Court Opinion

ID: 3022329
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:26:46.483651+00
Date Added: 2024-06-11T11:40:19.403832
License: Public Domain

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Precedential or Non-Precedential: Non-Precedential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

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006

Recommended Citation
"Prusky v. Aetna Life Ins" (2006). 2006 Decisions. Paper 1271.
http://digitalcommons.law.villanova.edu/thirdcircuit_2006/1271

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2006 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
                                                                       NOT PRECEDENTIAL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