District Court Finds Insurer Owed No Duty to Inform Plan Participant of Life Insurance Conversion Rights Upon Resignation, But Allowed Claim of Equitable Tolling of Conversion Rights Due to Mental Incapacity

In Estate of Maribeth Presnal v. Dearborn National Life Insurance Company et al., No. 3:23-CV-0290-HAB, 2024 WL 124787 (N.D. Ind. Jan. 11, 2024), Indiana Northern District Chief Judge Holly A. Brady granted in part and denied in part Defendants’ Motion to Dismiss this ERISA action alleging breach of fiduciary duty related to the continuation of group life insurance coverage.

Decedent was a nurse and employee of Defendant Beacon Health System, Inc and a participant in a basic life insurance plan governed by ERISA and insured by Dearborn National Life Insurance Company. While employed, decedent began displaying cognitive impairments for which she was demoted because of her inability to multi-function, overall disorganization, and forgetfulness. Later, an employee of Beacon’s human resources department told Decedent’s husband that she knew about his wife’s cognitive problems. Decedent resigned from her employment in December 2016. Beacon performs exit interviews when employees terminate their employment in which Beacon’s Human Resources Department routinely discusses and advises the employees of their benefit rights, including health and life insurance benefits. However, no exit interview was conducted for Decedent, nor did Beacon advise of her rights under the Policy after termination. The Policy gave Decedent the option of converting her basic life insurance coverage to a personal policy within thirty days of her termination, but Decedent never converted the policy.

Months after Decedent’s termination, she was diagnosed with Frontotemporal Dementia, a “progressive neurodegenerative disease [which] causes executive dysfunction and impairs a patient’s judgment, insight, and decision-making abilities.” Decedent’s neurologist opined that, at the time of her termination, Decedent could not understand the benefits and consequences of converting her life insurance coverage under the Policy. Three years after Decedent’s resignation, her beneficiary applied to Dearborn for the life insurance benefits under the Policy. Dearborn denied the claim, citing Decedent’s failure to convert. Beacon also denied the beneficiary’s claim. She died from complications with FTD on December 4, 2021—five years after her resignation.

Plaintiffs brought suit alleging claims for ERISA breach of fiduciary duty based on: (1) Beacon’s alleged failure to conduct an exit interview and inform Decedent of her rights under the policy; and (2) that the Policy’s time limitations to convert the policy and make premium payments should be equitably tolled because of Decedent’s mental incapacity. Beacon argued three reasons why Plaintiffs’ claims should fail: (1) Beacon did not owe Plaintiffs a fiduciary duty to inform them of Decedent’s right to convert; (2) Plaintiffs failed to establish Beacon acted with intent to disadvantage Decedent; and (3) Plaintiffs are not entitled to equitable tolling of the period to convert the plan or make premium payments.

The Court held that Seventh Circuit precedent precluded recovery for the alleged lack of disclosure by Beacon. Beacon had no duty to inform Plaintiffs of Decedent’s conversion rights under ERISA. And, because Beacon did not owe Decedent a duty under the circumstances, the Court need not address whether Plaintiffs had sufficiently pled intentionality.

With regard to Plaintiff’s tolling argument, the Court recognized that “ERISA permits equitable tolling of a contractual time limit in extraordinary circumstances” and that the plaintiff bears the burden of showing that “her mental incapacity prevented her from managing her affairs and acting upon her legal rights.” Di Joseph v. Standard Ins. 776 Fed. Appx. 343, 349 (7th Cir. 2109) (citing Heimeshoff v. Hartford Life & Accident Ins., 571 U.S. 99, 114 (2013); Miller v. Runyon, 77 F.3d 189, 191 (7th Cir. 1996) (“mental illness tolls a statute of limitations only if the illness in fact prevents the sufferer from managing his affairs and thus from understanding his legal rights and acting upon them”).

Although an unpublished Seventh Circuit decision, the Court held that Di Joseph and other Second Circuit case law left open the possibility that mental incapacity could, in some instances, constitute an “extraordinary circumstance” which warrants equitable tolling. As such, the Court granted Defendants’ Motion to Dismiss finding that Beacon did not owe a duty to inform Plaintiffs of the decedent’s rights under the policy, but otherwise denied the Motion.

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