Every month, the International Foundation releases the Legal and Legislative Reporter, a compilation of new employee benefits-related case summaries. Below is a summary we thought you’d be interested in. Content provided by Morgan, Lewis & Bockius LLP.
The U.S. District Court for the Northern District of Indiana grants in part and denies in part the defendant employer’s motion to dismiss because some of the plaintiff’s claims regarding a life insurance conversion process are plausible.
The plaintiff is a widow whose deceased husband was a participant in an employee benefits plan sponsored by his employer and administered by an insurance company. The defendants include the plaintiff’s husband’s employer and the insurance company that administered the life insurance benefits under the plan. The plan is governed by the Employee Retirement Income Security Act of 1974 (ERISA).
The plaintiff’s husband was enrolled in a group life insurance policy under the plan. The plan documents provide that participants can elect to convert group life insurance coverage to an individual life policy if their employment is terminated. The plan documents direct participants to ask the defendant employer for a conversion application form and then submit it to the defendant insurance company with a check for the first premium.
After the plaintiff’s husband was diagnosed with a malignant brain tumor and placed on long-term disability (LTD), the defendant insurance company sent him a letter informing him that his policy was expiring and that he could convert the policy to a whole life insurance policy within 90 days of the end of his group life coverage. The plaintiff’s husband did not receive the letter because he was hospitalized. However, he later contacted the defendant employer to ask about his life insurance. The defendant employer gave him two different deadlines, one of which had expired, by which he had to convert his insurance to an individual policy by contacting the defendant insurance company. The plaintiff’s husband never contacted the defendant insurance company and died. When the plaintiff tried to collect the death benefit, she learned that the conversion process had never been completed.
The plaintiff alleges that the defendant employer breached its duty as an ERISA fiduciary by providing misleading information to her husband regarding the portability of the life insurance policy under the plan and improper information about the election form, as well as failing to complete and submit his election form to port the life insurance policy. Specifically, the plaintiff argues that the defendant employer gave her husband misleading and contradictory information as to whether a deadline to initiate the conversion process had expired. In addition, the plaintiff argues that the defendant employer had a duty to initiate the conversion process with the defendant third-party administrator on her husband’s behalf and that the conversion process was confusing and unreasonable.
The defendant employer argues that the plaintiff’s claims should be dismissed because the defendant did not breach its fiduciary duties and the plaintiff did not suffer any harm. The defendant employer points to precedent case law that although it has a duty under ERISA to provide accurate information, negligence in fulfilling that duty is not actionable. Under the precedent, an employer must set out to disadvantage or deceive its employees for a breach of fiduciary duty to be made out. Because the plaintiff alleges that the misstatement resulted from confusion as to the mechanics of the conversion process, the defendant employer argues that the required intent is missing. The plaintiff counters that precedent case law does not hold that an intent to deceive was required for a breach of fiduciary duty claim. Instead, evidence that the fiduciaries intended to mislead the participants can establish a violation of the duty of loyalty.
The court disagrees with the plaintiff’s interpretation of precedent case law. Although a breach of fiduciary duty claim premised on a misstatement requires an intent to deceive, the plaintiff does not allege an intent to deceive. Instead, the plaintiff alleges a negligent misstatement, which is not actionable under ERISA because a plan fiduciary does not breach its fiduciary duties under ERISA by merely providing negligent misinformation about the contours of a plan.
Next, the plaintiff alleges that the defendant employer had an affirmative duty to take a more active role in the conversion process. The plaintiff argues that the defendant employer knew that the plaintiff’s husband had serious health problems and, therefore, was unlikely to initiate the conversion process on his own. Because the plaintiff’s husband called the defendant employer, it also knew that he wanted to convert the policy.
In considering this argument, the court finds that a review of plan documents is vital when determining whether a breach of fiduciary duty occurs under ERISA. If plan documents are clear and the fiduciary oversees its agents’ advice to the participants, the fiduciary is not held liable if a ministerial, non-fiduciary agent gives incomplete or mistaken advice to a participant. However, if a fiduciary supplies the insureds with plan documents that are silent or ambiguous on a recurring topic, the fiduciary may be liable for the mistakes that plan representatives might make in answering questions on that subject.
The court finds that the plan documents show not just ambiguity, but also conflict on how a participant obtains a conversion application. The plan’s summary plan description directed the plaintiff’s husband to contact the defendant employer to obtain the conversion application. But when he did so, the defendant employer told him to contact the defendant insurance company. The court finds that at this stage it is impossible to conclude which set of instructions was correct; therefore, it does not dismiss this claim.
Further, the court disagrees with the defendant employer’s response that ERISA does not require plan administrators to investigate each participant’s circumstances and prepare advisory opinions for each participant. The issue here is not the defendant employer’s lack of investigation but that the defendant employer and the defendant insurance company gave the plaintiff’s husband conflicting information. Consequently, at the pleading stage, the court cannot say that the plaintiff has no cause of action when the plaintiff’s husband did what the plan documents told him to do.
Finally, the defendant employer argues that its conduct did not cause the plaintiff’s damages because the plaintiff’s husband never followed directions to contact the defendant insurance company. The defendant employer relies on precedent case law where a plan participant failed to show a breach of fiduciary duty when he was mistakenly assured that he was automatically covered under his employer’s health insurance plan when the plan documents made it clear that he was not. Because of the clear plan document language, there was no duty to emphasize something that had already been clearly communicated. However, the court finds that the cited case law is distinguishable because the plan is not clear when compared to the information provided to the plaintiff’s husband by the defendant employer and the defendant insurance company. Consequently, the court finds that if the defendant employer’s failure to provide the conversion application was a breach, then the plaintiff’s inability to obtain the death benefit was proximately caused by that breach.
Accordingly, the court finds that some of the plaintiff’s claims are plausible, so the court grants in part and denies in part the defendant employer’s motion to dismiss.
Burkett v. The Heritage Corp., et al., No. 1:22-CV-00405-HAB-SLC (N.D. Ind., July 18, 2023).