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Benefits

Court Finds No Remedy for “Unfortunate” Denial of Life Insurance Benefits

EBIA  

EBIA  

Dawson-Murdock v. Nat’l Counseling Grp., 2018 WL 3744020 (E.D. Va. 2018)

The spouse of a deceased employee sought benefits under her husband’s employer-provided group life insurance plan. The insurer denied the claim, stating that her husband was not covered when he died—even though he had continued making premium payments—because he had switched to part-time work several months before he died and failed to convert to portable coverage. However, the employer’s vice president told the spouse that the company would pay the claim amount to her directly while it worked through the denial with the insurer. Based on these representations, the spouse did not appeal the insurer’s claim denial. After several months, during which the spouse was repeatedly assured that the company was working on the payment, the company notified her that it would not pay after all. The spouse sued for breach of fiduciary duty under ERISA and for negligence and breach of contract under state law.

Acknowledging that the plan document named the employer as a fiduciary, the court nevertheless dismissed the ERISA claim, explaining that fiduciary status focuses on the conduct at issue rather than the employer’s title. Citing Fourth Circuit precedent (see, for example, our Checkpoint article), the court found that the company was performing administrative rather than fiduciary functions when it failed to notify the employee of his ineligibility while still collecting his premiums and when its vice president told the spouse the company would pay the benefit directly. The court also dismissed the state-law claims for negligence and breach of contract, finding that the claims related to an ERISA plan and were thus preempted. The court noted that the preemption determination is not based on fiduciary status and is not influenced by whether the preemption decision would create a gap in the law with respect to suits against nonfiduciaries.

EBIA Comment: Courts have reached conflicting decisions as to the reach of ERISA’s fiduciary definition. (See our Checkpoint article about a recent case involving similar circumstances in which a court found a fiduciary breach and awarded a “surcharge” against the employer equal to the amount that would have been received if coverage had been in force.) In addition, the boundaries of ERISA preemption continue to be unsettled—even after the Supreme Court’s Gobeille decision (see our Checkpoint article). This court’s narrow application of the fiduciary definition and broad application of ERISA preemption combined to produce an unfortunate result for this beneficiary. We will be interested to see how the case plays out if it reaches a court of appeals. For more information, see EBIA’s ERISA Compliance manual at Sections XXVIII.I.5 (“Fiduciaries May Sometimes Be Liable for Harm Caused to Individual Participants”) and XXXIX.H.6 (“State-Law Claims Seeking Plan Benefits or Remedies for Benefit Denials”). You may also be interested in our recorded webinar “Learning the Ropes: An Introduction to ERISA Compliance for Group Health Plans(recorded on 2/21/18).

Contributing Editors: EBIA Staff.

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