Wagner Law Group is a nationally recognized practice in the areas of
ERISA and employee benefits, estate planning, employment, labor and
human resources and investment management.
in 1996, The Wagner Law Group is dedicated to the highest standards
of integrity, excellence and thought leadership and is considered to
be amongst the nation's premier ERISA and employee benefits law
firms. The firm has seven offices across the country, providing
unparalleled legal advice to its clients, including large, small and
nonprofit corporations as well as individuals and government entities
worldwide. The Wagner Law Group's 34 attorneys, senior benefits
consultant and five paralegals combine many years of experience
in their fields of practice with a variety of backgrounds. Seven
of the attorneys are AV-rated by Martindale-Hubbell
and six are Fellows of the American
College of Employee Benefits Counsel, an invitation-only
organization of nationally recognized employee benefits
lawyers. Seven of the firm's attorneys have been
named to the prestigious Super
Lawyers list for 2017, which highlights outstanding
lawyers based on a rigorous selection process.
Wagner Law Group
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Insurer's Payment of Reduced
Benefit Not a Fiduciary Breach
The Fourth Circuit Court
of Appeals, in Gordon v. CIGNA Corp., has affirmed a lower
court's determination that an insurance company did not breach its
fiduciary duty under ERISA when it paid an insured's widow only half
of the amount of life insurance coverage for which the decedent had
paid premiums. In particular, the Fourth Circuit held that the
insurer had no fiduciary duty to notify the insured that he had not
satisfied the evidence of insurability requirement needed for
supplemental benefits beyond the guaranteed amount because that task
was solely the responsibility of the employer.
Background. An employee paid
premiums on life insurance that totaled $300,000 in coverage under a
plan sponsored by his employer. When the employee died in 2014, the
insurer paid his wife only half of the amount for which premiums were
paid. The insurer maintained that the decedent had only been approved
for $150,000 in coverage because it had not received evidence of
insurability, which was required for coverage in excess of $150,000.
The employer accepted
responsibility for the oversight and offered to refund the decedent's
excess premiums payments to the widow. However, the widow instead
opted to sue the insurance company and the employer in federal
district court for the difference between the two amounts.
Specifically, the widow alleged that the insurance company had
breached its fiduciary duty by failing to notify her husband that he
needed to submit proof of insurability while it continued to collect
premiums for unapproved coverage.
District Court. The district court dismissed
the widow's against the insurance company because it concluded that
the decedent's reduced life insurance coverage resulted from mistakes
made by the employer in administering the life insurance plan, not
the insurer. The widow, in turn, appealed the adverse decision to the
Fourth Circuit Court of Appeals.
Fourth Circuit. The Fourth Circuit first
addressed the widow's allegation that the insurer was a fiduciary
under ERISA because it exercised "authority and control"
over the "management and disposition" of premium payments
from the employer, which were "plan assets." Here, the
court concluded that because the plan was a "guaranteed benefit
policy" under ERISA, only the policy (and not the premium
payments) was a plan asset.
NOTE: ERISA defines a guaranteed
benefit policy as an insurance policy or contract to the extent that
such policy or contract provides for benefits the amount of which is
guaranteed by the insurer.
The Fourth Circuit next
reviewed the widow's claim that the insurer had a fiduciary duty to
notify her husband that he had not submitted evidence of insurability
that was required for the full amount of supplemental benefits. The
court observed that nothing in the controlling plan documents gave
the insurer the authority, responsibility, or managerial capacity
needed to qualify as a fiduciary under ERISA "with respect to
the particular activity at issue," i.e., notifying
employees when they had not completed the evidence of insurability
requirements. Alternatively, the court concluded that, under the plan
document, this responsibility belonged solely to the employer. The
court further noted that, given the particular administrative
arrangement for the plan between the insurer and employer, there was
no way for the insurer to know that an employee was paying for
coverage that had not been approved.
The Fourth Circuit
concluded by reviewing the widow's claim that the insurer was liable
for knowingly participating in a breach of trust by a fiduciary. The
Fourth Circuit determined that, if such a claim existed, it would
fail because there was no evidence to demonstrate that the insurer
knew about the employer's alleged breach of fiduciary duty.
Employer Takeaway. With the insurer off the
hook, the employer, which was a plan fiduciary and had taken on the
responsibility of "[v]erifying employee eligibility for
benefits," "[p]roviding enrollment materials to
employees," "[m]aking sure employees enroll accurately and
on time," "[h]andling changes to benefit elections,"
and "[c]ompleting premium payment procedures.", was forced
to settle with the widow.