Fifth Circuit Finds Insurer Waived Cancellation Right Under ERISA by Accepting Premiums After Eligibility Lapsed

In Edwards v. Guardian Life Insurance of America, No. 24-60381, —F.4th—-, 2025 WL 1718263 (5th Cir. June 20, 2025), the Fifth Circuit reversed a district court decision in favor of Guardian Life Insurance Company, holding instead that the insurer waived its right to cancel a life insurance policy by continuing to accept premium payments for more than two years after its right to terminate coverage had vested.

Pamela Edwards, owner of Allure Salon in Mississippi, was diagnosed with cancer in 2019 and passed away in May 2022. After her death, her husband, Jimmy Edwards, learned from their insurance agent that Pam had a life insurance policy with Guardian dating back to 2007. She had specifically taken out the policy to provide for Jimmy in the event of her passing.

Guardian, however, denied the claim. It asserted that the group policy had been cancelled months earlier because it no longer met the eligibility requirement of having at least two insured employees—a threshold no longer met after Allure’s staff dropped to just Pam. Notably, Guardian had not notified Pam’s agent of the cancellation, and the company continued to accept premium payments for 26 months after the coverage allegedly lapsed.

Jimmy Edwards sued Guardian, bringing Mississippi common-law claims and alternatively asserting an ERISA claim for benefits. The district court found that ERISA governed the policy, preempted the state-law claims, and sided with Guardian, granting it partial summary judgment. Edwards appealed.

The Fifth Circuit agreed with the lower court that ERISA governed the policy. Though the business had only one employee when Pamela died, the court found that Allure’s prior staffing history, payroll practices, and Pam’s managerial control met ERISA’s threshold for a covered employee benefit plan.

Where the Fifth Circuit diverged was on the question of Guardian’s right to cancel the policy. While Guardian did have contractual discretion to cancel coverage when participation fell below two employees, the court held that Guardian waived this right by continuing to accept premiums for more than two years after the right to cancel vested in November 2019.

Guardian’s argument that its cancellation delay was part of a pandemic-era “accommodation” fell flat. The Fifth Circuit found that accepting premiums without exercising the cancellation right—particularly during a time when Pam was terminally ill and unable to seek alternative coverage—amounted to a waiver of the insurer’s discretionary authority.

This ruling reinforces a critical principle: Insurers cannot delay termination while continuing to collect premiums—especially when policyholders rely on that apparent coverage. The court rejected Guardian’s framing of its COVID-era suspension as a goodwill gesture gone wrong. Instead, the court noted: “You get what you pay for.”

As a result, the Fifth Circuit reversed the district court’s judgment and rendered judgment in favor of Jimmy Edwards, ensuring that Pam’s intended benefits would be honored.