No Fiduciary Breach Where Employer Failed to Provide Life Insurance Conversion Information

Following a plan participant’s death, his wife sued his employer after receiving a life insurance payout of only the participant’s base amount, even though the participant had elected and paid for supplemental coverage. When he died, the participant had been receiving employer-provided long-term disability (LTD) benefits. Under the employer’s plan, basic group life insurance coverage continued during receipt of LTD benefits, but supplemental coverage did not. Supplemental coverage could, however, be converted to an individual policy within 31 days after ending active employment. The wife alleged that the employer breached its fiduciary duty by failing to affirmatively inform the participant of those conversion rights. Following the trial court’s dismissal of the claim, the wife appealed.

The Sixth Circuit explained that, under applicable precedent, a fiduciary is not liable for failing to disclose information that ERISA does not require be disclosed, except in limited circumstances that did not apply here. According to the court, the wife did not contend that the employer provided a misleading or inaccurate response to any direct question regarding conversion rights. Nor did she indicate that the employer furnished misleading or inaccurate information on its own initiative. (In fact, although not required to, the plan’s SPD mentioned conversion rights.) The court acknowledged that a fiduciary has an affirmative duty to provide information when it knows that silence may be harmful, but concluded that the wife had not presented facts demonstrating that the employer should have known conversion information would be important to her husband. Concluding that the wife’s allegations were insufficient to support a fiduciary breach claim, the court affirmed the trial court’s dismissal.

EBIA Comment: A dissenting opinion focused on a “benefit summary report” the employer furnished while the participant was receiving LTD benefits. This report contained information about the life insurance plan (among other benefits) but did not address conversion rights. In the dissenting judge’s view, the omission of conversion information from this report—which the employer had provided on its own initiative—would suffice to support a breach of fiduciary duty claim at this stage, so the judge would have allowed the claim to proceed. While this employer did meet ERISA’s disclosure requirements, it appears that the favorable result may also be attributable to the lack of specificity in the wife’s arguments. It is not difficult to imagine a court coming out the other way when faced with a similar situation. While employers that are specifically responsible for communication about insurance coverage are at greater risk (see, for example, our Checkpoint article), employers should routinely strive to provide complete and accurate information in all benefits communications with participants. For more information, see EBIA’s ERISA Compliance manual at Section XXVIII.F (“ERISA Fiduciary Duties and Participant Disclosure”).

Contributing Editors: EBIA Staff.