Many employers permit insurance companies to make available to their employees voluntary insurance arrangements, such as supplemental disability or cancer policies. In many instances, employers are unaware if these arrangements are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and its attendant fiduciary and reporting and disclosure requirements. Recently, the United States District Court for the District of New Jersey issued a decision in the case of McCann v. UNUM Provident, et al., in which it found that a group discount on premiums under a supplemental long-term disability ("LTD") policy (the "Policy") was sufficient to hold that the Policy is subject to ERISA.
Plaintiff Kevin McCann purchased the Policy from defendant
Provident Life and Accident Insurance Company
("Provident") as part of the Residents' Supplemental
Disability Insurance Plan ("RSDP") during a two year
fellowship at the Henry Ford Hospital (the "Hospital").
Although McCann paid all the premiums, he received a fifteen
percent group premium discount under the Policy as a result of his
association with the RSDP and the Hospital.
In 2007 McCann was deemed "totally disabled" and began
receiving LTD benefit payments. McCann's payments ceased in
2009 after Provident determined he was no longer disabled. Shortly
thereafter, McCann appealed Provident's determination, and
following Provident's denial of his appeal, filed a breach of
contract claim alleging, among other things, that ERISA did not
apply. Provident filed a summary judgment motion arguing, in part,
that McCann's complaint is governed by ERISA.
In general, a disability insurance policy is covered by ERISA if
it is it is obtained through a plan, fund, or program that is
established or maintained by an employer for the purpose of
providing benefits to its participants or beneficiaries (emphasis
supplied). An employer will not be considered to have established
or maintained an ERISA plan if, among other things, no
contributions are made by an employer or employee organization. The
McCann court determined that the premium discount
constituted an employer contribution and, therefore, the Policy was
within ERISA's jurisdiction.
Because ERISA limits damages insurers must pay if they lose a
lawsuit it is quite common for them to claim that ERISA applies if
they are subsequently sued by the insured. However, employers
considering making available voluntary insurance arrangements
should make their own independent determination at the outset so
that they can properly assess their fiduciary liability and put in
place adequate procedures for complying with ERISA's reporting
and disclosure requirements.
Originally published on the Employer's Law Blog
www.daypitney.comThe content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.