Opinion ID: 217698
Heading Depth: 2
Heading Rank: 1

Heading: Humana's Decision to Pay the Children

Text: We review de novo a district court's grant of summary judgment and denial of a cross-motion for summary judgment. See Prate Installations, Inc. v. Chicago Regional Council of Carpenters, 607 F.3d 467, 470 (7th Cir.2010). Under 29 U.S.C. § 1132(a)(1)(B), federal courts also review de novo an ERISA plan administrator's denial of benefits unless the plan gives the administrator discretionary authority to determine eligibility for benefits. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). Because the group plan here gave Humana discretionary authority to administer it, we instead evaluate whether Humana's decision to deny benefits to Jackman Financial was arbitrary and capricious. See Marrs v. Motorola, Inc., 577 F.3d 783, 786 (7th Cir.2009). Under the arbitrary and capricious standard, we overturn the administrator's decision only where there is an absence of reasoning to support it. See Hess v. Reg-Ellen Machine Tool Corp., 423 F.3d 653, 658 (7th Cir.2005); Tegtmeier v. Midwest Operating Engineers Pension Trust Fund, 390 F.3d 1040, 1045 (7th Cir.2004). We apply the standard as an abuse of discretion standard. See Holmstrom v. Metropolitan Life Ins. Co., 615 F.3d 758, 767 n. 7 (7th Cir.2010). Applying that standard here, we agree with the district court that Humana's decision to pay the proceeds of Torrence's life insurance plan to his children was not an abuse of its discretion. The facility-of-payment clause in Torrence's group plan provided Humana with the option of paying the life insurance proceeds to any of five named entities or groups if the named beneficiary had died. Humana did exactly that. Plaintiff Jackman Financial argues that Kelly's assignment of the proceeds effectively entitled plaintiff to receive them and that Humana acted arbitrarily by ignoring the assignment. For plaintiff to acquire a right to the proceeds, however, Kelly herself must have had such a right to assign. Plaintiff argues that Kelly, as administrator of Torrence's estate, had the authority to disburse or assign the proceeds from the plan which, plaintiff contends, became part of Torrence's estate in the absence of a named beneficiary. We disagree with plaintiff's reasoning because it fails to come to grips with the facility-of-payment clause in the policy. [1] A facility-of-payment clause is one practical solution to the problems that arise when an insured person dies without an effective designation of a beneficiary. Rather than requiring a court to decide through a potentially expensive interpleader action, the clause allows the insurer simply to choose one or more beneficiaries, presumably in line with what the insured probably would have wanted if he or she had known that the beneficiary designation was not effective. See generally French v. Lanham, 57 F.2d 422, 422-23 (D.C.Cir. 1932) (noting that the purpose of the facility-of-payment clause is for the insurer to be able to issue a prompt valid payment, including payment for funeral expenses). When a facility-of-payment clause applies, it confers broad discretion on an insurer in making certain benefit determinations. See, e.g., Forcier, 469 F.3d at 185 (describing how a facility-of-payment clause puts both the policy-holder and the participant on notice that, in the absence of a beneficiary designation, payment by [the insurer] to any member(s) of an enumerated class `will discharge [the company's] liability for the amount so paid'). By using such a clause, an insurer can contract for varying degrees of discretion with respect to the distribution of insurance proceeds. See id.; Brown v. Metropolitan Life Ins. Co., 100 F.2d 98, 99-100 (D.C.Cir.1938) (recognizing the validity of facility-of-payment clauses); La Raw v. Prudential Ins. Co. of America, 12 F.2d 140, 142 (D.C.Cir.1926) (right of election as to whom payment shall be made under a facility-of-payment clause undoubtedly rests with the company). The facility-of-payment clause in Torrence's group plan gave Humana the option of distributing the policy proceeds to any of the listed relatives or the estate identified in the clause. Like the facility-of-payment clause in Forcier, the clause in Torrence's group plan made Humana's right to choose any one of the listed entities unconditional, enabling the company to make its selection among them. See Forcier, 469 F.3d at 185. Although Torrence's estate was one of the possible recipients, as was Kelly as Torrence's mother, Humana was under no obligation to select either of them as the substitute beneficiary. Unless and until such a selection was made and it never wasKelly never had an interest in Torrence's life insurance policy or in its proceeds that she could assign to plaintiff either in her personal capacity or as administrator of Torrence's estate. Plaintiff's claim to collect based on Kelly's assignment fails. Plaintiff nevertheless contends that Humana's decision to pay Torrence's children was arbitrary and capricious because Humana knew about Kelly's assignment of the plan proceeds to plaintiff and could have used its discretion to select Torrence's estate as beneficiary. Plaintiff is correct that Humana could have used its discretion in this way, but it need not have done so. Humana was not required to bail plaintiff out from an imprudent business risk. Where an ERISA administrator makes an informed decision and articulates a plausible reason for its decision, that informed explanation is sufficient for us to uphold its decision. See Mote v. Aetna Life Ins. Co., 502 F.3d 601, 606 (7th Cir. 2007). The totality of the evidence indicates that Humana decided to distribute the plan's proceeds to Torrence's children based on the facility-of-payment clause and the affidavit provided by Kelly. Humana explained this basis for its decision by describing in its correspondence with Kelly throughout 2007 the discretion granted to it by Torrence's group plan. It did not need to explain the reasoning behind the reasons. Herman v. Central States, Southeast & Southwest Areas Pension Fund, 423 F.3d 684, 693 (7th Cir.2005), quoting Gallo v. Amoco Corp., 102 F.3d 918, 922 (7th Cir.1996).