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Benefits

Miscommunication Between Employer and Insurer About Employee’s Medical Leave Causes Loss of Coverage—and a Lawsuit

EBIA  

EBIA  

Schmidt v. Overland Xpress, LLC, 2020 WL 5760651 (S.D. Ohio 2020)

Available at https://www.govinfo.gov/content/pkg/USCOURTS-ohsd-1_12-cv-00397/pdf/USCOURTS-ohsd-1_12-cv-00397-0.pdf

This case arose when an employee on a medical leave of absence was denied continued coverage under her company’s medical plan. While the company’s employee handbook limited eligibility for benefits to full-time employees working at least 28 hours per week, the plan provided that an employee was deemed actively employed if an absence from work was due to sickness or bodily injury. An officer of the company mistakenly informed the insurer that the employee had resigned, prompting the immediate termination of the employee’s coverage. The officer subsequently informed the insurer that the employee was, in fact, on medical leave, but, believing that the employee did not qualify for benefits because she was not working 28 hours per week, did not request that the employee’s coverage be reinstated. And the insurer, despite having been informed multiple times that the employee was on medical leave, did not take it upon itself to reinstate the employee’s coverage. After the employee, through an attorney, sought to recover nearly $153,000 in medical expenses that should have been paid by the plan, the employee was fired. She then sued the employer for (among other things) recovery of benefits and breach of fiduciary duty and asked the court to rule in her favor without a trial.

The court pointed out that the plan identified the insurer—not the employer—as the administrator with exclusive authority to make decisions and resolve factual questions regarding coverage eligibility. It acknowledged, however, that the employer could also be deemed an administrator or fiduciary to the extent that it exercised control over plan administration or benefit determinations. Because the plan required the company to notify the insurer regarding changes in eligibility, the court concluded that the employer could have been acting as a functional fiduciary with respect to the eligibility decision. But finding a genuine dispute as to whether the insurer or the employer was ultimately responsible for the erroneous decision to deny coverage, the court allowed the case to proceed.

EBIA Comment: This case illustrates the need for careful communications between an employer and its insurer or TPA about an employee’s leave status, particularly when it impacts eligibility for coverage. To avoid confusion (and potentially expensive litigation), employers should establish detailed administrative procedures and follow them carefully for each employee taking a leave of absence. For more information, see EBIA’s ERISA Compliance manual at Sections XXVIII.B (“Who Is a Fiduciary?”) and XXIX.B (“Who Is the ERISA Plan Administrator?”). You may also be interested in our webinar “Leaves of Absence and Paid Time Off in 2020: Selected Issues for Group Health Plans” (recorded on 11/12/2020).

Contributing Editors: EBIA Staff.

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