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The Wagner Law Group

The 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.

 

Established 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.

 

 

 

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The Wagner Law Group

 

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Tel: (617) 357-5200 

Fax: (617) 357-5250 

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Boston, MA 02110

 

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San Francisco, CA 94104

  

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www.wagnerlawgroup.com

 

 

 

Insurer's Payment of Reduced Benefit Not a Fiduciary Breach

June 14, 2018

 

 

 

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.

 

 

 

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This Newsletter is provided for information purposes by The Wagner Law Group to clients and others who may be interested in the subject matter, and may not be relied upon as specific legal advice.  This material is not to be construed as legal advice or legal opinions on specific facts. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.