Fiduciary Duties Include Communications (article)
A recent District Court decision reminds plan fiduciaries of the importance of communication. In the matter of Erwood v. Life Insurance Company of North America and Wellstar Health System, Inc. Group Life Insurance Program (No. 14-1284 (W.D. Penn. Apr. 13, 2017), an employee participated in his employer-sponsored benefit program, including coverage under a basic and supplement life insurance plan. Notably, while the life insurance benefit was provided by the insurer, the employer was designated to carry out the administrative tasks associated with the benefit, including providing notification of continuation and conversion rights upon employment termination.
The employee developed a terminal medical problem which required a leave of absence, a reduced work schedule, and eventually sought benefits under his employer’s insured long term disability plan. During his leave, the employer provided him with a packet of information relating to continuation of his medical and life insurance benefits; however, the packet lacked specific details such as materials relating to continuation and conversion of the life insurance benefit. Continuation and conversion rights were briefly mentioned in the summary plan description but failed to contain sufficient details on how to effectuate it. His benefits, then, terminated upon his death and as a result, the life insurance plan was not converted.
The Court concluded that the employer breached its fiduciary duty in the administration of the benefit and thus, required to pay $750,000, which represents the amount of life insurance benefit that would have been payable to the employee’s surviving spouse had conversion been effectuated, together with attorney fees, interest and costs associated with the lawsuit.
To avoid these kinds of mistakes, it is very important for the plan fiduciary to provide clear, accurate and complete information about all benefit rights. Often forgotten is the waiver of premium of aspects of many life insurance contracts.
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