Outten & Golden: Empowering Employees in the Workplace

Archive for the ‘ERISA’ Category

How to Handle a Group Life Insurance Claim Denial

Wednesday, June 3rd, 2015

Tatiana KadetMany employees receive life insurance coverage as part of their employee benefits. A group life insurance has many advantages over private life insurance policies.

First, group life insurance coverage is usually offered at low prices and is available not only to employees, but also to their qualified dependents.

Second, the employee does not have to keep track of monthly premium payments as the employer withdraws life insurance premiums from the employee’s paycheck and transfers them to the insurer regularly. This protects the employee from a possible missed payment which could result in a policy lapse.

Finally, the employer’s human resource department acts as a liaison between the employee and the insurer, so if there are questions or changes, the employee can simply turn to the employer for help.

What leads to denied life insurance claims?

Ideally, the employee should be given accurate information about his life insurance benefits and any changes in the employee’s status should be handled promptly and efficiently.

Unfortunately, it’s not uncommon both for insurance companies and employers to make mistakes regarding life insurance benefits, provide wrong information, fail to update records and fail to maintain or forward documents to the appropriate department.

These practices often lead to a denied life insurance claim when the employee or his dependent dies.

When a group life insurance claim is denied, the beneficiary may find himself struggling with paying funeral expenses and other financial obligations associated with the death of a loved one.

A family who loses the only breadwinner and receives a denial letter from the life insurance company may feel despair. However, beneficiaries whose life insurance claims have been denied are not left without recourse.

Every unfair life insurance claim denial can be disputed and appealed.

A better Understanding of ERISA

Most group life insurance polices are controlled by ERISA (“The Employee Retirement Income Security Act of 1974”). ERISA provides a wide range of protections for employees and their families.

One of the main purposes of ERISA is to protect the interests of participants and beneficiaries by establishing standards of conduct, responsibility, and obligation for fiduciaries (usually employers and insurance companies) and provide for appropriate remedies and ready access to federal courts.

ERISA imposes high standards of fiduciary duty upon administrators of an ERISA plan. ERISA’s fiduciary duty encompasses three components:

  1. The first is a duty of loyalty which requires that all decisions regarding an ERISA plan must be made with an eye single to the interests of the participants and beneficiaries;
  2. ERISA imposes a prudent person fiduciary obligation, which is codified in the requirement that a plan fiduciary exercise his duties with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims.
  3. ERISA requires that a fiduciary act for the exclusive purpose of providing benefits to plan beneficiaries.

In addition, ERISA entitles employees to free access to all the documents pertaining to their life insurance policies. This means that upon the employee’s request, the employer and/or the insurer must provide a copy of the life insurance policy, proof of premium payments and all relevant documents.

There can be many ways in which the insurance company and the employer breach their fiduciary duties.

How to recognize unfair life insurance claim denial

Below is a list of some practices that may result in an unfair life insurance claim denial:

  1. Employer failed to update its employment records after an employee became part-time, disabled, was terminated, etc.;
  2. Insurance company continued to charge premiums after it had received an employee’s waiver of premium application;
  3. Insurance company extended coverage without requesting evidence of insurability and later claimed that no coverage should have been issued;
  4. Employer or insurance company made material misrepresentations about coverage;
  5. Employer and insurance company failed to inform an employee about his rights to convert or port coverage;
  6. Employer failed to provide a copy of the life insurance policy to its employees;
  7. Employer failed to advise an employee that his/her dependent is not considered a qualified dependent under the policy and collected premiums for the dependent coverage.

ERISA allows beneficiaries whose claims have been denied to file an administrative appeal and request reconsideration. Since ERISA imposes strict deadlines and other restrictions during the appeal process, we encourage all employees and their families to consult a life insurance attorney before considering filing an administrative appeal.

 

About the Author: The author’s name is Tatiana Kadetskaya. Tatiana Kadetskaya runs a Law Firm devoted to the practice of life insurance law, experienced in all aspects of life insurance law, including ERISA claim denials and claims against insurance companies and employers.

U.S. Supreme Court Accepts Cert in Dudenhoeffer ERISA Moench Presumption of Prudence Case

Friday, January 3rd, 2014

Paul SecundaToday, the United States Supreme Court granted certiorari in a case where the 6th Circuit found that a company may have breached its fiduciary duties under ERISA by continuing to offer company stock as a retirement plan investment option even after the value of the stock plunged.

The case is Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (don’t ERISA cases have the best names?) and here is the decision below in the 6th Circuit.  SCOTUSBlog says the case is likely to be heard in March.  The Solicitor General had urged the Court to hear the case.

The issue is whether courts should apply a presumption of prudence or reasonableness (sometimes called the Moench presumption based on a similar case by that name in another circuit court) when a company,  like Fifth Third, decides to retain investments in its own securities for its ESOP (employee stock ownership plan) when the stock’s price dropped 74 percent because of the company’s involvement in subprime mortgage lending.  The employees in the retirement plan claim they were never alerted to the company’s new riskier investment course.

Participants in Fifth Third’s ESOP filed an ERISA class action, asserting that the company’s actions  violated their fiduciary responsibilities to plan participants and beneficiaries by imprudently investing in company stock.  Initially, the U.S. District Court for the Southern District of Ohio had determined that Fifth Third did not violate ERISA because plan fiduciaries are entitled to a “presumption of prudence” permitting investment in their own stock and the plaintiffs had not overcome that presumption by showing that the company had plausibly abused their discretion in investing the ESOP money in the company stock.

The participants appealed to the 6th Circuit, supported by an amicus brief by the Department of Labor (DOL).  The DOL maintains that the presumption of prudence should not apply and that plaintiffs had plausibly alleged a breach of fiduciary duty.  The 6th Circuit agreed, at least as far as holding that the presumption should not be applied at the pleading stage of the lawsuit.

The 6th Circuit also held that Fifth Third acted as an ERISA fiduciary when it incorporated its Securities and Exchange Commission (SEC) filings into the ESOP’s plan documents. The Court did not take cert. on a challenge to this finding.

The case law had been trending in favor of the presumption of prudence in these stock-drop cases in recent years, with the Sixth Circuit being a notable exception. It is always hard to predict where the Court will come out on ERISA fiduciary cases, but given that the Court granted cert. on the question as presented by the company (and did not re-write the question as requested by the Solicitor General), we may gain some insight. The question presented is:

Whether the Sixth Circuit erred by holding that respondents were not required to plausibly allege in their complaint that the fiduciaries of an employee stock ownership plan abused their discretion by remaining invested in employer stock, in order to overcome the presumption that their decision to invest in employer stock was reasonable, as required by the Employee Retirement Income Security Act of 1974 . . . and every other circuit to address the issue.

Phrasing the question presented in such a leading manner suggests only one possible reasonable answer upholding the presumption of prudence in ERISA stock drop cases.  But we shall see.

This article was originally printed on Workplace Prof Blogs on December 16, 2013.  Reprinted with permission.

About the Author: Paul Secunda is a professor of law at Marquette University Law School.  Professor Secunda is the author of nearly three dozen books, treatises, articles, and shorter writings. He co-authored the treatise Understanding Employment Law and the case book Global Issues in Employee Benefits Law.  Professor Secunda is a frequent commentator on labor and employment law issues in the national media.  He co-edits with Rick Bales and Jeffrey Hirsch the Workplace Prof Blog, recently named one of the top law professor blogs in the country.

Unanimous Supreme Court in Heimeshoff Permits Contractually-Based SOLs in ERISA Denial of Benefit Cases

Saturday, December 21st, 2013

Paul SecundaThis morning, the United States Supreme Court issued its decision in  Heimeshoff v. Hartford Life & Accidental Life Ins. Co., concerning statute of limitation accrual issues for benefit claims under Section 502(a)(1)(B) of ERISA.

The Court unanimously held that Hartford’s Long Term Disability Plan’s requirement that any suit to recover benefits be filed within three years after “proof of loss” is due is enforceable.  More specifically, “[a]bsent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limita­tions period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.”  Causes of action for benfit under ERISA do not start to accrue until a final internal appeal decision.  Because Heimeshoff failed to file a claim for long-term disability ben­efits with Hartford within the contractual SOL period, the Court concluded her claim was rightfully denied by Hartford.

While ERISA does not provide a statute of limitations for denial of benefit claims, many plan administrator have in place a contractual 3-year limitations period like Hartford’s.  Writing for the unanimous Court, Justice Thomas held the Plan’s limitations provision enforceable under the rule set forth in Order of United Commercial Travelers of America v. Wolfe, 331 U. S. 586, 608, which provides that a contractual limi­tations provision is enforceable so long as the limitations period is of reasonable length and there is no controlling statute to the contrary.  This conclusion was especially supported, according to the Court, by the ERISA principle that contractual limitations should be enforced as written under ERISA’s written plan rule.

There may still be limitations in place in the future to finding these contractual SOLs valid.  If the limitations period is unreasonably short or if there is a controlling statute to the contrary, the Plan’s limitations provision can be overridden. Moreover, the Court held that courts are well equipped to apply traditional doctrines, such as waiver or estoppel and equitable tolling that nevertheless may allow partic­ipants to proceed on stale claims. However, consider in this regard Heimseshoff in light of U.S. Airways vs. McCutcheon. 

Although Heimeshoff says traditional equitable doctrines may circumscribe application of statutes of limitations to protect participants, McCutcheon said plans can include terms that explicitly preclude application of traditional equitable doctrines.  So does this mean that employers will quickly amend their plans to preclude application of equitable doctrines? It very well could be the case.

Here, in any event, the period was not unreasonably short and, in fact, most internal benefit appeals are completed within one year so that there should be sufficient time for most ERISA plaintiffs to bring their suit in a timely manner.  Even Justice Ginsburg remarked in oral argument that there might have been essentially legal malpractice in this case in that Heimeshoff’s attorney may have failed to diligently pursue her claim (she had about a year to file her case even after her internal appeal had been finally denied).

Although this decision may not be that important in the long-run as there is not much evidence that plan administrators have used these SOLs to prevent participants to bring claims, the one part of the decision that seemed fanciful to me was this idea that plan participants and beneficiaries “agree” with their plans to these SOLs.  The Court said this with regard to this critical aspect of the case: “the parties have agreed by contract to commence the limitations period at a particular time.”

As I wrote previously when oral argument occurred in this case in October, benefit plans are classic contracts of adhesion with usually no bargaining between the parties taking place.  It is legal fiction to say that most participants consented to this provision.  Nevertheless, it is hard to argue, under the circumstances, that this unilateral term is unreasonable, as long as equitable principles and regulations exist to prevent plan administrators from gaming the system to prevent judicial review of claims decisions. Whether such equitable principles will continue to exist, however, post-Heimeshoff and McCuthcheon is anyone’s guess but I am skeptical.

Somwhat called this case. Here is what I wrote in October: “I fear this pro-employer/pro-plan sponsor court will adopt the written plan requirement rule and permit the plan sponsor to unilaterally set in the plan document an accrual date and a length for the statute of limitations.”

This article was originally printed on Workplace Prof Blog on December 16, 2013.  Reprinted with permission.

About the Author: Paul Secunda is a professor of law at Marquette University Law School.  Professor Secunda is the author of nearly three dozen books, treatises, articles, and shorter writings. He co-authored the treatise Understanding Employment Law and the case book Global Issues in Employee Benefits Law.  Professor Secunda is a frequent commentator on labor and employment law issues in the national media.  He co-edits with Rick Bales and Jeffrey Hirsch the Workplace Prof Blog, recently named one of the top law professor blogs in the country.

4th Cir: "Proof Satisfactory to the Administrator" = De Novo Review of Benefit Claims

Monday, December 2nd, 2013

Paul SecundaThanks to friend of the blog, Jon Harkavy, for sending along this potentially important ERISA denial of benefit claim case from the 4th Circuit.

In Cosey v Prudential, (4th Cir. Nov. 12, 2013), the Fourth Circuit held that the common plan formulation “proof satisfactory to the administrator” does not unambiguously confer discretion on the administrator and thus subjects the administrator’s decisions to de novo judicial review (as opposed to arbitrary and capricious review under the Firestone/Glenn standard).

Like Jon, I find this decision interesting, as it has the potential to cut back on the abuse-of-discretion standard of review for many ERISA plans.  However, I suspect that in response to this Court’s decision, we are likely to see many plan amendments adding language which more unambiguously states the plan’s intention to get the benefit ofFirestone discretionary review for its benefit determination decisions.

This article was originally printed in Workplace Prof Blog on November 18, 2013.  Reprinted with permission.

About the Author: Paul Secunda is a professor of law at Marquette University Law School.  Professor Secunda is the author of nearly three dozen books, treatises, articles, and shorter writings. He co-authored the treatise Understanding Employment Law and the case book Global Issues in Employee Benefits Law.  Professor Secunda is a frequent commentator on labor and employment law issues in the national media.  He co-edits with Rick Bales and Jeffrey Hirsch the Workplace Prof Blog, recently named one of the top law professor blogs in the country.

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