Illinois ERISA Lawyer Blog

Employees in Chicago, and all over Illinois, are starting to become more aware of a state law ban on discretionary clauses in various insurance policies that fund their employee benefit plans, such as long-term disability, health insurance, and life and accidental death insurance. In 2005, the Illinois Department of Insurance enacted 50 Ill. Adm. Code § 2001.3, which bans insurers offering or issuing long term disability, health, or life or accidental death insurance policies in Illinois from having a discretionary clause in any "policy, contract, certificate, endorsement, rider application or agreement". However, this regulation only applies to insurance policies issued or offered in Illinois. If you work in Illinois, how do you know then whether you have protection from this ban on discretionary clauses?

The answer is not as simple as one might expect. Where an insurance policy is issued or offered can be a tricky question to answer. It may involve looking at the face of the policy, and where the policy said it was executed. Where is the employer's headquarters? Recently in a case in Michigan, the employee (or plan participant) argued that the Michigan ban on discretionary clauses should apply because the insurance policy benefited Michigan employees. See Foorman v. Liberty Life Assurance Co. of Boston, No. 12-927 (W.D. Mich. May 3, 2013). The court rejected this argument because the employer, Comcast, was headquartered in Philadelphia, Pennsylvania. Also, the insurance policy expressly stated it was issued in Pennsylvania, and governed by that state's laws. Pennsylvania has no similar ban on discretionary clauses.

On the other hand, a Chicago court has reached a slightly different conclusion in Curtis v. Hartford Life & Accident. Insurance. Co., No. 11 C 2448 (N.D. Ill. Jan. 18, 2012). There, Children's Memorial Hospital, based in Illinois, subscribed to a trust based in Delaware, that pooled employers to buy an insurance policy issued in Delaware, which has no ban on discretionary clauses. However, Children's Memorial paid the premiums to Hartford, and Hartford was not obligated to accept any employer subscribed to the trust. The Chicago court held that to not apply the ban on discretionary clauses in these circumstances would promote "form over substance."

If you have a claim for long term disability, health, or life insurance benefits, call an experienced ERISA attorney who knows how to determine whether your benefit plan will include an enforceable discretionary clause.

Chicago area employees with coverage under an employer-sponsored long-term disability insurance plan, health insurance plan, or life or accidental death insurance plan often do not know or think about how a standard of review affects their rights until after they have submitted a claim. It dramatically can affect how the insurer handles the claim, and the outcome in any litigation if the insurer upholds its denial of a claim. Although Illinois has enacted a regulation banning insurers of these types of plans from having discretionary authority to make benefit determinations or to interpret the terms of the plan, insurers are persisting in trying to find loopholes in the regulation, or a way around it. Most active in this endeavor appears to be Cigna, appearing in litigation under its subsidiary's name, Life Insurance Company of North America.

In 2005, the Illinois Department of Insurance enacted 50 Ill. Adm. Code § 2001.3, which bans insurers offering or issuing long term disability, health, or life or accidental death insurance policies in Illinois from having a discretionary clause in any "policy, contract, certificate, endorsement, rider application or agreement". Long ago, courts determined that this regulation was not preempted by the Employee Retirement Income Security Act of 1974 ("ERISA") in cases where the insurance policies themselves continued to contain such clauses. The next wave of cases considered whether insurance policies originally issued prior to the regulation's enactment, but renewed after it, were affected by the ban. Courts issued mixed rulings, but the Department of Insurance issued guidance stating that the regulation applied to policies renewed after its enactment. Now, employers' master welfare plan documents and summary plan descriptions contain the discretionary clauses, while the insurance policies do not, and the insurers are arguing that such a plan structure evades the regulation. Cigna has been the most active in advancing this argument, but it has failed now in every case in Chicago.

Most recently, Cigna made this argument in Borich v. Life Insurance Company of North America, 2013 U.S. Dist. LEXIS 59674 (N.D. Ill. Apr. 25, 2013). There, Judge John Tharp ruled that the regulation applies even where the discretionary granting language is in plan documents other than the insurance policy, and that ERISA does not preempt the regulation. A similar holding was reached in Ehas v. Life Insurance Company of North America, 2012 U.S. Dist. LEXIS 169151 (N.D. Ill. Nov. 29, 2012). The very same issues are pending before another judge in the same district in Novak v. Life Insurance Company of North America.

If you have a claim for long term disability, health, or life insurance benefits, call an experienced ERISA attorney today to learn about how discretionary clauses can affect your claim.

Chicago area employees with coverage under an employer-sponsored long-term or short-term disability plan may be surprised to find out that when drafting the plan, their employer inserted a clause purporting to require that you have to file your lawsuit in a distant state if your claim is denied and you have to sue for your benefits. In fact, the Department of Labor has filed briefs in cases opposing such clauses, noting there is a "disturbing trend" among employers to place such clauses in their plans. In Chicago, one court put a stop to that trend in a case I am handling.

In Coleman v. Supervalu, Inc., No. 12-7064, 2013 U.S. Dist. LEXIS 13372 (N.D. Ill. Jan. 31, 2013), Ms. Coleman sued Supervalu because its claims administrator denied her claim for disability benefits. After she sued, Supervalu moved to dismiss the lawsuit, citing a provision in the plan that purports to require any employee covered by the plan to bring the lawsuit in Minnesota, where Supervalu is headquartered. Virtually every court to consider whether such a clause is enforceable has concluded it is, and the employee can be forced to bring a lawsuit for benefits where the employer is headquartered. The court in Coleman, however, disagreed. Relying on the legislative history and an appellate court case that acknowledged choice of venue was meant to be a participant right, the court held ERISA prohibits the plan administrator from stripping a participant of the right to choice of venue.

With regular contracts, parties are free to negotiate and agree to virtually whatever terms they like. But when employers establish ERISA plans, they do not do not start with a clean slate as with a garden variety contract. They establish the plan subject to all of ERISA's requirements, which cannot be waived. One of those provisions is a participant right to a wide selection of venue for a potential dispute. Congress gave participants a broad choice of venue in 29 U.S.C. § 1132(e)(2), which allows a lawsuit to be brought where the plan is administered, where the denial of benefit occurred, or where any defendant can be found. Courts that have upheld these forum selection clauses in plans have done so primarily because the clauses require litigation to take place in the home venue of the employer, or where the plan is administered, thus appearing to meet the requirements of the statute. But in Gulf Life Insurance Co. v. Arnold, the Eleventh Circuit explained that ERISA's broad venue provision was intended to be a sword wielded by participants and beneficiaries, not by plan administrators. ERISA's legislative history is consistent with the concern.

If you have a claim for benefits, and your employer's plan contains a forum selection clause, call an experienced ERISA attorney today.

Chicago area employees with coverage under an employer-sponsored life insurance or accidental death insurance plan have a reason to be concerned if they are genetically predisposed to or have higher risk of certain life threatening events occurring. The possibilities for exclusion of accidental deaths involving individuals suffering from illnesses like Alzheimer 's disease, Epilepsy, or the like could be endless. That is precisely what CIGNA--via its underwriting subsidiary, Life Insurance Company of North America--tried arguing in a recent accidental death insurance case.

In Ulyanenko v. Life Insurance Company of North America, No. 09-3513 (S.D.N.Y. Nov. 13, 2012), Nadia Ulyanenko ate a peach, and afterwards vomited and fell. She was taken to the hospital, where she suffered several seizures, and suffered cardiac arrest. The autopsy report stated Nadia died of a pulmonary embolism, caused by genetic mutations of certain heterozygotes, which made her 4-8 times more likely to experience such an event. CIGNA argued that Nadia's genetic predisposition constituted a sickness or disease within the meaning of the exclusion in the accidental death insurance policy. The court determined that a genetic predisposition is not a sickness, disease, or bodily infirmity that qualifies as a preexisting condition to exclude coverage. The court noted there is an important distinction between a disease, and a genetic predisposition to having a disease or suffering an event. The court stated it was not persuaded that a genetic predisposition, unknown throughout the decedent's life, could be a preexisting condition excluding coverage.

If your claim for accidental death benefits has been denied, call an experienced ERISA lawyer.

People around Chicago, and elsewhere in the country, have experienced a disturbing trend of employers telling them they have life insurance coverage, only to make a claim and have the insurer tell them the coverage lapsed, or they were not eligible insureds. The problem is that when people expect they have the coverage, they rely on it by having it be part of their planning for an unfortunate event. Often times the insurer is the responsible party, but occasionally it is the employer who sponsors the plan and buys the insurance. In a recent case, a court allowed a widow to proceed with claims against the employer for telling her late husband he had life insurance coverage, and even continuing to pay premiums for him during a period he was laid off.

In Teisman v. United of Omaha Life Insurance Co., No. 11-1211 (W.D. Mich. Nov. 8, 2012), the court held the widow had valid claims against her late husband's employer for breach of fiduciary duty and estoppel under the Employee Retirement Income Security Act ("ERISA"). When Jedco, Inc. laid off Mr. Tesman, it told him his life insurance would continue and that it would continue paying his premium. After he died, his widow made a claim to the insurer for the life insurance, but it denied the claim because Mr. Teisman was not eligible to be covered while he was laid off. She also raised claims against the employer, essentially seeking to hold it to its promise that Teisman had coverage. The court determined that in light of Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), the widow's claims for breach of fiduciary duty and estoppel against the employer could proceed. The claims have withstood summary judgment, meaning there may be a trial to resolve any issues of fact.

If you have experienced any kind of misrepresentation or misleading in a life insurance claim, it is critical to get the advice of a skilled ERISA lawyer. If you have questions about a life insurance claim, call an ERISA lawyer.

People in Chicago who are participants in an employer sponsored accidental death plan, and those who are named beneficiaries under such plan, should be concerned to discover the results of some cases involving accidental death in an auto accident where the decedent was under the influence of alcohol. Some policies have a specific exclusion for death where the insured person died while driving a car under the influence of alcohol. Despite such claims having been made now for decades, even where the policy lacks that specific exclusion, the insurers argue the death was not truly an "accident," essentially because of the risk of death from drunk driving.

Recently, Cigna--through one of its underwriting subsidiaries, Life Insurance Company of North America--scored another victory on such a case in Whinery v. Life Insurance Co. of North America, 10-9312 (C.D. Cal. Nov. 7, 2012). Mr. Whinery died in an automobile accident, wherein he had a blood alcohol content of 0.22, and was driving 90 mph down a city street. Cigna denied the claim because there was "no evidence to support that Mr. Whinery would not have been aware of the dangers directly associated with operating a vehicle while legally intoxicated." When Mr. Whinery's spouse sued, the court remanded to Cigna to determine whether the incident met the definition of "accident," namely whether it was unexpected or unintentional. Upon remand, Cigna denied the claim again.

The next time around in court documented Cigna had a practice of ignoring the actual definition of "accident," and instead evaluating "whether the conduct of the insured constitutes the significant assumption of an undue risk." The court stated this was a practice of utilizing incorrect policy definitions to deny claims involving intoxicated drivers. Nevertheless, given Mr. Whinery had three times the legal level of alcohol in his blood, and was driving 90 miles per hour, the court held Cigna did not abuse what little discretion it had. Though the death certificate listed the case of death as an accident, the court noted Mr. Whinery also had marijuana in his system, and a person who witnessed him driving stated "he's going to crash."

A case like this goes to show how important it is for a person claiming accidental death benefits to not merely rely on a death certificate that lists a cause of death. It is critical to get the help of an ERISA lawyer with experience in accidental death claims. If you have questions about accidental death insurance claim, call a knowledgeable ERISA lawyer.

Many individuals in Chicago are often outraged after claiming life insurance plan benefits to be informed by the insurer or administrator that the insured person--whoever passed away--was no longer eligible to be insured at the time of death, even though they had been paying premiums for the coverage, and the insurer had been accepting those premium payments. There was a time when it was generally accepted that all the claimant could then recover were the premiums he or she paid while there was no valid coverage. Then the United States Supreme Court rendered an opinion in Cigna Corporation v. Amara, which opened the door to arguing that the deceived participant should get more than just the premiums back; she should get what she was promised she would get, which are the insurance proceeds in the event the insured died.

After the decision in Amara, that is what the Fourth Circuit Court of Appeals decided in McCravy v. Metropolitan Life Insurance Company on July 5, 2012. In that case, McCravy purchased life insurance coverage for her daughter through her employer sponsored plan, which MetLife insured. McCravy paid all the premiums on time for her daughter's coverage, until her daughter was murdered at the age of 25. McCravy claimed the life insurance benefits, but MetLife told her that under the policy, an unmarried dependent enrolled full time in school could only be covered until age 24, so McCravy's daughter was not covered at the time of death. MetLife tried to send McCravy the premiums back as a remedy, but McCravy sued for the insurance benefits.

The Court of Appeals held that MetLife's acceptance of premium payments on the daughter's behalf after it knew she was too old to be a covered dependent could be the basis for a claim the insurer breached a fiduciary duty by misrepresenting to McCravy that there was coverage. Finally, following Cigna Corporation v. Amara, courts are beginning to award the sort of make-whole relief previously denied to plan participants.

If your employer or insurance company misrepresented something to you about coverage under a life insurance plan, contact an ERISA lawyer.

Employees who are participants in disability plans sponsored by Chicago area employers frequently call my office after receiving a letter denying a claim for benefits. Often times, the reason for the denial may have been a procedural error by the administrator, preventing it from giving you a "full and fair review", as required by ERISA. The denial letter must explain the reason for the denial, it must reference the specific plan provision upon which the denial is based, and it must describe any additional material or information you would need to submit in order to get the benefits. 29 C.F.R. § 2560.503-1(g)(1).

ERISA imposes a high standard of care upon fiduciaries that make decision on claims. Merely telling claimants they need to submit additional medical records will not typically meet this standard. But even where the administrator fails to meet this standard, the question may arise whether the claim was denied for lack of supporting evidence or not. Such was the case recently in Tortora v. SBC Communications, Inc., 2011 U.S. App. LEXIS 22407 (2d Cir. Nov. 3, 2011). Sedgwick, as claims administrator for SBC's disability plan, denied a claim and stated "You may also submit additional medical or vocational information, and any facts, data, questions or comments you deem appropriate for us to give your appeal proper consideration." The court held that language did not meet the standard imposed by ERISA because it did not provide proper notice of how to perfect the claim. However, according to the denial letter, the medical records submitted were not indicative of disability, so the error was harmless.

If you have received a letter denying your claim for benefits and have questions about whether the denial was proper, call an ERISA lawyer.

Employees in Chicago and the Midwest often call my office and inquire about the "conflict of interest" in ERISA long-term disability cases. Few cases will be determined based on whether there is a conflict of interest, as insurers have become more clever at creating an appearance of there being no conflict of interest. But the best way to understand how the conflict applies in cases is to witness it changing the outcome of a case.

In 2008, the United States Supreme Court held that where an ERISA plan administrator (such as an insurance company) both evaluates and makes benefit determinations, and is the source of funding to pay the benefits, the administrator is under a structural conflict of interest that should be weighed in judicial review of whether the administrator abused its discretion. Metropolitan Life v. Glenn, 554 U.S. 105 (2008). That does not necessarily mean the abuse of discretion standard will not apply; it just means a reviewing court will consider that conflict of interest. But something more than just the existence of the structural conflict usually needs to be shown. A claimant needs to show what else the insurance company did that shows that conflict of interest altered the administrator's benefit determination. A perfect example of this was in a recent (unpublished) decision from the United States Court of Appeals for the Ninth Circuit.

In Letvinuck v. Aetna Life Insurance Co., Aetna was the administrator of the Boeing Company Employee Health and Welfare Benefit Plan, and also funded the long-term disability benefits. No. 10-55018 (9th Cir. June 22, 2011). Aetna gave no weight to the fact that the claimant had been awarded disability benefits by the Social Security Administration, and did not try to address why the ERISA benefits were not payable despite Social Security benefits being awarded. Next, Aetna failed to tell the claimant what else she would need to show in order to be approved for the benefits. The court called this failure to "engage in meaningful dialogue" with the claimant and failure to let her know what evidence the insurer required. Because the claimant could point to these facts, the court then gave weight to the conflict of interest, viewed the denial with skepticism, and ordered the insurer to pay the benefits.

If you still have questions about how a conflict of interest can affect your right to disability benefits, speak with an ERISA lawyer.

Employees in Chicago that are participants in any employee benefit plans should pay attention to the growing divide among Courts of Appeals over whether "satisfactory to us" is language in a plan sufficient to vest the plan administrator with discretion to interpret plan terms and make benefit determinations. When the administrator has such discretion, a court reviewing the administrator's decision will do so under an abuse of discretion standard--whether the decision was reasonable, not whether it was right.

The United States Court of Appeals for the Third Circuit joined the ranks of courts in holding such language requiring a participant to provide proof of a loss "satisfactory to us" does not confer discretion on the administrator of the plan. Viera v. Life Insurance Company of North America, No. 10-22810, Slip Op. at 19 (3d Cir. June 10, 2011). The Third Circuit joined the ranks of the Second, Seventh, and Ninth Circuits in holding that this sort of language does not clearly communicate to a participant that the plan administrator has discretion in administering the plan.

The Court of Appeals for the Seventh Circuit--located in Chicago--held this sort of language cannot vest the administrator with discretion back in 2005. Diaz v. Prudential Life Insurance Company of America, 424 F.3d 635, 637 (7th Cir. 2005). However, employees cannot take these holdings for granted. When there is a divide in courts of appeals such as the one present here, it is more likely the Supreme Court will allow an appeal in order to resolve the conflict.

If you have any questions about how a standard of review or a discretionary clause could impact your claim for benefits, consult a lawyer knowledgeable in ERISA.

Executives and employees participating in employee benefit plans in Chicago received a reminder this week about why it is important to keep track of your benefit plans' beneficiary designations, and update those designations when appropriate. Many people may think they can enter into binding agreements with others, such as family members or former spouses, about entitlement to or waiver of benefits under an employee benefit plan, like a pension or life insurance. However, if the plan is one covered by ERISA, those agreements, even if part of an agreed court order, will have no bearing on what the benefit plan administrator does with any proceeds if inconsistent with the beneficiary designation.

The United States Court of Appeals for the Seventh Circuit reiterated this point in Jackman Financial Corp. v. Humana Insurance Co., No. 10-2112, Slip Op. (7th Cir. May 31, 2011). In that case, Mr. Torrence was a participant in a group term life insurance policy offered through his employer, and named his brother as the sole beneficiary. Mr. Torrence and his brother both died in the same car accident, at the same time. Mr. Torrence's mother, the executor of his estate, contracted with Jackman Financial for Jackman to finance the funeral, and accept assignment of the life insurance proceeds in return. The policy, however, contained a clause granting the administrator discretion to name a beneficiary from a class of family members in the event the named beneficiary died at the same time as the participant. Jackman Financial sued, alleging it had a right to the money. The District Court entered judgment in favor of the insurer, and the Seventh Circuit Court of Appeals upheld the decision.

Plan administrators, such as Humana in this case, have an obligations to follow the terms of the employee benefit plan. ERISA § 404(a)(1)(D). This case may not appear to present such an injustice, but it is a reiteration of Kennedy v. Dupont, No. 07-636, Slip. Op. (S. Ct. 2009). There, a state domestic relations court entered a qualified domestic relations order (QDRO) acknowledging a former spouse's disclaimer of any interest in her ex-husband's employer-sponsored retirement plan. However, the participant never removed his former wife's name from the beneficiary designation on file with the plan administrator. After the participant passed away, his children demanded the retirement plan's assets because the former spouse waived her interest. The administrator, however, administered the plan according to the documents and instruments on file--which included a beneficiary designation naming the former spouse. The children thus could not recover the proceeds from the plan.

The same thing happened this past week in the Jackman case, though admittedly in a less sympathetic fashion. However, it demonstrates the importance of monitoring your beneficiary designations, because the plan administrator will not try to figure out your true intentions if you pass away; it will distribute funds to whomever you last designated. If you need advice about your employee benefit plan, call an ERISA lawyer.

Employees covered by a group health or life insurance plan in Chicago have all heard the stories of the insurer that accepted premium payments for years, and suddenly upon receiving a large claim, asserts the employee did not qualify for coverage. Insurance companies consistently got away with this. But after Cigna v. Amara, employees may finally have a remedy against this sort of sneaky conduct.

According to the Supreme Court in Amara, a participant in an ERISA employee benefit plan can "surcharge" a fiduciary for a breach of fiduciary duty. In Amara, the fiduciary failed to disclose a reduction in benefits to the participants in the summary plan description. This of course begs the question: what about the insurer that tells a participant she is covered or pre-authorizes a claim, but then refuses to pay?

The same day the Supreme Court issued its opinion in Amara, a Court of Appeals rendered a decision rejecting an argument made by the Department of Labor as amicus that a participant could "surcharge" the fiduciary for a breach of fiduciary duty under ERISA § 502(a)(3). See McCravy v. Metropolitan Life Ins. Co., No. 10-1131, Slip Op. at8-9 (4th Cir. May 16, 2011). The McCravy court even referenced another cases that did not permit life or other insurance beneficiaries to recover benefits due because the insurer breached its fiduciary duty. But this opinion is now seriously called into question, and the historical unavailability of a remedy to participants suffering from this sort of abuse from insurers has hopefully com to an end!

We expect to see a wave of new cases hit the courts whereby the insurance companies are finally held accountable for misleading participants into believing they have coverage only to be stuck with bills or no benefits later, like previously discussed in the Kenseth v. Dean Health case. If you have been told by an insurance company that a claim is covered, or that you have coverage, and later the insurer refused to pay benefits, speak with an attorney knowledgeable in ERISA.

Often, disabled employees and executives in Chicago and the Midwest call on a lawyer for help with a claim for disability benefits under a disability insurance policy provided by the employer. Nearly every claimant initially submits the claim himself. Only after being denied benefits does the claimant call a lawyer. Understandably, claimants are averse to paying an attorney fees to obtain benefits the claimant has a chance at obtaining on his own without engaging an attorney. Claimants commonly make one of two mistakes in the process, though.

The first mistake a claimant makes is waiting until after the final internal appeal has been denied to call a lawyer. Often claimants figure they will only need a lawyer if they have to file a claim in court. True, a claimant will be better served in court by engaging a lawyer than filing a complaint pro se, the odds of ultimately obtaining the benefits are dramatically higher when a lawyer is engaged earlier, during the administrative review process. After the final internal administrative appeal, no further documentation may be added to the claim file, dubbed the administrative record. 29 C.F.R. 2550.503-1(j)(3)-(5). Moreover, the time afforded for internal appeal will generally be 60 days. 29 C.F.R. 2550.503-1(h)(4). After a final denial, the plan will generally proscribe how much time a claimant has to file a complaint in court. Therefore, by the time the claimant calls the lawyer after the final appeal has been denied, the lawyer can add no additional supporting evidence, and will first need to investigate how much time he or she has to initiate a lawsuit (if the deadline has not already lapsed).

The other most common mistake made is calling a non-ERISA lawyer, such as one practicing primarily in personal injury or other labor and employment matters. ERISA cases are unique, and based upon highly technical statutes, regulations and court opinions. Successful navigation of a disability claim or claim for health benefits requires a lawyer intimately familiar with ERISA law, knowledgeable about what information to obtain and submit to the administrator and how to do so, and knowledgeable about the likelihood of success in court in light of the internal claims file and the claims administrator's denial letter (so the insurer knows you are on a level playing field with it).

The best course of action for a participant in a disability plan or health insurance plan making a claim for benefits due is to call an experienced ERISA lawyer before making the claim. Some offices will enter into a contingent arrangement, whereby you agree in advance to only engage the person upon a denial of benefits by the administrator. This saves you the attorney fees if you are successful in your initial claim, and prevents the loss of any time during that valuable 60-day window to obtain all other necessary documentation and appeal the denial. If you need to submit a claim for health benefits or disability benefits, call such an ERISA lawyer first and inquire about an engagement contingent upon being denied benefits.

Many employers in Chicago and the Midwest provide employees with various types of insurance in the benefits package, including life insurance and accidental death and dismemberment insurance ("AD&D"). Life insurance may be a standalone policy, but often AD&D is a portion of a larger policy that includes life insurance and AD&D. According to the Center for Disease Control, in 2007, unintentional accidental deaths were the fifth leading cause of death in the United States. While many people seem to know how their beneficiaries would recover under a life insurance policy, many employees and executives wonder what triggers benefits under an AD&D policy, and what can jeopardize those benefits.

Generally, AD&D policies will pay benefits in addition to life insurance if the death or dismemberment (often called the "loss") is the result of an accident taking place within a particular amount of time prior to the "loss." Deaths resulting from illness, suicide, or natural causes are generally not covered. In addition, most policies exempt from coverage any loss caused or contributed to by intentionally self-inflicted injuries. However, the language of exemption can vary from policy to policy. The question, though, is what exactly is a self-inflicted injury? Would it encompass voluntary engagement in high-risk behavior?

A participant of an insured under such a policy recently had to battle over this definition. In Martin v. Hartford Life & Accident Insurance Co., 2011 U.S. Dist. LEXIS 26920 (W.D.N.Y. Mar. 16, 2011), the claimant claimed benefits from Hartford due to the death of her husband, the insured. The insured had both life insurance and an AD&D policy with Hartford. Hartford paid the benefits under the life insurance policy, but denied the claim under the AD&D policy. It appeared clear the death was accidental, but the parties disagreed as to whether the death was the result of an "intentionally self-inflicted injury." Investigators determined that the cause of the insured's death was electrocution resulting from a self-administered electric shock with a homemade wire device apparently for recreational purposes.

Claimant's counsel argued the policy's exclusion did not apply, analogizing this case to Critchlow v. First Unum Life Insurance Co. of America, 378 F.3d 246 (2d Cir. 2003), which held a rock climber's death from accidental fall was the result of an intentionally self-inflicted injury. The court in Martin, however, upheld the insurer's denial of benefits, opining that the electric shocks were in fact an injury, and the injury was intentionally self-inflicted. The distinction, therefore, is between intentionally engaging in a behavior that brings risk of injury, and intentionally inflicting some injury (even if the injury is not intended to cause death). To many, this may appear to be splitting hairs, but such is the world of ERISA. If you have a question about coverage under a group life insurance or AD&D policy, call a seasoned ERISA lawyer.

Many businesses over the past several years have been struggling, especially small businesses. For various reasons, including impending bankruptcy, garnishment of a bank account by a creditor, or needing to catch up on some other bills, sometimes an employer do not make the monthly health insurance premium payment, even though it withheld money from employees' wages for those premiums. The employers often think that if the business survives, it will "catch up" on its delinquent insurance bill. But if the business fails, the employees merely lost premium payments, and they will become priority creditors in a bankruptcy to recoup the withholding not used to pay for insurance. But the real problem arises when one of the employees visited a doctor and had tests performed, and received a bill for that $3500 MRI, or worse $25,000 in doctor and hospital bills for a surgery, all because the insurer revoked coverage for the employer's failure to make the insurance premium payments.

In the above situation, unless the employer is a state or local government or a church, the employer most likely created a welfare benefit plan covered by Employee Retirement Income Security Act ("ERISA") § 3(1), and the funds withheld from your wages to go towards the insurance premiums become plan assets "as of the earliest date on which such contributions . . . can reasonably be segregated from the employer's general assets." 29 C.F.R. § 2510.3-102(a)(1). The regulation provides a safe harbor for plans with fewer than 100 participants as of the start of the year, which would include the typical small employer. In that case, if the employer pays the insurance company within 7 days of withholding the money from employees' the funds will not be "plan assets" while in the employer's possession and until paid to the insurer. Id. § 2510.3-102(b).

If such withholding for insurance premiums become "plan assets", then mishandling of those assets by a fiduciary by not using the assets for the exclusive benefit of employees could subject such fiduciary to liability for breach of fiduciary duty under ERISA § 409. An unsophisticated employer may believe this would only be a debt of the corporation, but this liability extends to any person who exercised any authority or control over the plan assets. ERISA § 3(21)(A). This means whomever had the authority or control to not pay the insurance premiums with the employees' withholding will most likely be a fiduciary subject to liability. And that liability could include all bills issued to employees that would have been paid by the insurer had the employer not mismanaged the plan assets and instead paid the insurance premiums. See In re Louis Jones Enters., Inc., 442 B.R. 126 (Bankr. N.D. Ill. 2010); In re Charter Graphic Servs., 230 B.R. 759 (Bankr. N.D. Tex. 1998). Similar facts could arise with disability insurance or life insurance. If you have not received benefits that should have been paid for with your withholding for insurance, consult an experienced ERISA lawyer.