ERISA Plan Must be Enforced as Written

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When Anthony Hayes’ employment ended, so did his employer-provided life insurance. Hayes then missed the deadline to convert his coverage to an individual policy. After Hayes died, his surviving spouse filed suit seeking relief under a provision of the Employee Retirement Income Security Act allowing “a participant or beneficiary” of an employee benefit plan “to recover benefits due” “under the terms of [the] plan.”

In Kathy Hayes v. Prudential Insurance Company Of America, No. 21-2406, United States Court of Appeals, Fourth Circuit (February 23, 2023) Ms. Hayes sought benefits under an employee life insurance policy based on equity – that the decedent was too ill to convert his employee life policy to a personal policy even though he did not comply with the requirement of the ERISA plan.

FACTS

Hayes worked as an environmental engineer for DSM North America, Inc., and had an employer-provided life insurance policy with defendant Prudential Insurance Company. Prudential was both the insurer and the administrator of the employer-provided benefit plan. The plan gave Prudential “the sole discretion to interpret [the plan’s] terms . . . and to determine eligibility for benefits.”

In 2015, Hayes lost his job because of medical issues and his employer-provided life insurance coverage ended. The terms of the plan, however, allowed former employees to convert employer-provided coverage to an individual policy. To do so, the plan required Hayes to initiate the conversion process “by the later of” 31 days after his employer-provided coverage ended or 15 days after receiving “written notice of the conversion privilege.” The parties agree Hayes’ conversion deadline was December 23, 2015.

Hayes did not contact Prudential about converting his life insurance policy until 26 days after the conversion deadline. Hayes’ health continued to deteriorate, and he died in June 2016.

Plaintiff submitted a request for benefits, which Prudential denied. The claim administrator explained Hayes’ employer-provided “coverage terminated on 11/16/15,” and although Hayes “was eligible to convert his Group Basic Life Insurance,” “there is no conversion policy on file.”

The district court entered judgment for Prudential. The court concluded Prudential “reasonably denied [p]laintiff’s request for benefits” because “Hayes received timely notice of his conversion rights” and “did not convert his life insurance to an individual policy during the [c]onversion [p]eriod.”

ANALYSIS

ERISA regulates employee benefit plans by establishing standards of conduct, responsibility, and obligation for fiduciaries of those plans, and by providing for appropriate remedies, sanctions, and ready access to the federal courts. ERISA creates a wide range of public and private enforcement mechanisms.

The statute allows suits to recover benefits owed under the terms of the plan but it does not permit a court to alter those terms. As plaintiff admits, Hayes failed to convert his life insurance coverage in the time set forth in the policy. Awarding benefits would thus require the very step the statute does not permit: modifying the plan’s terms to provide a workaround to its conversion deadline.

Plaintiff countered that she is not asserting that the plan terms should be rewritten. Instead, she asks the Court to apply the doctrine of equitable tolling to allow for an exception to the life insurance conversion deadline set forth in the policy because Hayes was incapacitated during the conversion period.

It does not matter that Congress enacted a statute-here, ERISA – to enable courts to help “implement” the agreement. The statute neither addresses the availability of equitable tolling nor does it purport to alter the terms of any ERISA plan. For that reason, the Fourth Circuit was unwilling to apply equitable tolling principles that would, in practice, rewrite the plan.

The life insurance conversion deadline at issue here is not a statute of limitations, nor does it operate as one.

In contrast, no cause of action for benefits accrues when a participant misses a conversion deadline. Indeed, a participant whose policy has expired, unconverted, has no benefits due under the plan for any later occurrence because that participant lacked coverage.

Employers have large leeway to design employee benefit plans as they see fit, but once a plan is established, the administrator’s duty is to see that the plan is maintained pursuant to that written instrument. Prudential did not abuse its discretion by fulfilling its duty and the district court correctly resolved the single claim before it based on the agreed-on facts and consistent with well-established law. The judgment of the district court was affirmed.

ZALMA OPINION

Equitable tolling is a means of dealing with an unfair result between litigants. However, ERISA plans are required to be enforced by the plan administrator as written. Although it was sad that the decedent was unable to promptly change his employer provided life insurance to a personal policy, the plan was clear and the administrator had no choice but to refuse to pay for a life insurance policy that was no longer in effect.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]

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