Fifth Circuit Finds Disability Policy’s “Transfer of Insurance Coverage” Provision Applies to Employee on Disability Leave on Policy’s Effective Date

In Miller v. Reliance Standard Life Insurance Company, No. 20-30240, __F.3d__, 2021 WL 2221347 (5th Cir. June 2, 2021), the Fifth Circuit decided an issue that arises when an employer switches disability insurance carriers while they have employees who are on a leave of absence due to disability.

Plaintiff-Appellant Michael Miller worked as a ship pilot since 1989 for Lake Charles Pilots, Inc. (“LCP”). Defendant-Appellee Reliance Standard Life Insurance Company (“Reliance”) insures LCP’s group disability plan as of September 1, 2015. Prior to that time, LCP’s disability plan was insured by Prudential. Miller was on a short-term disability leave at the time Reliance took over LCP’s plan. Miller was scheduled to return to work on November 4, 2015 but suffered a fall that evening and filed a new claim for short-term disability benefits with Reliance, which Reliance approved (and now claims it was a mistake). Miller returned to work in July and August 2016, but then went back out on short-term disability after nearly falling off a Jacob’s ladder. Reliance approved his claim and paid him full short-term disability benefits. However, it denied his claim for long-term disability (“LTD”) benefits on the basis that his disability was excluded as a pre-existing condition under the terms of its policy. Reliance determined that Miller’s LTD benefits became effective when he returned to active work on August 1, 2016. He became disabled within one year of that date due to conditions for which he received medical treatment in the three months prior to the effective date of coverage. Miller argued that the policy’s “Transfer of Insurance Coverage” provision (“Transfer Provision”) negates the application of the preexisting condition provision to Miller’s disability. The district court agreed with Reliance, but the Fifth Circuit reversed.

The Transfer Provision reads in full,

TRANSFER OF INSURANCE COVERAGE

If an employee was covered under any group long term disability insurance plan maintained by you prior to this Policy’s Effective Date, that employee will be insured under this Policy, provided that he/she is Actively At Work and meets all of the requirements for being an Eligible Person under this Policy on its Effective Date.

If an employee was covered under the prior group long term disability insurance plan maintained by you prior to this Policy’s Effective Date, but was not Actively at Work due to Injury or Sickness on the Effective Date of this Policy and would otherwise qualify as an Eligible Person, coverage will be allowed under the following conditions:

(1) The employee must have been insured with the prior carrier on the date of the transfer; and

(2) Premiums must be paid; and

(3) Total Disability must begin on or after this Policy’s Effective Date.

On appeal, Reliance conceded the record shows that Miller’s premiums were paid. The issue decided by the Fifth Circuit was whether the language of the Transfer Provision’s second paragraph covers Miller. It resolved the appeal on that basis in favor of Miller. The Fifth Circuit agreed with the Sixth Circuit’s decision in Wallace v. Oakwood Healthcare, Inc., 954 F.3d 879 (6th Cir. 2020), that “in the context of the Transfer Provision, the phrase ‘active, full-time’ employees must be construed in the insured’s favor to include those who, on the relevant date, are current employees even if not actually working.” The term “regular work week” “must be construed to refer to an employee’s job description, or to his typical workload when on duty. To hold otherwise, as Reliance urges, would render the second paragraph of the Transfer Provision virtually redundant with the first.” The court explained that Reliance’s reading of this paragraph provides coverage for employees who are not actually performing work duties but are otherwise actually working. The court “reject[ed] this convoluted construction as the unambiguous meaning of the provision.” The court remanded the case to the district court to determine the amount of benefits to award Miller.

If Reliance Standard has denied your claim for long-term disability benefits due to a pre-existing condition exclusion, contact us for a complimentary case evaluation.