Prusky v. Aetna Life Ins ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
4-13-2006
Prusky v. Aetna Life Ins
Precedential or Non-Precedential: Non-Precedential
Docket No. 04-4466
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 04-4466/4547
PAUL M. PRUSKY, INDIVIDUALLY AND AS TRUSTEE OF
THE WINDSOR SECURITIES, INC. PROFIT SHARING PLAN;
STEVEN G. PRUSKY, AS TRUSTEE OF THE
WINDSOR SECURITIES, INC. PROFIT SHARING PLAN,
Appellants No. 04-4466
v.
AETNA LIFE INSURANCE AND ANNUITY COMPANY;
LINCOLN NATIONAL LIFE INSURANCE COMPANY
____________
PAUL M. PRUSKY, INDIVIDUALLY AND AS TRUSTEE OF
THE WINDSOR SECURITIES, INC. PROFIT SHARING PLAN;
STEVEN G. PRUSKY, AS TRUSTEE OF THE
WINDSOR SECURITIES, INC. PROFIT SHARING PLAN,
v.
AETNA LIFE INSURANCE AND ANNUITY COMPANY;
LINCOLN NATIONAL LIFE INSURANCE COMPANY,
Appellants No. 04-4547
Appeal from the United States District Court for the Eastern District of Pennsylvania,
(Civ. No. 03-6264)
District Judge: Hon. Harvey Bartle
Argued: Tuesday, January 31, 2006
Before: MCKEE, VAN ANTWERPEN and SILER 1 , Circuit Judges
1
The Honorable Eugene E. Siler, Jr., Circuit Judge for the Sixth Circuit Court of Appeals,
sitting by designation.
(Opinion filed: April 13, 2006)
Arlin M. Adams
Bruce P. Merenstein (argued)
H. Justin Park
Schnader Harrison Segal & Lewis
1600 Market street, suite 3600
Philadelphia, Pennsylvania 19103
David H. Weinstein
Kellie A. Allen
Andrea L. Wilson
Weinstein, Kitchenoff & Asher
1845 Walnut Street, Suite 1100
Philadelphia, PA 19103
Attorney for Appellants/Cross-Appellees
C. Clark Hodgson, Jr.
Francis X. Manning (argued)
Thomas W. Dymek
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attorney for Appellees/Cross Appellants
OPINION
McKEE, Circuit Judge.
Paul and Steven Prusky, individually and as trustees for the MFI Associates, Ltd.
2
Profit Sharing Plan (the “Plan”),2 appeal the District Court’s grant of partial summary
judgment denying them retrospective relief for losses resulting from the breach of life
insurance contracts by Aetna Life Insurance and Annuity Company and Lincoln Life
Insurance and Annuity Company (the “Insurance Companies”). The Insurance
Companies cross-appeal the District Court’s order insofar as it grants equitable relief to
Plaintiffs. For the reasons that follow, we affirm in part and reverse in part.
Inasmuch as we write primarily for the parties, we need not set forth the factual or
procedural background of this litigation. We have reviewed the Memorandum and Order
filed by the District Court on October 25, 2004, explaining the court’s reasons for
granting partial summary judgement to both parties. There, the court thoroughly
explained why the Insurance Companies’ breach is not excused under Pennsylvania law.
We agree with the court’s conclusion that the Insurance Companies’ breach is not
excused, and we will affirm the portion of the court’s order that is the subject of the
Insurance Companies’ cross-appeal substantially for the reasons set forth by the District
Court.3 We will similarly affirm the court’s decision to grant equitable relief to the Plan.
However, as we will explain, we do not agree with the District Court’s conclusion that the
Plaintiffs are not entitled to retrospective damages arising from the Insurance Companies’
2
For simplicity, we will use “Plaintiffs” to collectively refer to the Plan, and Paul
and Steven Prusky in both their individual and fiduciary capacities.
3
We note for background purposes that on March 20, 2006, a separate panel of
this Court issued a non-precedential opinion in Prusky v. ReliaStar Life Insurance Co.,
No. 05-1611, rejecting a virtually identical argument by ReliaStar.
3
failure to honor faxed transfer requests in the past. Accordingly, we will reverse the order
denying retrospective relief.4
The cash value of a life insurance policy constitutes an asset owned by the Plan.
The Plan can borrow against the cash value, and the cash value determines the basis for
the surrender value of the policy. The District Court determined that Plaintiffs could not
be compensated for diminution of the cash value because that value was sufficient to
make premium payments for the next few years, and possibly for the life of the policy.
The court reasoned that because it was unclear whether any additional payments would
ever have to be made, and because a decrease in sale or surrender value of the policies
was irrelevant absent an intent to sell or surrender the policies, damages were too
speculative. However, accepting that argument would mean that an insurance company
could simply confiscate the funds of a policy owner at will, so long as the policy was paid
up and the owner did not have to pay any additional premiums to fund the policy.
In an analogous situation in Windsor Secur., Inc. v. Hartford Life Ins. Co., 986
F.2d 655 (3d Cir. 1993), we concluded that the kind of diminution of the cash value that
occurred here is compensable. In Windsor, we stated that policyholders would have been
entitled to damages for diminution in the policies’ cash value if they had mitigated the
4
Our review of the District Court's grant of summary judgement is plenary. See,
e.g., Freedom Card, Inc. v. JP Morgan Chase & Co., 432 F.3d 463, 466 (3d Cir. 2005).
4
losses resulting from the insurance company’s breach of contract. Id. at 668-69.5 Here,
it is undisputed that the Plan did attempt to mitigate damages by continuing to fax
transfers to the Insurance Companies. According to the uncontradicted assertion of
Plaintiffs, they also asked the Insurance Companies “to suggest other ways [they] could
mitigate damages, but the Insurance Companies never responded.” Appellants’ Brief at
19, n.7. The strategy of continuing to fax transfer requests knowing they would not be
honored created a paper trail that allows the diminution in cash value to be determined
with precision. There is no need to speculate. Damages can be calculated based on the
never-executed faxed instructions for transfers between sub-accounts, which instructions
the Plaintiffs (and presumably the Insurance Companies) have retained. Awarding
damages in the amount of the diminution of the cash value will thus restore the Plaintiffs
to the position they would have been in but for the breach.
Accordingly, we will reverse the October 25, 2004, order of the District Court
insofar as it denied damages, and remand the matter for further proceedings consistent
with this opinion. We will affirm the District Court in all other respects.
5
We realize that our statement in Windsor about the result that would have been
appropriate if the policy holders had mitigated their losses was dicta. However, we think
it is very helpful to our analysis here, and we see no reason that would warrant ignoring it
here.
5