Our clients often ask how to retain employee benefits while on disability leave. A source of this information should be an employee handbook or summary of benefits available from the employer. Often all benefits such as medical coverage or life insurance continues while the employee is on short term disability. Then if the employee does not return to work and receives long term disability, they are offered to continue such ancillary benefits providing they start to pay the premiums or convert the coverage in some way. For instance an employer will issue a letter explaining the employee is eligible for COBRA medical coverage for a set period of time if they pay the premiums for the coverage.
An issue arises when the employee indicates an interest in continuing the coverage but the employer fails to submit the necessary paperwork to them. A recent example of this problem occurred in Erwood v. Life Ins. Co. of N. Am._ 2017 U.S. Dist. LEXIS 56348. Erwood left work on disability, but the employer did not inform him or his family of his need to convert life insurance coverage to own it himself in order to remain covered and did not provide him with the conversion forms. When Erwood died and his family sought life insurance, the carrier, CIGNA denied the claim because no conversion forms were on file. The employer defended its position by claiming that there was a packet of materials sent to Erwood, but the Court held the packet was inadequate because it did not include the materials necessary to convert life insurance coverage or inform where to access such materials or even where to send them. The employer’s excuse that Dr. Erwood did have access to the life insurance program on its benefits internet portal was not enough. The Court held that “merely making an SPD on its portal does not satisfy its disclosure obligations of the plan administrator, the employer, especially in light of the fact that once Dr. Erwood’s FMLA leave expired, his access to the portal was terminated.” The Court entered judgment for the full life insurance benefit from the employer.
The Court explained that once Erwood, an ERISA beneficiary, requested information from the employer who was aware of his status and situation, the employer has a fiduciary obligation to convey complete and accurate information material to the beneficiary’s coverage and rights even if he has not specifically inquired about it. The fiduciary, in this case the employer, has a duty to inform when he knows that silence might be harmful. So if an employer makes an affirmative misrepresentation or fails to adequately inform a plan participant, that misrepresentation or inadequate disclosure can be material and when the employee detrimentally relies upon it and loses coverage, the employer can be liable.