Sometimes employers offer their employees the opportunity to purchase additional insurance coverage for the employees themselves and for their dependents as part of an employee benefit plan.  In such cases, the employer often functions as a plan administrator and as the agent of the insurance company issuing the policy.  To attempt to insulate themselves from legal liability, insurers often insert “non-waiver” provisions relating to the agency status of the employers to whom they sell life, health and disability insurance coverage.

Cho v. First Reliance Standard Life Insurance Co., 2021 WL 2885855 (9th Cir. 2021)  involved an employee who purchased additional life insurance coverage in the amount of $500,000 for her dependent spouse through her employer, Giorgio Armani Corporation.  Ms. Cho signed up for the coverage and paid premiums for it for more than a year when Ms. Cho’s dependent spouse died.  First Reliance denied the claim based on the policy provision that clearly provided that the insured submit “proof of good health” for the coverage.  Ms. Cho was forced to file suit against First Reliance in order to get the benefits of the insurance she had purchased and paid for.  She claimed that First Reliance had waived its right to enforce the requirement for “proof of good health” because its behavior was “so inconsistent with an intent to enforce” it.  The district court agreed and awarded her the full $500,000 policy benefit.

First Reliance appealed to the Ninth Circuit Court of Appeals.  It contended that a “non-waiver” clause in the policy immunized it from liability and distinguished the case from the Ninth Circuit’s decision in Salyers v. Metropolitan Life Insurance Co., 871 F.3d 934, 940 (9th Cir. 2017), which the court commented was very similar on the facts.  First Reliance claimed that it was not responsible for the acts and omissions of the plan administrator even though the plan administrator handled “nearly all the administrative responsibilities” of the plan.  The Ninth Circuit easily found that the plan administrator was the agent of First Reliance, and, therefore, First Reliance was liable for the plan administrator’s conduct:

Cho is entitled to the benefits for which she paid. Because the plan was self-administered and Armani handled “nearly all the administrative responsibilities,” its “direct interaction with plan participants” would have suggested it was acting with “apparent authority on the collection of evidence of insurability.” See Salyers, 871 F.3d at 940–41 (citation and internal quotation marks omitted). For over a year Armani accepted Cho’s premiums without any submission of evidence of insurability though it “knew or should have known” the terms of the plan required such evidence. See id. at 941. Armani’s actions were “so inconsistent with an intent to enforce” the requirement that it was reasonable for Cho to believe she was not required to submit such evidence. See id. (citation and internal quotation marks omitted).

Cho, supra, 2021 WL 2885855, at *1.

This was an easy case – Armani “knew or should have known” that the terms of the plan required submission of proof of good health, and “Armani’s actions were ‘so inconsistent with an intent to enforce’ the requirement that it was reasonable for Cho to believe she was not required to submit such evidence.”

The Ninth Circuit did not enforce the non-waiver clause because “[a]llowing insurers like First Reliance essentially to vitiate Salyers and the good behaviors it seeks to promote by including one sentence in their plans would be unfair and unjust.”

Insurance companies can always be counted upon to do what they can to try to avoid liability through the use of self-serving provisions like the non-waiver clause at issue in Cho.  However, they are still subject to principles of equity and fairness – they cannot “contract their way out” of liability for the substantial gross negligence of themselves or their agents.

If you have been unfairly denied insurance coverage based on mistakes made by insurance companies or their agents, McKennon Law Group, PC may be able to help you.  We specialize in handling ERISA cases like this one and obtaining the maximum policy benefits, holding insurers responsible for the coverage they agreed to provide.