:: Fiduciary Liable Under ERISA For Denied Life Insurance Coverage

In short, the Court finds that Plaintiffs have met their summary-judgment burden by presenting evidence that Church’s made representations to Van Loo implying that she had completed her enrollment for a level of coverage that never actually became effective. Church’s attempts to isolate and neutralize individual statements do not change this result.

Loo v. Cajun Operating Co. d/b/a Church’s Chicken, No. 14-CV-10604, 2016 WL 3137822, at *7 (E.D. Mich. June 6, 2016)

This case illustrates how an employer can end up paying a high price for assuming that an insurance company will take responsibility for providing necessary information to its employees.  In this instance, the group life carrier denied coverage for additional benefits due to failure to supply an “evidence of insurability” form for the increased coverage.

The Court was not impressed with the employer’s attempt to shift blame:

And while Church’s points the finger at Reliance, stating that Reliance’s Plan Administrator Guides did not offer Church’s any guidance on the EIF requirement, it is undisputed that Church’s had access to the Policy. And the Policy articulated the EIF requirement.

The Plaintiff made out a successful claim for breach of fiduciary duty by negligent misrepresentation in the following manner:
1. Employer Was Fiduciary
The plan was “self administered” and the employer’s role in managing the benefits easily led to the conclusion that it was a fiduciary.

It does not appear that Church’s is challenging Plaintiffs’ ability to show that Church’s acted in a fiduciary capacity when it made the challenged statements. (See Church’s Mot. at 10.) And the Court finds that Plaintiffs have met their summary-judgment burden on this element of the claim.

2.  Material Misrepresentations

The Court set forth the legal standard –
a.  “Misleading communications to plan participants ‘regarding plan administration (for example, eligibility under a plan, the extent of benefits under a plan) will support a claim for a breach of fiduciary duty.’ ” Drennan v. Gen. Motors Corp., 977 F.2d 246, 251 (6th Cir. 1992) (quoting Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154, 1163 (6th Cir. 1988)).
b.  “[A] misrepresentation is material if there is a substantial likelihood that it would mislead a reasonable employee in making an adequately informed decision in pursuing” benefits to which she may be entitled. Krohn v. Huron Mem’l Hosp., 173 F.3d 542, 547 (6th Cir. 1999) (citing In re Unisys Corp. Retiree Med. Benefit “ERISA” Litig., 57 F.3d 1255, 1264 (3d Cir. 1995)).
c.  “A fiduciary breaches his duty by providing plan participants with materially misleading information, ‘regardless of whether the fiduciary’s statements or omissions were made negligently or intentionally.’ ” Id. at 547 (citing Berlin, 858 F.2d at 1163–64).
d.  Further, “the ‘duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful.’ ” Id. at 548 (quoting Bixler v. Central Pa. Teamsters Health & Welfare Fund, 12 F.3d 1292, 1300 (3rd Cir. 1993)).
and concluded that the plan fiduciary’s conduct fell short, stating:

In short, Church’s created a situation where a reasonable person would assume that an EIF would be provided if needed, failed to provide such an EIF to Ms. Van Loo in 2008 when she needed to fill one out, and represented to her, for the following four years, that the coverage levels she had chosen had become effective.

3. Detrimental Reliance
The Court inferred detrimental reliance from the insured’s course of conduct.

As Van Loo is deceased, she could not be deposed in this litigation. However, Van Loo paid premiums for the level of coverage she thought had become effective, first through her paycheck deductions, and then by paying her premiums directly to Church’s. The fact that Van Loo continued to enroll in—and increase the amount of—her supplemental life insurance shows that she expected those increases to be effective.

Note – The Court concluded that the employer was liable in the amount of the denied additional coverage –  $314,000.
More on Benefit Communications – “[W]hen an employer-administrator speaks—either directly or through its benefits representatives—it violates its fiduciary duties when it:
  • affirmatively misinforms a beneficiary knowing its statement is false,
  • recklessly misinforms not knowing whether its statement is true, or
  • misinforms under circumstances indicating it should have known the falsity of its statement

See, Frahm v. Equitable Life Assur. Soc’y of U.S., 137 F.3d 955, 960 (7th Cir. 1998).

The Court also drew support from a seminal case in this context,

Gregg v. Transportation Workers of America International, 343 F.3d 833, 847–48 (6th Cir. 2003):
ERISA imposes trust-like fiduciary responsibilities and a trustee is under a duty to communicate to the beneficiary material facts affecting the interest of the beneficiary which he knows the beneficiary does not know and which the beneficiary needs to know for his protection in dealing with a third person…. Defendants had an affirmative obligation to provide Plaintiffs with this material information whether or not they asked for it.
And see, James v. Pirelli Armstrong Tire Corp., 305 F.3d 439, 449 (6th Cir. 2002).
Does the Beneficiary Have To Ask?  The plan fiduciary argued that omissions can only be a basis for fiduciary liability where “the beneficiary had requested information from the fiduciary” and the fiduciary “kn[ows] its omission or its silence might be harmful.”  The Court rejected that argument, citing Gregg, supra.

Detrimental Reliance – “[A] plaintiff’s reliance on the misrepresentation must be ‘reasonable.’ ” Moore v. Lafayette Life Ins. Co., 458 F.3d 416, 433 (6th Cir. 2006).   The Court noted a recent decision that a beneficiary “reasonably relied to her detriment upon the misrepresentations of [a plan fiduciary] by paying premiums and by foregoing alternative coverage.” Rainey v. Sun Life Assur. Co. of Canada, No. 3-13-0612, 2014 WL 4979335, at *2 (M.D. Tenn. Oct. 6, 2014).
Access to Policy Terms – The employer’s burden to explain increases where the policy is unavailable to beneficiaries.  “And neither Easterlin nor Johnson could recall whether the Policy itself was ever posted on the Church’s intranet such that employees could access it.”