Fourth Circuit affirms Plan Administrator’s Status as ERISA Fiduciary in Life Insurance Case
In a recent appeal, Dawson-Murdock v. National Counseling Group, Inc., the Fourth Circuit Court of Appeals vacated a lower court’s dismissal of a claim by a deceased employee’s spouse against an employer for breach of fiduciary duty under ERISA in administering a life insurance benefit. The issue arose when the deceased employee, who elected life insurance under the employer’s plan, switched to part-time status and lost eligibility for the life insurance benefit. The employer never properly informed the deceased employee of his loss of eligibility for the life benefit or his option to convert coverage, and instead continued to accept premium payments. When the employee died, the life insurance carrier denied the spouse’s claim for benefits.
The employer advised the spouse that the employer would pay the claim amount and work with the carrier to recover the benefits. The employer also instructed the spouse to not appeal the carrier’s benefit determination and continued to update the spouse on the employer’s efforts to recover the funds. However, the employer later told the spouse that it would not pay any of the amounts the spouse sought under the life insurance policy, and by this point the spouse’s period to appeal the benefit determination had expired.
In vacating the lower court’s dismissal, the Fourth Circuit held that a plaintiff is not required to allege that a plan administrator satisfies the “functional fiduciary” test under ERISA to state a claim against the administrator for fiduciary breach. However, the employer’s representations to the employee that she did not need to appeal the carrier’s denial of the claim, as well as the employer’s failure to advise the deceased employee of his loss of eligibility, established that the plaintiff could also identify the employer as a “functional fiduciary” and state a claim for fiduciary breach.
Employers who sponsor welfare benefit plans subject to ERISA should take care to properly advise employees of their eligibility for certain benefits and promptly make changes to premium deductions and enrollment when the employee experiences a change in part-time or full-time status. Employers should exercise extreme caution in advising employees on whether to pursue appeals to individual benefit denials through insurance carriers; the employer’s advice will carry a great deal of weight in how the employee or the beneficiary proceeds in these situations, and the employee may understandably hold the employer responsible for real or perceived losses attributable to the employer’s guidance. Relatedly, employers should be careful before guaranteeing benefits that may not be payable under the plan. This may create an obligation from the employer to follow through on paying the benefit, and when the employer later changes its mind, the employee may pursue legal action. Proper benefit administration can go a long way in avoiding issues like that in Dawson-Murdock before they even arise and reach the judicial system.