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In some instances, ERISA plan participants may be able to “continue” or “convert” their employer-sponsored long-term disability, life, medical or other insurance policy even after they no longer work for their employer. This ability to convert to an individual policy arises from the language in some policies, which may allow ERISA plan participants to either continue or convert a group policy even after their employment has been terminated. For example, in Alexander v. Provident Life & Acc. Ins. Co., 663 F.Supp.2d 627 (E.D. Tenn. 2009), the ERISA-governed long-term disability policy provided for continued coverage for a certain period of time, regardless of employment. In this case, the plaintiff elected to continue coverage and so, even though he was no longer considered an employee, he was still covered by the employer-sponsored disability policy. In other cases, the employer-sponsored plan does not continue, but “converts,” at which point ERISA plan participants may still be eligible for coverage, but will be individually responsible for the premiums (thus “converting” the policy from a group policy to an individual policy). For our recent blog on when ERISA applies to such continued or converted policies, see https://mslawllp.com/when-does-erisa-apply-to-a-continued-or-converted-group-insurance-policy/.
In this article, we address a plan administrator’s fiduciary duty to adequately inform the employee of the ability to convert a long-term disability, life or other insurance policy. In a recent opinion from the United States District Court for the Western District of Pennsylvania, Erwood v. Life Ins. Co. of N. Am., Civ. 2017 WL 1383922 (W.D. Pa. 2017), Plaintiff Patricia Erwood sought to recover losses and damages related to two group life insurance policies purchased by her late husband, Dr. Scott Erwood. Mrs. Erwood brought suit against Defendant WellStar Health System, Inc. and Group Life Insurance Program (collectively, “WellStar”) alleging that they breached a fiduciary duty to her when they failed to adequately inform her of the need to convert two group life insurance policies as part of an ERISA benefit plan. Ultimately, Magistrate Judge Maureen P. Kelly ruled in Mrs. Erwood’s favor and required WellStar provide $750,000 to Mrs. Erwood for the lost coverage.
Prior to his death, Dr. Erwood worked as a neurosurgeon at WellStar. As a WellStar employee, he participated in the employer-offered benefit plans, which included basic and supplemental life insurance. Under his employer-sponsored policies, Dr. Erwood had a total of $1,000,000 in life insurance coverage.
Tragedy struck Dr. Erwood in late 2011, when he suffered a seizure, later determined to be the result of a malignant brain tumor. At this point, Dr. Erwood went on leave from work and remained on leave until September 4, 2012. After exhausting his leave, WellStar informed him that unless he returned to work, he would be considered separated from employment. WellStar mailed Dr. Erwood a Family Medical Leave Act (“FMLA”) leave packet, which gave him limited information regarding the continuation or conversion of his life insurance policy. WellStar did not provide notice or otherwise inform the Erwoods of the need to convert the policies. WellStar also did not provide the forms necessary to convert the policies, despite express instruction to do so in the manual on plan administration. As a result, the life insurance policies lapsed shortly before Dr. Erwood succumbed to his illness. Mrs. Erwood learned of this lapse upon her application for death benefits, which WellStar rejected.
In a strong opinion for ERISA plan participants outlining the importance of the fiduciary’s role in administering an ERISA-governed plan, the court found WellStar’s failure to communicate the information necessary to actually convert Dr. Erwood’s life insurance policies to be a misrepresentation and failure to adequately inform in violation of its fiduciary duty to act “solely in the interest of the participants and beneficiaries and— (A) for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries….” under ERISA § 404, 29 U.S.C. Section 1104(a)(1). The court found that by “executing the Application for Group Insurance and the Appointment of Fiduciary form, WellStar expressly undertook the fiduciary duty to administer the Plan and to provide notice to employees of their right to convert the group life insurance.” The court continued, finding WellStar acted in a fiduciary capacity in the administration of the relevant life insurance policies for the Erwoods and, in particular, in the explanation of those benefits. In sum, the court found that WellStar’s conduct violated ERISA and ruled in favor of Mrs. Erwood for what would have been the remaining amount owed on the life insurance policies, awarding her the sum of $750,000. In doing so, the Court acknowledged the important fiduciary role that employers play as plan administrators in ERISA-governed plans, including providing adequate information regarding an employee’s ability to convert a policy after termination of employment.