District Court Finds No Waiver of Evidence of Insurability Where Insured Paid Life Insurance Premiums for Ten Years

A recent decision, Shields v. United Of Omaha Life Insurance Company, No. 2:19-CV-00448-GZS, 2021 WL 982322 (D. Me. Mar. 16, 2021), involves an unfortunate situation of an employee who thought he had protected his family with life insurance, only for his spouse to be denied benefits because he had not submitted evidence of insurability (referred to as “EOI”).

When Myron Shields started working for Duramax in 2008, he elected life insurance coverage under Duramax’s basic and voluntary life insurance plans, which were insured by United of Omaha Life Insurance Company (“United”). About ten years later, Myron died from cancer. When his widow and beneficiary sought payment under both plans, United only paid the amount provided under the basic plan (twice the employee’s salary) and only $100,000 under the voluntary life plan. This is because the voluntary plan had a guarantee issue of $100,000 but required EOI for any amount above that, not to exceed $200,000.

Based on the agreement between Duramax and United, Duramax was responsible for enrolling eligible persons for coverage. United expected Duramax to have the EOI form completed by any employee who elected coverage above the guarantee issue limit. When Myron signed up for coverage, Duramax did not provide him with the EOI form. Duramax worked with an insurance broker to secure life insurance coverage for its employees. Duramax provided the broker with its census data, which the broker provided to United to obtain new quotes. The data included the base salaries of the employees and how much voluntary life coverage each had elected. The censuses did not show whether EOI had been provided by any employee, including Myron. United did not verify that employees were properly enrolled at their selected level of coverage. United did not become aware that it did not receive EOI for Myron until his wife, Lorna Shields, filed the claim for benefits.

After United denied Lorna’s claim for the additional voluntary plan benefits, she appealed the decision to United and then filed suit when United denied her appeal. Her Complaint sought to recover benefits pursuant to 29 U.S.C. § 1132(a)(1)(B) (Count I) and “equitable relief,” (plan reformation and surcharge) pursuant to 29 U.S.C. § 1132(a)(3) (Count II).

As to her claim for benefits under Count I, the court concluded that Plaintiff did not meet “her burden of establishing that (a) Defendant’s denial of benefits was arbitrary and capricious, or (b) Defendant knowingly and voluntarily waived the requirement to provide Evidence of Insurability.” The decision was not arbitrary and capricious because the “plan language unambiguously required United to ‘approve’ some evidence of the good health of the employee in order to trigger coverage above the GI limit.” Myron did not provide any EOI. Thus, United was reasonable in deciding that Myron never became approved for voluntary life insurance about the GI limit. With respect to waiver, the court noted that the First Circuit has not addressed whether waiver can apply to a prerequisite for coverage. Assuming the First Circuit would recognize a viable waiver claim in this context, United did not waive the requirement to provide EOI by accepting premiums because United lacked actual knowledge of the lack of approved EOI. Even if United acted knowingly in excusing Myron’s failure to submit EOI, Plaintiff cannot get guaranteed issue coverage through waiver.

The court also addressed the agency relationship between United and Duramax since Plaintiff argued in the alternative that waiver can be established based on Duramax’s actions when it acted as United’s agent. The court noted that whether federal common law agency can be applied to the relationship between a policyholder-employer and an insurer under ERISA is unclear. While the Ninth Circuit’s decision in Salyers v. Metropolitan Life Insurance Co., 871 F.3d 934 (9th Cir. 2017) supports this claim, it “is far from the majority rule” and no other circuit has adopted its views on agency in the ERISA context. The court declined Plaintiff’s invitation to follow Salyers, also finding that it is factually distinguishable in several key respects. Here, Duramax did not have actual authority to act on United’s behalf and apparently was not aware it had been tasked in the collection of EOI. The court instead followed the Second Circuit’s approach in Sullivan-Mestecky v. Verizon Communs. Inc., 961 F.3d 91 (2d Cir. 2020). In Sullivan-Mestecky, a case also involving an erroneous life insurance enrollment, the Second Circuit did not impute the employer’s misrepresentations or duties to the insurer. The court concluded that Plaintiff cannot establish waiver of the EOI requirement through Duramax’s actions.

As to her claim for equitable relief under Count II, the court concluded that Plaintiff did not meet her “burden of establishing that Defendant breached its fiduciary duties, nor that Plaintiff is entitled to relief beyond the refund of premiums already issued.” The court was “not convinced that Defendant’s fiduciary duties as claims administrator extended to checking the work of Duramax to ensure that it fulfilled its fiduciary duty as plan administrator to inform Myron of the EOI requirement.” Even though the court found Plaintiff’s case to be sympathetic, and was troubled that he paid incorrect premiums for nearly a decade, the court cannot concluded that United breached any fiduciary duty to Myron in this case.

The outcome of this case is an important reminder for employees who have ERISA-governed life insurance policies to review those policies and make sure they have complied with all requirements. One cannot simply rely on the employer or insurance company to proactively ensure an employee is qualified for the coverage for which she is paying premiums. If you have a denied life insurance claim, contact us for a free case evaluation.