. Mora had life insurance benefits under the
policy in the amount of $41,000.00. Id. at ¶ 11.

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The policy provided that the life insurance proceeds would be paid to Mora’s
beneficiary upon her death. The policy defined “beneficiary” as “the person or entity you
choose to receive your amount of insurance at your death.” Id. at ¶ 14. Mora was free to
change the beneficiary at any time, but such requests had to be signed and in writing, and in a
form acceptable to Union Security. Requests to change a beneficiary could be sent to Union
Security’s home office or Vuteq’s main office. [See Record No. 1-1. p. 24.] The policy
provided default beneficiaries in the event a beneficiary was not named or the beneficiary was
not living at the time of the policyholder’s death. [Record No. 1 at ¶ 14]
Union Security informed Mora by letter dated August 25, 2015, that it did not have a
beneficiary designation on file and asked her to complete and return one. Id. at ¶ 18. However,
Mora passed away on January 21, 2016, without having returned the form. Id. at ¶¶ 18-19.
Mora’s ex-husband, Timothy Hockensmith (“Timothy”) asserted a claim for benefits under
the policy in April 2016. Id. at ¶ 20. Shortly thereafter, Mora’s sister-in-law, Shawna Passero,
filed an “incomplete claim,” which appeared to be made on behalf of Mora’s estate. Id. at ¶
21. Passero advised Union Security that she intended to assert a claim on behalf of herself and
Mora’s daughter Maggie, who was a minor at the time. Mora’s sister, Guadalupe America
Mora Chichino (“America”), asserted a claim for benefits under the policy in October 2016.
Id. at ¶ 22.
Union Security sought to determine Mora’s true beneficiary in light of the competing
claims. While it did not have a signed, written beneficiary designation in its records, Union
Security’s “census records” from 2015 indicated that Mora signed a beneficiary designation
on May 8, 2014, naming America as the sole primary beneficiary. Union Security asked Vuteq
to provide a copy of the beneficiary designation that it had in its file. Vuteq had Mora’s
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original application for coverage in 1999, which named her mother, Margarita Chichino
(“Margarita”), and her daughter Maggie as primary beneficiaries. Id. at ¶ 25. Vuteq also
provided a signed statement to Union Security which provides:
I, Doreen St. Onge, reviewed the beneficiary designation signed by Lucia Mora
under policy 5469917/0/1. The beneficiary designation appeared to be signed
by the insured, was dated after June 1, 2014, and named Timothy Hockensmith
as the sole primary beneficiary. I also hereby certify the original beneficiary
designation was mailed to Mr. Timothy Hockensmith, and a copy was not
retained in our records.
Id. at ¶ 24. Timothy advised Union Security that he did not have a copy of the document.
Vuteq also had a record of a 2011 divorce decree under which Timothy agreed to “waive,
release, and relinquish unto [Mora] . . . all of his right, title, and interest in and to all property
now owned or hereafter acquired by [Mora], including . . . the right to take any non-probate
assets of the other (such as life insurance proceeds . . .) for which Husband may be named
beneficiary . . . .” Id. at ¶ 26.
Union Security filed this action in interpleader naming Timothy, Maggie, America,
Shawna, and Margarita as defendants. 28 U.S.C. § 1331; 29 U.S.C. § 1001, et seq. It appears
that Shawna has been served with the Complaint, but has not filed an Answer or otherwise
made an appearance. [See Record No. 7.] Union Security is still attempting to serve the
remaining defendants in Mexico. [See Record Nos. 33-35.]
II.
The Hockensmiths have moved for judgment on the pleadings under Rule 12(c) of the
Federal Rules of Civil Procedure or, alternatively, for summary judgment under Rule 56.
[Record No. 11] A party’s Rule 12(c) motion is properly granted when there is no issue of
material fact and the moving party is entitled to judgment as a matter of law. JPMorgan Chase
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Bank, N.A. v. Winget, 510 F.3d 577, 582 (6th Cir. 2007). The Court accepts as true “all wellpleaded material allegations,” but “need not accept as true legal conclusions or unwarranted
factual inferences.” Id. at 581-82 (quoting Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999)).
Motions to dismiss under Rule 12(c) are reviewed under the same standard as those
under Rule 12(b)(6). Lindsay v. Yates, 498 F.3d 434, 437 n.5 (6th Cir. 2007). To survive a
motion to dismiss under Rule 12(b)(6), a plaintiff must allege sufficient factual matter to state
a claim for relief that is plausible on its face. Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
570 (2007); Peatross v. City of Memphis, 818 F.3d 233, 239-40 (6th Cir. 2016). The Court
may consider exhibits attached to the Complaint so long as they are referred to in the Complaint
and are central to the claims contained therein. Bassett v. Nat’l Collegiate Athletic Ass’n, 528
F.3d 426, 430 (6th Cir. 2008).
The Hockensmiths’ view of this case is simple: Union Security did not have a
beneficiary designation on file, so the proceeds must go to Maggie, the decedent’s only living
child.

However, the Complaint includes several allegations that preclude such a

straightforward analysis. To begin, Vuteq had possession of Mora’s original application for
life insurance benefits in which she named both her mother and daughter as beneficiaries. [See
Record No. 18-1.] Further, the policy allowed Mora to change the beneficiary by notifying
Vuteq and, according to the Complaint, there is evidence indicating that she did so on two
occasions. Contrary to the Hockensmiths’ suggestion, Union Security’s lack of a beneficiary
designation form in its file does not end the inquiry regarding Mora’s beneficiary. As a result,
the Hockensmiths’ motion for judgment on the pleadings will be denied.
The Hockensmiths have filed a separate “motion to dismiss interpleader.” [Record No.
30] This motion also is based on the argument that Maggie clearly is entitled to the insurance
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proceeds and that there is no “real risk of multiple liability by the stakeholder.” [Record No.
30, p. 1] In support, the Hockensmiths rely on cases in which competing claims to insurance
benefits were deemed facially “devoid of substance.” See, e.g., John Hancock Mut. Life Ins.
Co. v. Beardslee, 216 F.2d 457, 460-61 (7th Cir. 1954) (daughter acknowledged that she was
not beneficiary under the policy at the time of policyholder’s death). But that is not the case
here. Where there are claimants asserting competing claims such that an ERISA plan fiduciary
may be exposed to multiple liability, it is appropriate for the fiduciary to initiate an interpleader
action joining the claimants as adverse parties. See Metropolitan Life Ins. Co. v. Marsh, 119
F.3d 415, 419 (6th Cir. 1997).
Based on the facts as alleged in the Complaint, Union Security cannot determine
whether Mora’s initial designation remains valid, whether she effected a change prior to her
death, or whether her failure to respond to its August 2015 letter voided any prior designation.
Accordingly, this motion to dismiss will be denied, as well.
III.
The Hockensmiths assert counterclaims against Union Security alleging that Maggie is
entitled to the proceeds under the terms of the contract (count I) and under Kentucky law (count
II). [Record No. 10] Union Security has moved to dismiss the counterclaims, arguing that
they are completely preempted by the Employment Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. § 1001, et seq. [Record No. 17] Union Security contends -- and the
Hockensmiths do not contest -- that Vuteq was Mora’s employer, as defined under ERISA,
and that the life insurance, underwritten by Union Security, was part of the employee welfare
benefit package offered by Vuteq to its employees. Accordingly, the Plan is regulated by
ERISA, which preempts “any and all State laws insofar as they may now or hereafter relate to
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any employee benefit plan.” 29 U.S.C. § 1144(a). But see Penny/Ohlmann/Niemann, Inc. v.
Miami Valley Pension Corp., 399 F.3d 692, 698 (6th Cir. 2005) (quoting LeBlanc v. Cahill,
153 F.3d 134, 147 (4th Cir. 1998) (ERISA generally does not “preempt traditional state-based
laws of general applicability that do not implicate the relations among the traditional ERISA
plan entities, including the principals, the employer, the plan, the plan fiduciaries, and the
beneficiaries”).
The Hockensmiths make no serious argument that Union Security is not a fiduciary
under the Plan and that their state-law claims are not preempted. ERISA provides that
a person is a fiduciary with respect to a plan to the extent (i) he exercises any
discretionary authority or discretionary control respecting management of such
plan or exercises any authority or control respecting management or disposition
of its assets . . . or (iii) he has any discretionary authority or discretionary
responsibility in the administration of such plan.
29 U.S.C. § 1002(21)(A). An insurance company that “administers claims for an employee
welfare benefit plan and has authority to grant or deny the claims . . . is an ERISA ‘fiduciary’
under 29 U.S.C. § 1002(21)(A)(iii).” Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield
Mut. Of Ohio, 982 F.2d 1031, 1035 (6th Cir. 1993). The policy provides that Union Security
has “sole discretionary authority to determine eligibility for participation or benefits and to
interpret the terms of the policy.” [Record No. 1-1, p. 26] Accordingly, the Hockensmith’s
counterclaims under state law are preempted by ERISA and will be dismissed.
The Hockensmiths alternatively seek leave to amend their counterclaim to add a claim
for breach of fiduciary duty based on Union Security’s failure to remit the policy proceeds to
Maggie. [Record No. 24, p. 4] “Leave shall be freely given when justice so requires,” Fed.
R. Civ. P. 15(a), but the Court need not grant leave to amend where amendment would be
futile. Miller v. Calhoun Cnty., 408 F.3d 803, 817 (6th Cir. 2005). The Hockensmiths did not
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provide a proposed amended pleading or otherwise explain why Union Security’s failure to
pay the insurance proceeds to Maggie constitutes a breach of fiduciary duty. Contrarily, an
ERISA plan fiduciary’s decision to proceed via interpleader rather than choosing from
competing adverse claimants does not constitute a breach of fiduciary duty. Hartford Life &
Accident Ins. Co. v. Moss, No. 1: 07-CV-204-JHM, 2008 WL 11357971, at *3 (W.D. Ky. Dec.
18, 2008).
Finally, the Hockensmiths claim damages relating to interest they could have earned
on the insurance proceeds “had Union Security timely paid over the proceeds to Maggie.”
[Record No. 24, p. 5] They argue that this claim is distinct from their claims to the interpleaded
funds. However, a valid interpleader action shields the interpleader plaintiff from liability
where the counterclaims are “essentially based on the plaintiff’s having opted to proceed via
interpleader complaint rather than having chosen from among adverse claimants.” Wachovia
Bank, N.A. v. Zomax, Inc., No. 2: 09-CV-0076, 2009 WL 3698443, at *4 (S.D. Ohio Nov. 3,
2009) (quoting Met. Life Ins. Co. v. Barretto, 178 F.Supp.2d 745, 748 (S.D. Tex. 2001)). To
the extent the Hockensmiths have asserted a separate claim under this theory, it will be
dismissed.
IV.
Based on the foregoing analysis, it is hereby
ORDERED as follows:
1.

The Motion for Judgment on the Pleadings or, alternatively, for Summary

Judgment, filed by Defendants Timothy and Maggie Hockensmith [Record No. 11] is
DENIED.

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2.

The Motion to Dismiss Counterclaims filed by Union Security Insurance

Company [Record No. 17] is GRANTED.
3.

The Motion for Leave to Amend filed by Defendants Timothy and Maggie

Hockensmith [Record No. 24] is DENIED.
4.

The Motion to Dismiss Interpleader by Defendants Timothy and Maggie

Hockensmith [Record No. 30] is DENIED.
This 14th day of November, 2017.

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