UNUM Life Insurance Company of America v. Witt et al

Filing 43

OPINION and ORDER granting 34 Motion for Summary Judgment. The trial is Cancelled. The court will not enter final judgment at this time because it must first determine Unums motion for attorneys fees to be paid from the insurance proceeds. Signed by Judge James P. Jones on 1/6/15. (ejs)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION
UNUM LIFE INSURANCE COMPANY
OF AMERICA,
Plaintiff,
v.
JUSTIN B. WITT, ET AL.,
Defendants.

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Case No. 1:14CV00005
OPINION AND ORDER
By: James P. Jones
United States District Judge

Brandon Snodgrass, Snodgrass Law Firm, PLC, Abingdon, Virginia, for
Justin B. Witt; Michael A. Bishop, Michael A. Bishop, P.C., Abingdon, Virginia,
for J.M.W., a minor; and W. Bradford Stallard, Penn, Stuart & Eskridge,
Abingdon, Virginia, for First Sentinel Bank.
In this interpleader action, an insurance company has paid into court the
death benefit proceeds of a life insurance policy and requested the court to
determine who is entitled to those proceeds — either the named beneficiaries of the
policy or a bank that obtained an assignment of the policy as collateral for a loan to
the insured.

The bank has now moved for summary judgment in its favor,

contending that there are no genuine disputes as to any material facts and it is
entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). For the
following reasons, I will grant the bank’s motion.

I.
The undisputed facts contained in the summary judgment record are as
follows.
Douglas A. Witt was the insured under a group life insurance policy (the
“Group Policy”) through his employer, American Electric Power Service
Corporation.

The Group Policy was issued and administered by Unum Life

Insurance Company of America (“Unum”). Witt, as a benefit of his employment,
obtained life insurance coverage of $150,000 through the Group Policy. He left his
employment in 2002, but elected to continue this coverage. On November 24,
2010, Witt executed an Assignment of Life Insurance Policy as Collateral (the
“Assignment”) to First Sentinel Bank (the “Bank”), as security for a loan to Witt in
the amount of $358,875. The loan was also secured by real estate owned by Witt.
The loan had a 12-month term, but it was not paid as scheduled and was modified
twice by extending the due date, the last due date being July 24, 2013. Payment
was not made on that date.
Witt died less than a month later, on August 20, 2013, of a gunshot wound.
Before he died, on April 11, 2013, he had designated his two children, Justin B.
Witt and J.M.W., a minor, as the beneficiaries of the Group Policy (the
“Beneficiaries”). At his death, the payoff amount of the loan to the Bank was
$359,375.
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Following Witt’s death, on September 5, 2013, James W. Dudley, an
attorney for the Bank, wrote to Unum advising it that the decedent had assigned the
life insurance policy to the Bank as collateral for a loan, and enclosing a copy of
the Assignment. In response, Unum sent a letter dated November 22, 2013, to
Justin Witt, one of the Beneficiaries, advising him that “James Dudley, at the
Dudley Law Firm is claiming to be a beneficiary of the Group Life Insurance
benefits for which you have also submitted a claim.” (Compl. Ex. F, ECF No. 16.) A similar letter was sent to attorney Dudley, advising him that Justin Witt had
made a claim to the proceeds of the policy.
Unum followed up by letters dated December 13, 2013, to both Dudley and
Justin Witt, advising them that because Unum had not heard further from them as
to “the dispute” it was “interpleading the proceeds into the court system.” (Compl.
Ex. H, ECF No. 1-8.) The present interpleader action was thereafter filed on
February 10, 2014, naming the Bank and the Beneficiaries as defendants. Subjectmatter jurisdiction of this court is based upon diversity of citizenship and amount,
28 U.S.C. § 1332(a), as well as federal question jurisdiction under the provisions of
the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §
1132(e). Unum has paid into court the death benefit proceeds of the policy in the
amount of $151,982.88, and without objection has been dismissed as a party.
(Order, July 17, 2014, ECF No. 22.)
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In advance of trial, and following discovery, the Bank has moved for
summary judgment in its favor. The motion has been briefed and orally argued,
and is ripe for decision.
II.
In its Complaint, Unum did not indicate the basis of any disputed claims,
other than that the Bank had requested payment based on the terms of the
Assignment and that “J.M.W.’s status as a minor prevents her from disclaiming
any entitlement that she may have in the Death Benefit.” (Compl. ¶ 24.) Unum
did not explain why or how the beneficiaries’ interest in the life insurance proceeds
could be arguably superior to the Assignment. It did not describe any claimed
defect in the Assignment or otherwise provide the basis for any reasonable belief
that the Bank’s claim should not be honored. It merely stated, in a conclusory
fashion, that “[u]nder the circumstances, Unum cannot determine factually or
legally who is entitled to the Death Benefit.” (Id. at ¶ 27.)
The Group Policy does not preclude assignments and indeed provides for
them. The Summary of Benefits under the Group Policy, a copy of which was
attached to the Complaint, states as follows:
WHAT ARE YOUR ASSIGNABILITY RIGHTS FOR THE DEATH
BENEFITS UNDER YOUR LIFE INSURANCE? (Assignability
Rights)
The rights provided to you by the plan for life insurance
are owned by you, unless:
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-you have previously assigned these rights to someone
else (known as an “assignee”); or
-you assign your rights under the plan(s) to an assignee.
We will recognize an assignee as the owner of the rights
assigned only if:
-the assignment is in writing, signed by you, and
acceptable to us in form; and
-a signed or certified copy of the written assignment has
been received and registered by us at our home office.
(Compl. Ex. A, at 10, ECF No. 1-1.)
The Assignment references the Group Policy in question and provides,
among other things, that Witt assigned to the Bank “[t]he sole right to collect from
the insurer the net proceeds of the Policy when it becomes a claim by death or
maturity.” (Id. Ex. B, at ¶ B.1, ECF No. 1-2.)
The Beneficiaries do not dispute these provisions of the Group Policy and
the Assignment or that their decedent Witt duly executed the Assignment as
collateral for the Bank’s loan.

Instead, they assert that the Assignment is

ineffective because the Bank failed to “perfect” the Assignment by providing it to
Unum prior to Witt’s death. They also argue that there is no evidence that Unum
found the Assignment “acceptable in form,” or that it was “registered” by it as
provided for in the assignment language of the Summary of Benefits. 1

1

In their joint brief in opposition to summary judgment, the Beneficiaries also
argued that by collecting the Group Policy’s death benefit under the Assignment, the
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Summary judgment is appropriate when “there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). “Mere speculation by the non-moving party ‘cannot create a
genuine issue of material fact.’” Tsai v. Md. Aviation, 306 F. App’x 1, 4 (4th Cir.
2008) (unpublished) (quoting Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985)).
While the Group Policy, as a benefit of employment, ought to be construed
under ERISA, “ERISA plans are contractual documents, which while regulated,
are governed by established principles of contract and trust law.” Haley v. Paul
Revere Life Ins. Co., 77 F.3d 84, 88 (4th Cir. 1996).
It is settled that where the insured assigns the proceeds of a life insurance
policy as security for a debt, the creditor’s right is superior to that of the
beneficiary of the policy. Smith v. Coleman, 35 S.E.2d 107, 111 (Va. 1945).
While the Beneficiaries contend that there is no present evidence that the
assignment in question in this case was properly filed, life insurance policy
provisions requiring an assignment to be filed with the insurance company are
solely for the benefit of the insurer, and not the beneficiary. See Fid. Deposit Co.
Bank would obtain a “windfall” because it also has the additional collateral of a mortgage
on the decedent’s real estate, which land was valued at more than the loan amount. (Br.
in Opp’n 8-9, ECF No. 36.) However, as explained by the affidavit of a Bank officer, the
land has yet to be sold in spite of two unsuccessful public auction attempts and the Bank
agrees that “[o]nce the loan is paid in full with the proceeds of the life insurance policy
and the sale of the real property, any additional proceeds from the collateral, less
expenses incurred by [the Bank], will be paid to the named beneficiaries.” (Tiller Aff. ¶
16, Dec. 4, 2014, ECF No. 38-1.) Accordingly, there is no danger that the Bank will
obtain a future windfall that would make it inequitable to grant it relief in this case.
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of Md. v. Moore, 14 S.E.2d 307, 310 (Va. 1941). If the insurer does not insist on
such provisions, the beneficiary cannot complain, Dennis v. Aetna Life Ins. &
Annuity Co., 873 F. Supp. 1000, 1006 (E.D. Va. 1995), and by filing an
interpleader action, an insurance company waives compliance with such
provisions. Fid. Mut. Life Ins. Co. v. City Nat’l Bank of Fairmont, 95 F. Supp.
276, 282 (N.D.W. Va. 1950).2
It is clear in this case that the insurance company has not rejected the
method of filing of the Assignment. Unum averred in its Complaint that “[o]n
November 24, 2010, the Insured executed [the Assigment]” (Compl. ¶ 13, ECF No.
1), and that Unum received a copy of the Assignment on or about September 5,
2013 (id.¶ 20, ECF No. 1, Ex. E, ECF No. 1-5).

It further averred that “[t]he

Insured’s coverage under the Group Policy served as collateral for a loan to the
Insured from First Sentinel in the amount of $358,875.00.” (Compl. ¶ 14, ECF
No. 1.) Unum’s only stated basis for filing the interpleader action was that one of
the Beneficiaries is a minor.

2

The Beneficiaries assert that the Assignment was not properly “perfected.”
Perfection is a concept of the Uniform Commercial Code (“UCC”). The Secured
Transactions title of the UCC does not apply to assignments of interests in insurance
policies or claims. See Va. Code Ann. § 8.9A-109(d)(8); PPG Indus., Inc. v. Hartford
Fire Ins. Co., 531 F.2d 58, 60 (2d Cir. 1976). It has been argued that the UCC ought to
be amended to apply to such assignments, since it would then afford protection to
subsequent assignees and thus encourage use of life insurance collateral assignments, as
it presently does not. See Andrew Verstein, Bad Policy for Good Policies: Article 9’s
Insurance Exclusion, 17 Conn. Ins. L.J. 287, 318-19 (2011).
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Similarly, the Beneficiaries’ argument that the life insurance company ought
to have notice of an assignment prior to the insured’s death is without merit. The
Group Policy contains no such requirement and neither Unum nor the Beneficiaries
were prejudiced by the timing of notice of the Assignment. See Metro. Life Ins.
Co. v. Fid. Nat’l Bank & Trust Co., 229 S.W. 399, 401 (Mo. Ct. App. 1921)
(holding that timing of notice of assignment of life insurance policy shortly after
death of insured was sufficient).
III.
For these reasons, it is ORDERED that Defendant First Sentinel Bank’s
Motion for Summary Judgment (ECF No. 34) is GRANTED.

The trial is

CANCELLED. The court will not enter final judgment at this time because it must
first determine Unum’s motion for attorneys’ fees to be paid from the insurance
proceeds.
ENTER: January 6, 2015
/s/ James P. Jones
United States District Judge

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