In Erwood v. Life Ins. Co. of N. Am., Civil Action No. 14-1284, 2017 U.S. Dist. LEXIS 56348 (W.D. Pa. 2017), a Federal Judge ruled after a bench trial that WellStar Health System Inc., the plan administrator of a Group Life Insurance Program (“Plan”), breached its fiduciary duty “by misrepresenting and failing to adequately inform [plaintiff] of the need or the means to convert two group life insurance policies purchased by her now-deceased husband[.]”
Plaintiff initially asserted claims for benefits (under 29 U.S.C. § 1132(a)(1)(B)) against the Plan and Life Insurance Company of North America (“LINA”), and for breach of fiduciary duty (under 29 U.S.C. § 1132(a)(3)) against WellStar and LINA. The court granted summary judgment dismissing the benefits claim, but denied summary judgment on the fiduciary duty claim. Plaintiff and LINA subsequently settled, leaving WellStar the sole defendant for trial, with the sole claim of breach of fiduciary duty.
The Plaintiff is the widow of a neurosurgeon who was employed by WellStar. The Plaintiff’s husband purchased life insurance policies as part of the Plan. The Plaintiff’s husband was diagnosed with a malignant brain tumor, forcing him to take FMLA leave, which subsequently became an approved claim under WellStar’s long term disability (“LTD”) plan. While her husband was on disability, plaintiff told WellStar that she had questions about her husband’s benefits, and WellStar set up a meeting with a benefits representative familiar with the Plan. The Court found that WellStar repeatedly assured plaintiff and her husband that “all [of their] coverage [is] going to remain the same[.]” A subsequent mailing by WellStar disclosed that conversion of life insurance coverage would be necessary after 36 weeks of leave, but did not include forms or more information about conversion, or the date by which conversion was required. After plaintiff’s husband’s death, LINA denied her claim under the Plan on the ground that the coverage had lapsed.
The Court found that that LINA had provided an Administrative Services Manual to WellStar that explained the conversion process, and stated that WellStar was required to give notice of conversion rights. However, WellStar did not have a process for giving that notice, and did not give it to plaintiff or her husband.
The Court concluded that WellStar breached its fiduciary duty by failing to notify the Plaintiff and her husband of his right to convert his coverage under the Plan. The Court emphasized that once an ERISA beneficiary requests information from an ERISA fiduciary,
“the fiduciary has an obligation to convey complete and accurate information material to the beneficiary’s circumstance, even if that information comprises elements about which the beneficiary has not specifically inquired.”
WellStar’s failure to provide the information and necessary materials to convert the policy and prevent it from lapsing constituted a breach of WellStar’s fiduciary duty. The Court held that WellStar should be surcharged $750,000, the amount of coverage lost by their failure to convert.
This decision is a reminder for employers that they must understand the nuances of the Plan’s policies and procedures, and fully and accurately convey that information to participants and beneficiaries. Beyond those requirements, the outcome in this case demonstrates that benefits representatives must also provide information that the beneficiary may not have directly asked for but is nonetheless material to their status.