October 17, 2016

Fiduciary Duty Beware (article)

A recent court decision highlights the importance of proper and accurate plan administration. In the case of Van Loo v. Cajun Operating Co. dba Church's Chicken, No. 14-10604 (E.D. Mich June 6, 2016), the District Court determined that the employer breached its fiduciary duty by failing to properly administer a life insurance benefit. 


As background, the employer sponsored a group benefit program that included a group term life benefit and an optional supplement life coverage for its employees.  While the insured group term life benefit required no separate election, the optional supplemental benefit required a specific election and payroll authorization by the employee.  In addition, to effectuate the supplemental coverage, an employee was required to submit an evidence of insurability (EIF) form to the insurer.  While the employer continued collecting premium for the supplement benefit over a five year period until the employee’s death, the employer, acting as plan administrator, failed to provide the EIF form to the employee to complete and submit to the insurer. 


Following the employee’s death, the insurer duly paid the group term life benefit in accordance with the insurance contract but because it never received the EIF form, the insurer didn’t pay the supplemental life benefit.   The District Court opined that the employer failed in its fiduciary duty to provide accurate and timely documentation and ordered the employer to pay $314,000.  This amount reflects the difference between the group term life benefit paid by the insurer and the supplemental life benefit owed to the deceased employee’s beneficiaries in accordance with the supplement policy.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.    

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