Phillips v. Prudential Ins. Co. of Am.

Decision Date06 May 2013
Docket NumberNo. 11–3870.,11–3870.
PartiesZena PHILLIPS, Plaintiff–Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA and Pruco Life Insurance Company, Defendants–Appellees.
CourtU.S. Court of Appeals — Seventh Circuit


Ronald R. Parry (argued), Attorney, Parry, Deering, Futscher & Sparks, Covington, KY, for PlaintiffAppellant.

Troy A. Bozarth, Attorney, Hepler Broom LLC, Edwardsville, IL, Michael K. Isenman (argued), Attorney, Goodwin Procter, Washington, DC, for DefendantsAppellees.

Before FLAUM and HAMILTON, Circuit Judges, and FEINERMAN, District Judge.*

FEINERMAN, District Judge.

Plaintiff Zena Phillips was a beneficiary of a life insurance policy taken out by her fiancé, Michael Strang, and issued by Defendant Pruco Life Insurance Company, a subsidiary of Defendant Prudential Life Insurance Company of America (together, Prudential). When Strang died, Prudential informed Phillips that the default method for paying the claim was the “Alliance Account settlement option.” The Alliance Account is what the insurance industry calls a “retained asset account,” under which the insurer, instead of paying a lump-sum death benefit, creates an interest-bearing account for the beneficiary and sends her a checkbook that can be used to draw down the funds, in part or in whole, at any time. The funds are held in Prudential's general investment account, which allows Prudential to profit from the spread (if any) between its investment returns and the interest paid to the beneficiary, which in Phillips's case was three percent.

In this putative class action, Phillips claims that Prudential's establishment of the Alliance Account as the default payment method and enrollment of her in an Alliance Account breached the insurance policy in violation of Illinois contract law and unreasonably delayed the payment of insurance benefits in violation of section 155 of the Illinois Insurance Code, 215 ILCS 5/155. Phillips also claims that Prudential owed her a fiduciary duty under Illinois law and breached that duty by not disclosing information regarding the investments made with her funds and by keeping for itself the investment profits. The district court dismissed all three claims under Federal Rule of Civil Procedure 12(b)(6), 2011 WL 5915148 (S.D.Ill. Nov. 28, 2011), and Phillips appeals.

We review de novo the district court's judgment. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir.2012). The complaint's well-pleaded factual allegations, though not its legal conclusions, are assumed to be true. See ibid.;Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 763 (7th Cir.2010). In conducting our review, we must consider not only “the complaint itself,” but also “documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice.” Geinosky v. City of Chicago, 675 F.3d 743, 745 n. 1 (7th Cir.2012). We also must consider additional facts set forth in Phillips's district court brief and appellate briefs, so long as those facts “are consistent with the pleadings.” Ibid. To the extent that an exhibit attached to or referenced by the complaint contradicts the complaint's allegations, the exhibit takes precedence. See Forrest v. Universal Sav. Bank, F.A., 507 F.3d 540, 542 (7th Cir.2007). The facts set forth below are stated as favorably to Phillips as permitted by the complaint and other materials that may be considered on review of a Rule 12(b)(6) dismissal.

I. Breach of Contract

As noted above, Phillips claims that Prudential breached the life insurance policy by making the Alliance Account the default method of paying her claim and by enrolling her in an Alliance Account. The parties agree that Illinois law governs interpretation of the policy. We have summarized Illinois law pertaining to the interpretation of insurance policies as follows:

In Illinois, insurance policies are contracts; the general rules governing the interpretation and construction of contracts govern the interpretation and construction of insurance policies. Illinois courts aim to ascertain and give effect to the intention of the parties, as expressed in the policy language, so long as doing so does not contravene public policy. In doing so, they read the policy as a whole and consider the type of insurance purchased, the risks involved, and the overall purpose of the contract. If the policy language is unambiguous, courts apply it as written. Policy terms that limit an insurer's liability are liberally construed in favor of coverage, but only when they are ambiguous, or susceptible to more than one reasonable interpretation.

Clarendon Nat'l Ins. Co. v. Medina, 645 F.3d 928, 933 (7th Cir.2011) (citations omitted). Although ambiguities are construed in the insured's favor, “a court will not search for ambiguity where there is none.” Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill.2d 352, 307 Ill.Dec. 653, 860 N.E.2d 307, 314 (2006); see also Native Am. Arts, Inc. v. Hartford Cas. Ins. Co., 435 F.3d 729, 732 (7th Cir.2006). [I]n construing a policy, governing legal authority must ... be taken into account as well, for a policy term may be considered unambiguous where it has acquired an established legal meaning.” Ace Am. Ins. Co. v. RC2 Corp., 600 F.3d 763, 766 (7th Cir.2010) (internal quotation marks omitted).

The Prudential policy authorized the insured (Strang) and the beneficiary (Phillips) to choose among several payment options listed in the policy and any other options that became available in the future:

[The insured] may choose to have any death benefit paid in a single sum or under one of the optional modes of settlement described below.

If the person who is to receive the proceeds of this contract wishes to take advantage of one of these optional modes, we will be glad to furnish, on request, details of the options we describe below or any others we may have available at the time the proceeds become payable.

The policy listed five payment options as alternatives to a lump-sum payment: (1) Prudential makes installment payments over a fixed period of time of up to twenty-five years; (2) Prudential makes monthly payments over the course of the beneficiary'slife, with payments certain for 120 months; (3) Prudential holds the proceeds and pays interest to the beneficiary on an annual, semi-annual, quarterly, or monthly basis; (4) Prudential makes annual, semi-annual, quarterly, or monthly payments for as long as the proceeds allow; and (5) Prudential makes payments like those on any annuity that Prudential regularly issues.

Strang never elected a payment method. When he died, Prudential sent Phillips a Claim Form. The form stated that Prudential's “preferred method of paying death benefits” was the Alliance Account and touted that option as “an easy, no-cost option that gives you great flexibility,” one that allows the beneficiary to “access funds immediately to cover current expenses, or in the future after you have had a chance to consider all your financial options.” The form explained: “Your proceeds may remain in this option for as long as you like while you continuously earn interest. To access funds, simply write a draft (‘check’) for $250 or more to yourself or any third party. There are no monthly service charges, per-check charges or check re-order fees. You will periodically receive a statement showing your current balance, account activity, interest earned, and interest rate.” The form added: “This option allows you to access all of your funds immediately or over time. You may leave the money in the account, withdraw the entire amount or write checks against the balance ($250 minimum).”

The Claim Form gave Phillips the opportunity to select a payment method other than the Alliance Account, and clearly stated that if she did not select a payment method, the benefits would be paid by the Alliance Account option:

Unless you elect an alternative settlement option or select another payment option, eligible death claim benefits will be paid by way of the Alliance Account settlement option. If you would like detailed information about settlement options, please refer to the enclosed Settlement Options brochure, contact our Customer Service Office at (800) 496–1035, or contact your Prudential representative.

If you would like to select an alternative settlement option, indicate your settlement option below (as described in the Settlement Options brochure).


If you would like to select another payment option allowed in the policy, indicate your payment option below.


As can be seen, the form had two lines for Phillips to elect a payment option other than the Alliance Account. The first allowed her “to select an alternative settlement option,” and noted that those options were “described in the Settlement Options brochure.” The second line allowed her to choose “another payment option allowed in the policy.” Phillips left those two lines blank and returned the form. Prudential accordingly enrolled her in the Alliance Account option and sent her a checkbook.

Prudential's establishment of the Alliance Account as the default option, and its enrolling Phillips in an Alliance Account rather than providing her a lump-sum benefit payment, did not breach the insurance policy. The policy allowed Phillips to choose any available payment method—those listed in the Settlement Options brochure, those listed in the policy, or those, like the Alliance Account option, that Prudential “may have available at the time the proceeds become payable”—and by leaving the two lines blank on the Claim Form, Phillips chose to enroll in the Alliance Account option. See Garcia v. Prudential Life Ins. Co. of Am., 2009 WL 5206016, at *8 (D.N.J. Dec. 29, 2009) (“When Plaintiff executed the Claim Form without explicitly designating [how] she wished to receive the benefits she was due under the Policies, ...

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