In a dispute over life insurance benefits after a participant's death, the Ninth Circuit reversed a district court's holding that an employer had no fiduciary duty under ERISA—aside from providing the participant an insurance certificate/SPD—to inform the participant when his life insurance coverage would end (Estate of Foster v. Am. Marine Servs. Grp. Benefit Plan, et al., (9th Cir. Feb. 9, 2021)). The Ninth Circuit concluded that a factual question remained regarding whether the participant knew when his coverage would end (thereby triggering the conversion period), which prevented summary judgment in the employer's favor.

The participant in this case obtained life insurance coverage through an employer-sponsored ERISA group life insurance plan. The life insurance certificate/SPD provided that coverage would end on the last day of the month in which a participant was no longer eligible for coverage because (among other reasons) the participant's employment with the employer ended. In this situation, however, the policy gave participants a 31-day window to convert group coverage to individual coverage (see Article, ERISA Litigation: Life Insurance Conversions and ERISA Fiduciary Breach Claims).

The participant developed terminal esophageal cancer in 2015 and was laid off by the employer in February 2016. However, the employer allowed the participant to exhaust his accrued vacation and sick days, meaning that the participant remained on the employer's payroll until April 15, 2016. As of April 30, the employer stopped paying life insurance premiums on the participant's behalf. After the participant died in June 2016, his spouse, as named beneficiary, sought life insurance benefits under the policy. The insurer denied the claim, concluding that the participant had failed to timely convert his group coverage after the employer stopped paying premiums under the policy. The insurer's determination was upheld on administrative appeal.

The participant's spouse sued the employer and insurer alleging (among other claims) that the defendants violated ERISA's fiduciary duties by failing to provide the participant adequate notice of his conversion rights (see ERISA Litigation Toolkit and Practice Note, ERISA Litigation: Causes of Action and Remedies Under ERISA Section 502 for Benefit and Fiduciary Breach Claims: Claims for Breach of Fiduciary Duty (ERISA Section 502(a)(2))). The district court ruled in favor of the employer and insurer, and the spouse appealed.

On appeal, the Ninth Circuit reversed as to the employer, rejecting the district court's conclusion that the employer's ERISA fiduciary duties were limited to sending the participant the certificate/SPD that explained his conversion rights. In the court's view, the certificate/SPD was ambiguous as to whether the participant's 31-day conversion period began on:

The court also observed that the employer:

Accordingly, the court concluded that the certificate/SPD contained incomplete information, and the employer had a duty to "paint a more complete picture" for the participant. Because there was a factual question about whether the participant had adequate notice that his coverage would end on April 30, the employer was not entitled to summary judgement.

However, the Ninth Circuit affirmed the district court's ruling as to the insurer. The Ninth Circuit reasoned that the insurer's ERISA fiduciary duties only included claim administration and policy interpretation, neither of which gave rise to the notice claims at issue in the litigation.

As this litigation illustrates, life insurance conversion situations continue to raise thorny administrative issues for employers, insurers, and TPAs, often (as in this case) against backdrops that are factually difficult. But with some courts becoming more willing to recognize such claims—and accompanying remedies under ERISA—this is an area of plan administration that merits close attention. Employers that take the Ninth Circuit's recommendation to furnish more detailed notice of the applicable deadlines governing life insurance conversions must ensure the accuracy of any participant-specific communications they provide (which may require coordination with the policy's insurer).