Maintaining life insurance through an employee benefit plan can be a difficult process. Many plans set out complicated administrative requirements that can trip up an employee, resulting in a loss of coverage.
The good news is that, under ERISA, plan administrators must discharge their duties solely in the interests of participants and beneficiaries. In the context of life insurance, plan administrators cannot take an employee’s premiums for years, and then, upon that employee’s death, rely on technical arguments as a basis for not paying out the proceeds to a beneficiary.
Recently, the Sixth Circuit discussed the fiduciary duties of a plan administrator in Van Loo v. Cajun Operating Co. (2017). In that case, a corporate attorney (the “Employee”) for Church’s Chicken (the “Employer”) had an employee benefit plan that offered her life insurance. Throughout her employment, she gradually increased her coverage, eventually seeking to be insured at over $600,000. However, the Employee failed to submit an “evidence of insurability” form as required to obtain supplemental life insurance coverage over $300,000.
The Employee consistently paid her premiums for her supplemental life insurance until her death from cancer. After she died, the insurance company only paid her parents (the Employee’s beneficiaries), the guaranteed amount, and not the $600,000 the Employee thought she had obtained.
Seeking the remaining amount they believed they were owed, the Employee’s parents filed a lawsuit against the insurer and the Employer, which administered the plan. The parents argued that the Employer made material misrepresentations to their daughter with respect to her life insurance benefits when it led her to believe that she had the full amount of coverage that she had requested. The federal district court granted the plaintiff’s motion for summary judgment on the basis that the Employer breached its ERISA fiduciary duty to administer the group life-insurance policy in the sole interest of the employees and their beneficiaries.