In Workman v. Dearborn National Life Insurance Company, No. 20-55182, 2021 WL 6140042 (9th Cir. Dec. 29, 2021), the Ninth Circuit considered whether the California Insurance Code requires a life insurance carrier to pay interest on unpaid death benefits for amounts unpaid within 30 days of the insured’s death or within 30 days of when a claim for the proceeds is submitted. Appellant Lovada Workman was the beneficiary of an ERISA-governed life insurance plan held by her former husband who died in 2002. Appellee Dearborn National Life Insurance Company administered the plan. The plan requires a written notice of claim to be filed within 20 days of the insured’s death, but Workman did not file a claim until 2016. Dearborn paid the guaranteed benefit policy amount of $37,000 plus interest calculated from the date she filed her claim. Workman argued that the California Insurance Code requires Dearborn to pay interest on the unpaid amount starting after 30 days of her husband’s death.
Section 10172.5(a) of the California Insurance Code, provides as follows:
[E]ach insurer admitted to transact life insurance, credit life insurance, or accidental death insurance in this state that fails or refuses to pay the proceeds of, or payments under, any policy of life insurance issued by it within 30 days after the date of death of the insured shall pay interest, at a rate not less than the then current rate of interest on death proceeds left on deposit with the insurer computed from the date of the insured’s death, on any moneys payable and unpaid after the expiration of the 30-day period.
Cal. Ins. Code § 10172.5(a). The Ninth Circuit agreed with Dearborn. It explained that the interest does not accrue until the benefit becomes payable and a benefit only becomes payable after the submission of a claim in line with the terms of the life insurance policy. The court applied the California canons of statutory construction and first examined the plain meaning of the statutory text. The court explained that “[a]lthough § 10172.5(a) imposes interest ‘calculated from the date of the insured’s death,’ this interest is applied only to ‘moneys payable and unpaid after the expiration of the 30-day period.’” Black’s Law Dictionary provides that “a sum of money is said to be payable when a person is under an obligation to pay it.” A life insurance provider does not have a duty to pay benefits until a beneficiary has complied with the terms for submitting a claim. The court also reasoned that even if the language was ambiguous, this interpretation best serves the statute’s purpose. The statute is intended to discourage parties from intentionally delaying settlements of insurance claims. “A construction of § 10172.5(a) that requires beneficiaries to submit a claim before interest may accrue avoids this perverse incentive and aligns with the textual limitation requiring insurers to pay interest only on money that is ‘payable and unpaid.’” The court affirmed the district court’s conclusion that § 10172.5(a) does not require any interest beyond what Dearborn has already paid.
Lastly, the court rejected Workman’s argument that Dearborn breached its fiduciary duties under ERISA by retaining a profit on interest from the insured’s policy benefit. The guaranteed benefit policy amount is the asset of the ERISA plan. Thus, an insurer’s fiduciary duties extend only to the disposition of the guaranteed benefit. The plan did not guarantee interest, so Dearborn owed no fiduciary duties with respect to the disposition of the interest. The court declined to order disgorgement of the interest Workman sought on appeal.
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