WILLIAM C. O'KELLEY, Senior District Judge.
The captioned case is before the court for consideration of defendant's "Motion to Dismiss" [4].
On December 20, 2011, plaintiff filed this class action under the Class Action Fairness Act of 2005 ("CAFA"), Pub.L. No. 109-2, 119 Stat. 4 (codified in various parts of 28 U.S.C., including § 1332(d)). CAFA grants a federal district court original jurisdiction over a "class action" if: (1) the amount in controversy exceeds $5,000,000, exclusive of interest and costs, 28 U.S.C. § 1332(d)(2); (2) at least one plaintiff is diverse from one defendant, id. § 1332(d)(2)(A); and (3) several jurisdictional exceptions do not apply, see id. §§ 1332(d)(3), (d)(4), and (d)(9). The complaint asserts that these prerequisites are met.
After executing a waiver of service, defendant filed this motion to dismiss on February 21, 2012. Later, on April 18,
Defendant Jackson National Life ("Jackson Life") is a life insurance company. In 1994, Dr. Thomas P. Garrison, Jr. purchased a life insurance policy (policy number 0023239410) with an accidental death benefit of $100,000 from Jackson Life. On February 22, 2006, Dr. Garrison died. His wife, Anne T. Garrison, was the policy's sole beneficiary.
The policy required Jackson Life to pay the policy proceeds "to the designated [b]eneficiary upon due proof of the death of the [i]nsured and not later than two months after receipt of such proof." (Policy 6.)
Shortly after Dr. Garrison's death, plaintiff received a claim form from Jackson Life. The claim form explained that:
(Am. Compl. 6.) On the claim form, plaintiff circled the words "in a lump sum" and wrote the following sentence: "Please send single check." (Id.)
Jackson Life did not send a check to plaintiff. Instead, plaintiff alleges that Jackson Life created a Beneficiary Access Account ("beneficiary account") and placed her policy proceeds in this account. She was advised of the creation of the beneficiary account by a letter dated May 17, 2006. Several days after plaintiff received this letter, a "checkbook"
Plaintiff attached a copy of this May 17 letter to the complaint. In the letter, Jackson Life claimed to have placed the proceeds into an interest-bearing beneficiary account. (See May 17, 2006 Letter 3 ("When we approved your claim, we immediately placed the proceeds into this account.").) The letter described the "book of personalized checks" provided with the account, which could be used just "as you would [with] any other checking account, except that each check must be for at least $250." (Id.) The full proceeds could be withdrawn by "writ[ing] a check for that amount." (Id.) There were no service or maintenance fees, although there were charges "for special situations, such as overdrawing your account, stopping payment on a check, or if you request a copy of a cancelled check." (Id.)
According to the complaint, the beneficiary account was not actually a checking account, because "the policy proceeds were retained for the exclusive benefit and control of and by Jackson Life until the [p]laintiff drew a draft on the `checking account.'" (Am. Compl. 6.) In other words, Jackson Life did not place the proceeds in a separate bank account that could be accessed solely by the beneficiary. Moreover, the "checks" issued by Jackson Life are allegedly not checks, but drafts that differ from a check in several material ways: (1) the beneficiary is not protected from a forged draft in the same manner as a forged check; (2) a draft is not a promise to pay and thus, a beneficiary account "is nothing more than an IOU from an insurance company"; and (3) some creditors and banks treat drafts and checks differently and thus the drafts are not as "freely negotiable as a check...." (Id. at 11.) In count one, plaintiff claims that Jackson Life breached the policy by creating the beneficiary account instead of paying the proceeds directly to her. As a result, she "received less interest than guaranteed and/or did not receive an immediate lump sum payment." (Am. Compl. 16.) Since the only option in the policy that allowed Jackson Life to retain the policy proceeds on deposit (Option 1) also required Jackson Life to pay at least 4% annual interest on the proceeds, (see Policy 8), and since the beneficiary account only provided 3.75% annual interest, plaintiff claimed that the she was "entitled to recover the interest differential between 4% and the amount of interest she actually recovered," (Am. Compl. 16.) Count two alleges that Jackson Life breached the contractual covenant of good faith and fair dealing. Count three alleges that Jackson Life was unjustly enriched by retaining the policy proceeds. Count four alleges that Jackson Life did not pay the statutorily-required interest rate on the proceeds. Defendant moves to dismiss the entire complaint.
The Federal Rules of Civil Procedure require that a complaint contain "`a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to `give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868
"Detailed factual allegations" are not necessary, but a plaintiff must furnish more than "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Id. Factual allegations are entitled to a presumption of truth. Legal conclusions or "a legal conclusion couched as a factual allegation" are not. Id.
A court considering a motion to dismiss takes a "two-pronged approach." Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1290 (11th Cir.2010). First, the court "eliminate[s] any allegations in the complaint that are merely legal conclusions." Id. Second, "where there are well-pleaded factual allegations, [the court] assume[s] their veracity and then determine[s] whether they plausibly give rise to an entitlement to relief." Id. (internal quotation marks omitted). A complaint should be dismissed under Federal Rule of Civil Procedure 12(b)(6) only if these well-pleaded factual allegations fail to state a plausible claim for relief. Twombly, 550 U.S. at 555, 127 S.Ct. 1955.
Jackson Life argues that the breach of contract claim in count one fails as a matter of law because the creation of the beneficiary account constituted payment of the proceeds to plaintiff. Since the policy does not "provide that `one sum' may be paid only by check sent directly to the policy's beneficiary," Jackson Life contends that the "deposit" of one sum "into an account from which the beneficiary may immediately withdraw the entire amount" constitutes payment. (Def.'s Br. in Supp. 6.) This contention hinges on an interpretation of the policy's language.
That language must be construed according to Georgia law.
The policy states that Jackson Life will pay the proceeds to the beneficiary no more than two months after it receives proof of the insured's death. (Policy 6.) Unless otherwise agreed, this payment will be "in one sum...." (Id. at 8.) Although the policy provided three other payment options, these options had to be elected by either the insured or the beneficiary. There is no indication that any such election was made. Instead, when Jackson Life sent plaintiff a claim form, plaintiff circled the words "lump sum" and wrote that she would like to receive a single check. Thus, the operative payment option was payment in one sum.
The question in this case is whether Jackson Life's creation of the beneficiary account constituted payment of the policy proceeds in one sum.
The First Circuit rejected the insurer's contention that the proceeds were "paid" when they were deposited into the beneficiary account because the beneficiaries then had "full power to use the funds as they saw fit." Id. at 26. As long as the insurer, rather than the beneficiary, retained "possession of [the proceeds] and enjoyed their use," payment had not been made. Id.
The policy in this case, like the policy in Mogel, required Jackson Life to "pay the [f]ace [a]mount," of the policy "to the designated [b]eneficiary," (Policy 6), "in one sum ...," (id. at 8.) The plain meaning of payment is "[p]erformance of an obligation, usu[ally] by the delivery of money. Performance may occur by delivery and acceptance of things other than money, but there is a payment only if money or other valuable things are given and accepted in partial or full discharge of an obligation." Black's Law Dictionary, 1150 (7th ed. 1999). A "sum" means "[a] quantity of money." Id. at 1449.
The creation of the beneficiary account did not deliver a quantity of money to the beneficiary because delivery requires "the giving or yielding [of] possession or control of something to another." Id. at 440. Thus, payment in a single sum required delivery of possession or control of a quantity of money to the beneficiary. This did not occur because Jackson Life did not give the beneficiary possession or control over a quantity of money. Instead, Jackson Life retained possession and control over the proceeds and gave the beneficiary
The beneficiary account did not, as Jackson Life contends, give the beneficiary sufficient possession of the proceeds to constitute delivery. Jackson Life argues that the beneficiary had effective possession of the proceeds in the beneficiary account because she could access the proceeds by simply writing a draft.
However, the plain language of the policy required Jackson Life to pay (i.e. deliver possession of) the proceeds to the beneficiary in a single sum (i.e. a quantity of money). The plain meaning of the term payment does not appear to encompass the delivery of effective, rather than actual, possession of the proceeds. If the delivery of effective possession was contemplated by the policy, the court would expect the policy to say so. Moreover, the effective possession of the proceeds bestowed by the beneficiary account did not give the beneficiary the same control over the proceeds she would have had if Jackson Life had instead delivered money or a check. The beneficiary's control over the funds in the beneficiary account was limited in several ways. For example, the beneficiary could only access the proceeds in increments greater than $250 because drafts on the account had to be written for at least $250, and the beneficiary could not assign the proceeds or use them as collateral. (May 17, 2006 Letter 3.) If actual possession of the proceeds had been delivered, the beneficiary could have used the proceeds without any minimum limit and could have freely assigned the proceeds or leveraged them as collateral.
Additionally, the contention that payment by check is similar to payment by beneficiary account is not convincing, since it fails to grasp the reason why payment by check discharges the obligation to pay. The contention is based on a false premise, namely that a check constitutes payment because it gives a beneficiary the ability to access funds, even though a check does not transfer possession of the funds until it is cashed. But, a check constitutes payment for a different reason. By operation of law, when "an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken." O.C.G.A. § 11-3-310(b) (emphasis added).
Accordingly, if Jackson Life had sent plaintiff a check for the proceeds, that check would have suspended the obligation to deliver the proceeds as a quantity of money from the time that plaintiff received the check and would have completely discharged the obligation when it was cashed. The fact that Jackson Life would have retained actual possession of the proceeds until the check was cashed is legally irrelevant. Conversely, the beneficiary account and the associated "checkbook" did not similarly suspend or discharge the obligation to pay the proceeds because neither is a negotiable instrument. Although Jackson Life claims that the "checkbook" contains "checks,"
All checks are drafts, but not every draft is a check. A draft is an order to pay, O.C.G.A. § 11-3-104(e), "a written instruction to pay money signed by the person giving the instruction," id. § 11-3-104 cmt. 1.
Since Jackson Life allegedly retains control of the proceeds in the beneficiary account, a draft written on that account would plausibly draw on funds held by Jackson Life, payable through a bank. This practice is common in the insurance industry. See id. § 11-3-103 cmt. 2 (noting that "[s]ome insurance companies also follow the practice of issuing drafts in which the drawer draws on itself and makes the draft payable at or through a bank."). Such an instrument is legally considered to be a draft, not a check. Id.; see also id. § 11-3-103 cmt. 4 ("[A] draft drawn on an insurance company payable through a bank is not a check because it is not drawn on a bank.").
And, even though a draft, like a check, is considered a negotiable instrument, it is
The conclusion that the creation of the beneficiary account did not constitute payment of the proceeds aligns with the result in Mogel, but not all of its reasoning. Mogel's conclusion that the insurer had not paid the proceeds was premised on the insurer's continued possession of the proceeds. Jackson Life argues that under this possession standard, a check for the proceeds sent by the insurer would not constitute payment until the check was presented for payment, since the insurer would retain possession of the proceeds until the check was cashed. Therefore, payment via the creation of the beneficiary account was synonymous to payment by check.
Even if this contention undermines the reasoning in Mogel, however, it does not affect the court's decision. Although a check is not actually paid until presented for payment at a bank, the delivery of a check legally suspends the obligation to pay unless the check is presented and dishonored. The beneficiary account and the accompanying "checkbook" are different because they do not legally suspend this obligation.
Jackson Life also cites several cases that have concluded that an insurer's creation of a beneficiary account, rather than payment by check, did not breach the insurer's obligation to pay the policy proceeds to the beneficiary. See Rabin v. MONY Life Ins. Co., 387 Fed.Appx. 36 (2d Cir. 2010) (unpublished per curiam opinion) (dismissing plaintiff's breach of contract claim which asserted that the insurer breached the policy's terms by placing policy proceeds in a beneficiary account instead of delivering a check); Phillips v. Prudential Ins. Co. of Am., No. 11-CV-0058-DRH, 2011 WL 5915148 (S.D.Ill. Nov. 28, 2011) (same); Garcia v. Prudential Life Ins. Co. of Am., No. 08-5756-JAG, 2009 WL 5206016 (D.N.J. Dec. 29, 2009) (same). However, each of these cases is factually distinguishable. The policy in Rabin, unlike the policy here, expressly "authorize[d] [the insurer's] settlement of surrender proceeds by methods other than single lump-sum payments — including methods not detailed in the contract."
Moreover, the court's conclusion draws strong support from Georgia's statutory interest requirement, which requires life insurers to pay a statutorily-designated interest rate on all life insurance proceeds from the date of the insured's death until the date the proceeds are paid to the beneficiary. O.C.G.A. § 33-25-10(b). Under that statute, payment only occurs when proceeds are "manually delivered by an agent or representative of the insuring company or deposited by the insuring company in the United States mail, postage prepaid, and directed to the resident at his last known address as evidenced by the business records of the insuring company." Id. § 33-25-10(d). This definition requires the insurer either to manually tender proceeds through an agent or to mail proceeds to the beneficiary. The creation of a beneficiary account did neither of these things. Accordingly, the conclusion that the complaint raises a plausible claim that the creation of the beneficiary account breached the policy's terms is inescapable.
Not to be dissuaded, Jackson Life contends that even if there was a technical breach of the contract's terms, two other principles require dismissal of the breach of contract claim. Jackson Life argues that the creation of the beneficiary account substantially complied with the requirement to pay the proceeds to the beneficiary in a single sum. Georgia law only requires "substantial" compliance with a contract's terms. See O.C.G.A. § 13-4-20 ("Performance, to be effectual ... must be substantially in compliance with the spirit and the letter of the contract and completed within a reasonable time."). Jackson Life contends that in Rabin, the Second Circuit found that the insurer's creation of a beneficiary account "was not sufficiently different from payment by check to permit a jury to find a material breach," because the beneficiary could "liquidate his proceeds at any time by writing himself a check for the full account balance...." 387 Fed.Appx. at 39. But, Rabin is not persuasive on this point, because it does not address the difference between a check and a draft or observe that a draft drawn on an insurance company cannot be a check.
Perhaps most importantly, the question of substantial compliance is typically a question of fact, rather than of law. See Atlas Casing Co. v. Joyner, 192 Ga.App. 738, 386 S.E.2d 397, 399 (1989). Substantial compliance can be decided as a matter of law only where the facts permit only one reasonable conclusion. 23 Williston on Contracts § 63:3 (4th ed. 1990). The facts alleged in this case, particularly the difference between payment of the proceeds by money or check and payment of the proceeds by the creation of the beneficiary account, raise a plausible claim that Jackson Life did not substantially comply with the policy's terms.
Additionally, Jackson Life contends that plaintiff cannot sustain a breach of contract claim because Georgia law requires plaintiff to show damages resulting from the breach and plaintiff cannot do so. But, as plaintiff pointed out in her response brief, in Brock v. King, 279 Ga.App. 335, 629 S.E.2d 829 (2006), the court stated "the jury could have concluded that defendants had breached the contract" even if the defendant "had failed to prove actual damages." Id. at 836. Indeed, under Georgia law, "[i]n every case of breach of contract the injured party has a right to damages, but if there has been no actual damage, the injured party may recover nominal damages sufficient to cover the costs of bringing the action." O.C.G.A. § 13-6-6; see also McEntyre v. Edwards, 261 Ga.App. 843, 583 S.E.2d 889, 891 (2003) (holding that "[a] showing of actual damages was simply not required" to sustain breach of contract claim because "[a]t trial, the defendants sought nominal damages...." (emphasis original)). In a footnote in its reply brief, Jackson Life conceded that "[t]here is authority to support [the] proposition" that nominal damages are recoverable even where a breach of contract caused no loss. (Def.'s Reply Br. 8 n. 1.) But, it contended that nominal damages are recoverable only where there was at least "some cognizable injury" and there was no cognizable injury whatsoever in this case. (Id. (emphasis original).)
Jackson Life also sought dismissal of count two, which alleged a breach of the covenant of good faith and fair dealing. Such a claim cannot be maintained independently of a valid breach of contract claim. See Stuart Enters. Int'l. v. Peykan, Inc., 252 Ga.App. 231, 555 S.E.2d 881, 884 (2001). Jackson Life contended that the complaint did not state a claim for breach of contract and that, accordingly, the covenant of good faith and fair dealing claim necessarily failed. But, as the preceding discussion demonstrates, the complaint does state a valid claim for breach of contract. Thus, the motion to dismiss is denied with respect to count two.
Jackson Life argued that plaintiff's unjust enrichment claim in count three is barred by a four-year statute of limitations. See O.C.G.A. § 9-3-26 (requiring "[a]ll other actions upon contracts express or implied ... [to] be brought within four years from the accrual of the right of action."). Jackson Life sent plaintiff a letter dated May 17, 2006, informing her of the creation of the beneficiary account. More than four years elapsed between this date and the filing of the complaint on December 20, 2011. For purposes of the statute of limitations, a claim accrues "on the date that suit on the claim can first be brought." Hoffman v. Ins. Co. of N. Am., 241 Ga. 328, 245 S.E.2d 287, 288 (1978).
Plaintiff's unjust enrichment claim is based on Jackson Life's retention of the insurance proceeds. This retention began when Jackson Life created the beneficiary account instead of paying the proceeds to the beneficiary. Since the beneficiary account was created on May 17, 2006, and plaintiff learned of its creation via letter shortly thereafter, the unjust enrichment claim accrued more than four years prior to the filing of the complaint. Accordingly, it must be dismissed.
Georgia law requires every insurer that provides life insurance policies to pay interest to the beneficiary "on proceeds or payments under any individual policy of life insurance," O.C.G.A. § 33-25-10(a), "from the insured's death until the date of payment," id. § 33-25-10(b). The amount of interest paid depends on whether the beneficiary has filed "an action to recover the proceeds due under [a] policy ... [that] results in a judgment against the insurer." Id. § 33-25-10(b)(1). If so, interest is computed at the legal rate of
Jackson Life paid statutory interest to plaintiff, but it computed this interest using the date that the beneficiary account was created as "the date of payment." Plaintiff contends that, since the creation of the beneficiary account did not constitute payment of the proceeds, she is entitled to additional statutory interest. Jackson Life argued that this claim should be dismissed, because "it paid plaintiff via the Beneficiary Access Account." (Def.'s Br. in Supp. 13.)
As previously discussed, Jackson Life's creation of the beneficiary account did not constitute payment of the proceeds to the beneficiary. Moreover, the Georgia interest statute provides that "payment shall be deemed to have been received by a [beneficiary] when manually delivered by an agent or representative of the insuring company or when deposited by the insuring company in the United States mail, postage prepaid, and directed to the [beneficiary] at his last known address...." O.C.G.A. § 33-25-10(d). The creation of the beneficiary account did not constitute either manual delivery of the proceeds or delivery of the proceeds via mail. Thus, the complaint raises a plausible claim that Jackson Life failed to comply with Georgia's interest statute. The request to dismiss this count is denied.
For the foregoing reasons, defendant's "Motion to Dismiss" [4] is hereby
To resolve this issue, the First Circuit needed to determine whether the insurer had paid the policy proceeds to the beneficiaries, because if the insurer had made payment any fiduciary duty would be extinguished. The First Circuit decided that placing the proceeds in the beneficiary accounts did not constitute payment to the beneficiaries. Accordingly, the proceeds remained in the insurer's control and its fiduciary obligations continued. See id. ("[T]he sums due plaintiffs remain plan assets subject to [the insurer's] fiduciary obligations until actual payment."). Thus, the statement at issue was not dicta, because it was integral to the First Circuit's finding that payment of the proceeds had not been made and that the insurer retained control over the funds, which in turn supported the conclusion that the insurer breached its fiduciary duty.
In addition to filing a brief littered with typos, plaintiff's counsel also mischaracterized a Second Circuit decision. Page 9 of plaintiff's response brief included the following parenthetical statement after a citation of Faber v. Metropolitan Life Insurance Co., 648 F.3d 98 (2d Cir.2011): "payment [sic] by RAA is not, in fact, the same thing as payment by lump sum." Since this is the only explanation plaintiff gives of Faber, her brief suggests that this statement is Faber's holding. But, this quoted passage is only part of a sentence. The full sentence states that: "Indeed, much of the First Circuit's opinion [in Mogel] is devoted to establishing that payment by RAA is not, in fact, the same thing as payment by lump sum." 648 F.3d at 107. In context, it is clear that Faber is simply re-stating Mogel's holding and Faber never adopts that holding. This parenthetical statement was thus an entirely false characterization and very troubling.
