Insurers not Liable for Employer’s Failure to Notify Employees of Insurance Provisions

Jul 25, 2018

The employer, not the insurance carrier, has a duty to notify insured to file evidence of insurability.

An article by Chris Busey, Tom Hora, and Sam Schwartz-Fenwick in  ERISA & Employee Benefits Litigation Blog discusses the Fourth Circuit ruling that an insurance carrier does not have a duty to provide coverage to an insured who failed to file evidence of insurability (EOI) as required by a supplemental insurance policy even though the employer “wrongly deducted premiums from his pay.” Gordon v. CIGNA Corp. No. 17-1188 (4th Cir. 2018)

The widow of an employee whose company had deducted premiums from his paychecks for supplemental life insurance coverage was denied coverage by Life Insurance of North America (LINA) “because the decedent never submitted the EOI required for supplemental coverage.”

She filed suit against the employer, and the insurance carrier, claiming they “breached their fiduciary duties by failing to notify the insured of the EOI requirement while continuing to accept premiums for that coverage. Plaintiff also alleged that, if any defendant was not a fiduciary under the plan, it was liable for knowingly participating in a breach of trust.”

LINA filed a motion for summary judgment arguing it was unaware the employer was deducting premium payments and that there was no way for them to have been aware of the premium deductions for the deceased because his employer made lump sum payments to LINA that did not indicate the individuals for whom the payments were made.

The district court granted the motion and the Fourth Circuit confirmed its ruling. The Court ruled that the employer, who was responsible for the “day-to-day administration of the plan, including billing and screening applications,” was responsible for “notifying the decedent of the EOI requirement,” not the insurer.

“This case,” according to the authors, “is positive for insurers and claims administrators, and stands in stark contrast to the Ninth Circuit’s recent opinion in Salyers v. MetLife, 871 F3d 934 (9th Cir. 2017) (finding employer acted as insurer’s agent in collecting premiums, thereby imputing knowledge of premium collection to insurer).”

Source—

Fourth Circuit Finds Insurer Not Liable For Employer’s Mistake, Chris Busey, Tom Horan and Sam Schwartz-Fenwick, ERISA & Employee Benefits Litigation Blog, June 20, 2018.