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Home > Blog > Blog > Life Insurance > First Circuit Construes Life Insurance Policy Ambiguities Against Reliance Standard and Affirms Over $1.1 Million Award to Widow

First Circuit Construes Life Insurance Policy Ambiguities Against Reliance Standard and Affirms Over $1.1 Million Award to Widow

In Ministeri v. Reliance Standard Life Ins. Co., No. 21-1651, __F.4th__, 2022 WL 2914068 (1st Cir. July 25, 2022), following its sister circuits, the First Circuit Court of Appeals just handed Reliance Standard Life Insurance Company a loss in an ERISA-governed life insurance dispute which hinged on the proper interpretation of what it means to be an “active” employee eligible for coverage.

The relevant facts of this case are as follows. In April 2014, Anthony Ministeri began working for AECOM Technology Corporation (AECOM) as a construction services executive earning $156,000/year for 24 hours per week of work, including frequent travel. Through AECOM’s group life insurance plan, he selected $624,000 in basic life insurance and $468,000 in supplemental life insurance. A month into the job, he began experiencing symptoms related to a glioblastoma. He did at least some work from home from May to early August 2014, during which time he continued to submit his timesheets for his normal 24-hour workweek. On August 10, 2014, he suffered a massive pulmonary embolism and took a formal leave starting August 8, 2014. Reliance determined that Ministeri’s last day of work was August 6th and Ministeri continued to pay premiums on his life insurance policy until his death on October 2, 2015. Reliance denied Plaintiff Renee Ministeri’s claim for the life insurance benefits because it claimed that Ministeri lost eligibility under the policy once he stopped working “part-time” which the policy defined as “working for [AECOM] for a minimum of 20 hours during [his] regularly scheduled work week.” Reliance claimed that after May 2014, Ministeri was no longer performing his usual duties, including travel, for a minimum of 24 hours per week and thus his coverage had lapsed.

Plaintiff sued Reliance Standard under ERISA Section 502(a)(1)(B) and (a)(3). The district court granted Plaintiff’s motion for summary judgment and awarded the sum of $1,092,000 (basic life and supplemental amounts), $102,018.75 in attorneys’ fees, and prejudgment interest at the rate of 7.5%. Both parties appealed. Reliance challenged the district court’s grant of summary judgment to Plaintiff and Plaintiff challenged the prejudgment interest rate.

On Reliance Standard’s appeal, the First Circuit addressed “whether Ministeri was covered by his basic life insurance at the time of his death; whether Ministeri was covered by his supplemental life insurance at that time; and whether the amount of the supplemental life insurance benefit, if available at all, was obliterated by the application of the insurance policy’s so-called ‘cap’.” The insurance policy covered those employees belonging to an “Eligible Class.” Ministeri’s class was “Active … Part-time Corporate Vice President” at AECOM. Insurance terminates when an insured ceases to be in an Eligible Class. Reliance argued that the work Ministeri did after May 2nd was not the kind of work expected of an “Active … Corporate Vice President” and even if it was, he did not work 24 hours a week.

Applying contra proferentem and in solidarity with its sister circuits that have considered this issue, the court held that the phrase “Active … Corporate Vice President” in this policy is ambiguous and must be construed against Reliance. Under a reasonable construction of this phrase, Ministeri could be regarded as an “Active … Corporate Vice President” as long as he was a non-retired employee holding a job title matching the rank of Corporate Vice President. Ministeri was a current employee until he formally took leave on August 8, 2014. With respect to the “Part-time” definition, the court found it reasonable to read “regularly scheduled work week” as “denoting any week that is not disrupted by holidays or other sanctioned time off, such as vacation days, sick days, or personal days.” After May 2nd, Ministeri’s schedule, which included attending many medical appointments, was at least implicitly sanctioned by AECOM. His work after May 2nd could be described as irregularly scheduled and whether he managed to work at least 20 hours a week is besides the point.  “The eligibility provision requiring Ministeri to work at least twenty hours ‘during [his] regularly scheduled work week’ could reasonably refer to his typical weekly workload before the chaos introduced by his medical condition.” Construing the ambiguous terms in the policy against Reliance, there was no requirement that Ministeri work any specific number of hours during his irregularly scheduled workweeks. Thus, Ministeri was working “Part-time” within the policy’s meaning until he formally took leave on August 8, 2014. The court further found that the policy’s provisions for a one-year continuation and 60-day conversion means that Ministeri’s basic life insurance coverage was in effect when he died on October 2, 2015.

While in litigation, Reliance argued that Ministeri’s failure to apply for portability is grounds for its denial of supplemental coverage. However, its written denial letters to Plaintiff only discussed the issue of Ministeri’s qualification for the eligible class. The court found it problematic that Reliance chose to hold that basis in reserve rather than communicate it to Plaintiff. The district court awarded the supplemental life benefits because it found that Plaintiff was prejudiced by Reliance’s conduct. As the court explained, “if the plaintiff had been apprised of the portability-application problem during the administrative process, as ERISA demands, then she might have argued that her husband was still within the eligible class at least a few days into October of 2014. If that argument were successful, then — given the twelve-month continuation period — Ministeri would have been fully covered for supplemental insurance at the time of his death without any need to apply for portability.” But now, Plaintiff is locked into the argument that Ministeri dropped out of the eligible class in August of 2014, which potentially creates a problem for the portability claim due to the missing application. Plaintiff’s prejudice is that she is foreclosed from arguing that her husband was still eligible at least into October of 2014. The court held that the district court did not abuse its discretion under section 503(a)(3)(B) by barring Reliance from raising the absent portability application as a defense to Plaintiff’s claim for supplemental coverage. Since that was the only obstacle to the supplemental coverage, the court affirmed the district court’s decision entitling Plaintiff to recover the supplemental life proceeds.

On the issue of the insurance-cap provision, the policy states:

“The amount of Supplemental Insurance coverage available under the Portability provision will be the current amount of coverage the Insured … is insured for under this Policy on the last day he/she was Actively at Work. However, the amount of coverage will never be more than … a total of $500,000 from all [Reliance] group life and accidental death and dismemberment insurance combined ….”

Reliance argued that the amount of basic life insurance exceeded $500,000 so no amount of the Supplemental Insurance was portable. The court concluded that the $500,000 insurance-cap provision refers only to the amount of supplemental insurance available through portability. Because Ministeri’s supplemental insurance was less than $500,000, the cap does not reduce Plaintiff’s recovery.

On Plaintiff’s appeal of the prejudgment interest rate, the court noted that the district court did not have enough evidence as to Reliance’s actual rate of return on its investments during the relevant period or the rate Plaintiff could have realized. “In that void, the court was left to approximate. It narrowed the range to somewhere between the federal prime rate suggested by Reliance (which it found too skimpy) and the Massachusetts statutory rate suggested by the plaintiff (which it found too rich). In the end, the court landed upon a rough midpoint — albeit one tilted slightly toward Reliance’s position.” The court found that the district court acted within its discretion in selecting a prejudgment interest rate of 7.5%.

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