Group Life Insurance Benefits Denial – Our Success Story
One of the most complicated aspects of employee benefits involves attempts by medically disabled employees to maintain employer-sponsored life insurance while on medical leave. Everything about this process is full of pitfalls. Sometimes, as this story demonstrates, an employee cannot safely rely on the benefits “experts” within the employer’s HR department to maintain life insurance during medical leave. The problem is especially acute when the employee has a terminal diagnosis.
If there is a lesson in this story, it is that employees should contact an attorney specializing in ERISA and employee benefits during the employee’s medical leave to make sure that they comply with all Plan technicalities need to maintain to life insurance coverage. The alternatives are either what our client suffered here – years of stress and uncertainty and the threat of recovering nothing – or worse, actually recovering nothing because of mistakes in procedural compliance.
The Complexities 0f Maintaining Life Insurance During Medical Leave – A Minefield for the Inexperienced
Many of our clients have substantial life insurance as part of their employee benefits package. Many employers offer automatic coverage at the level of the employee’s annual compensation. Most plans allow the employee to add “optional” coverage up to five times annual compensation.
The complexities arise when an employee takes medical leave. The stakes are especially high where the leave is based on a likely terminal illness.
The problem generally arises because most employer-sponsored life insurance plans state that coverage ceases when the employer stops being “actively employed,” i.e., at work full time. In other words, the terms of the coverage can cause the coverage to stop exactly when the employee is likely to need it most—when a terminal diagnosis also causes a medical disability. Cancer patients undergoing chemotherapy and/or surgeries are a classic example.
Group life insurance plans also typically contain a dizzying set of exceptions for maintaining coverage. Written in the densest of insurance-ese, these exceptions only apply only if the employee meets various technical definitions and deadlines, and otherwise jumps through a confusing set of hoops.
Not surprisingly, insurers will seize on any mistake by the employee in this process. If the employee does not comply with the strict policy procedures, the law of ERISA allows the insurer to declare the coverage terminated. The insurer thus avoids liability for life insurance benefits on a terminally ill employee. Insurers will not waive these rights to reinstate coverage. They are legally off the hook.
If the employee misunderstands the situation and misses a deadline, fails to fill out a necessary form, or otherwise drops the ball, the result is permanent loss of life insurance benefits.
This, of course, leaves the spouse and family without life insurance benefits that the employee might have been paying premiums on for years or even decades. But the governing law of ERISA allows precisely this tragic outcome. There are dozens of reported cases ending in this way.
If your life insurance coverage has been terminated unexpectedly, call us. As the below success story demonstrates, this is not always the end of the story.
Here, our client did everything right, but the insurer still denied her claim
Our client came to us as the widow of an executive who maintained $500,000 in employer-sponsored life insurance. He was diagnosed with terminal brain cancer, and soon thereafter took medical leave to undergo rigorous and disabling treatments. For the first few months into his leave, he also occasionally performed some work duties (as able) to aid in the management transition for the employer. Sadly, the husband died 15 months after leaving work.
During the husband/employee’s medical leave, his wife (our client) worked closely with the employer’s HR department and with the life insurer, Reliance Standard Life Insurance Company. She repeatedly made clear she wanted to do whatever it took to maintain the coverage during her husband’s medical leave. One can only imagine what a stressful and confusing time this was, dealing with all these unfamiliar insurance issues while caring for a terminally ill spouse.
This kind of situation arises regularly. Fortunately, the law says that people like our client have a legal right to accurate advice and information from the employer and the insurance company. Despite this duty, the chain of email communications between the parties demonstrated that no one – including the employer or the insurance company – had a clear understanding of the Plan’s complex language and procedures. After a lot of back and forth, our client was finally assured that the coverage was secure five months into her husband’s medical leave .
Then, when her husband died, Reliance Standard denied the claim, taking the position that the coverage had lapsed two months before his death. Again, one can only imagine the emotions our client felt at that time.
Two lawsuits later—finally a good outcome for our client
Over the next nine months, our client worked with two different law firms to try to overcome this denial. She first attempted an unsuccessful ERISA appeal with an attorney introduced by the employer. When that failed she retained a new lawyer to file a lawsuit against Reliance Standard. The second lawyer did not specialize in ERISA and was not aware that this federal law controlled the situation. Fortunately, when Reliance Standard raised ERISA as a defense and removed the matter to federal court, this attorney brought in Mr. Warncke’s team at Robinson Warncke.
After reviewing the Plan and hundreds of pages of internal and external emails and other correspondence, we realized that everyone involved – including two prior attorneys – had overlooked important provisions of the Plan that applied to this situation. Specifically, the Plan extends coverage for a longer duration where the employee goes out on an approved FMLA leave. Here, it was undisputed that the husband/employee had gone out on the maximum 12 weeks of approved FMLA leave, clearly extending his coverage through his date of death.
We drafted an amended federal complaint raising these issues. We were quickly invited by Reliance Standard to make a settlement demand. The case against Reliance Standard quickly settled on terms acceptable to our client, albeit more than a year after the claim should have been paid in the first place.
Our client was still not “made whole,” however. She had incurred significant attorney’s fees to get to this point (not to mention the stress and uncertainty she suffered for a year after her husband’s death). Here, it was our contention that the employer was partly to blame for the confusion. The employer had made numerous errors in attempting to assist the widow in keeping the coverage in force. It provided false and misleading facts (such as, importantly, the employee’s last date of active work) to Reliance Standard that derailed the claim.
Under ERISA, an employer is a “fiduciary” charged with duties to understand its own plan and to provide accurate information and assistance to an employee attempting to secure life insurance coverage. In our view the employer had violated this duty. In fact, Reliance Standard’s denial letters explicitly cited the misinformation provided by the employer as its reason for denying the claim and appeal.
Thus, in the client settlement with Reliance Standard we “carved out” our client’s claim against the employer for breach of fiduciary duty so we could then pursue that remedy. Eventually we also sued the employer in federal court. Mr. Warncke and Mr. Mitchell overcame a motion to dismiss filed be the employer, resulting in a judicial order confirming our client’s right to maintain the follow-up lawsuit.
After a substantial amount of work, this led to a second confidential settlement some 18 months after the husband passed away.
We are proud of the outcome we achieved for our client. The attorneys at Robinson Warncke found a solution to an unusually complex problem where two other law firms had failed to do so. However, we would have much rather been retain during the employee’s medical leave to ensure compliance with the Plan’s procedures for maintaining coverage. This could have been done at a much lower cost to the client, and benefits would have been paid without dispute.
