United States: Fourth Circuit Finds Insurer Not Liable For Employer's Mistake

Seyfarth Synopsis: The Fourth Circuit found in favor of an insurer on a claim for life insurance benefits, finding the insured's failure to submit the required evidence of insurability was not excused by his employer having wrongly deducted premiums for that coverage from his pay.

In Gordon v. CIGNA Corp., Plaintiff sought to represent a putative class of participants and beneficiaries who were deemed ineligible for additional life insurance benefits despite having paid premiums for the for the additional coverage, because they failed to submit the requisite evidence of insurability ("EOI").

Plaintiff, as her deceased husband's beneficiary, made a claim for supplemental life insurance benefits from the insurer and claims administrator, Life Insurance of North America ("LINA"). LINA denied the claim because the decedent never submitted the EOI required for supplemental coverage. Plaintiff claimed the employer and insurer 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.

The district court granted LINA's motion for summary judgment on the bases that LINA was not acting as a fiduciary with respect to enrollment for coverage, and there was no evidence it had knowledge of the employer's collection of a premium for the additional coverage. The court also rejected Plaintiff's argument that the motion was premature because she had not conducted discovery. On appeal, the Fourth Circuit affirmed the district court's opinion in full.

First, the court found the employer, and not LINA, was tasked with day-to-day administration of the plan, including billing and screening applications. Given this allocation of duties, LINA was not responsible for notifying the decedent of the EOI requirement, and therefore could not be liable for a breach of that duty.

Second, the court found that, even if breach of trust was a cause of action, Plaintiff's claim would still fail. The record lacked evidence that LINA had any knowledge of the employer's acceptance of premiums on behalf of the decedent for coverage above the guaranteed amount. To the contrary, the evidence showed that the employer remitted premiums to LINA as a lump-sum and did not provide employee names or associated coverage amounts.

Finally, the court rejected the argument that discovery was required before ruling on the motion. It noted Plaintiff had a reasonable opportunity to conduct discovery, also further found that the information sought would not have created a genuine issue of material fact given the clear allocation of fiduciary duties in the plan documents and, especially, the employer's concession that it erred in collecting premiums and failing to obtain EOI.

This case is positive for insurers and claims administrators, and stands in stark contrast to the Ninth Circuit's recent opinion in Salyers v. MetLife, 871 F.3d 934 (9th Cir. 2017) (finding employer acted as insurer's agent in collecting premiums, thereby imputing knowledge of premium collection to insurer). The finding that LINA did not owe a fiduciary duty to the decedent with respect to enrollment, as the plan did not vest it with that duty, will help insurers defend against similar cases where premiums paid to the employer exceed the actual level of coverage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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