Shields v. United of Omaha Life Ins. Co., No. 21-1290, __F.4th__, 2022 WL 4864522 (1st Cir. Oct. 4, 2022) involves a matter of first impression in the First Circuit Court of Appeals on whether an insurer, who has discretion to accept premium payments and determine eligibility for coverage, has the fiduciary duty to make eligibility determinations reasonably close in time to acceptance of those premiums. Plaintiff-Appellant Lorna Shields is the beneficiary of voluntary term life insurance benefits provided to her now deceased husband, Myron Shields, through his employment with Duramax Marine, LLC (“Duramax”). Duramax offered basic and voluntary life insurance benefits through policies insured and administered by United of Omaha Life Insurance Company (“United”). Duramax allowed Myron to enroll and pay premiums for an additional $100,000 of excess coverage under the voluntary life insurance policy but did not give him an Evidence of Good Health form to complete, which United required for Myron to qualify for this excess coverage. Though Myron never submitted evidence of good health, United accepted his premiums for ten years. When Myron passed away, United refused to pay Lorna the $100,000 of coverage which required evidence of good health. Lorna sued United under ERISA § 502(a)(1)(B) for payment of plan benefits and under ERISA § 502(a)(3) for breach of fiduciary duty. After the district court allowed Lorna limited discovery into United’s actions with respect to biannual audit information it received from Duramax, the parties moved for summary judgment on both claims. The district court granted summary judgment on both claims to United. The First Circuit affirmed the grant of summary judgment to United on the § 502(a)(1)(B) claim but vacated the summary judgment rulings on the § 502(a)(3) claim.
First, the court held that United’s decision to deny Lorna’s claim based on Myron’s failure to submit an Evidence of Good Health form was not arbitrary and capricious. The policy required that participants provide a statement of physical condition or other evidence of good heath form, and Myron provided no documentation of good health. The court rejected Lorna’s argument that Myron showing up to work healthy and daily was sufficient to establish his insurability. Since the voluntary life insurance policy requires that participants be “actively working,” the plan’s good health requirement would be rendered superfluous if it could be satisfied by an employee showing up to work.
Second, the court held that United did not waive the requirement that Myron provide evidence of good health even though his name was on biannual censuses that Duramax provided to United. This is because United used the censuses only to determine how much to charge Duramax for the policy. There was no evidence United deemed Myron insurable for excess coverage.
Third, the court held that Duramax did not waive the right to enforce the requirement that Myron provide evidence of good health when its HR manager assured Myron that he was covered under the voluntary life insurance policy. There was no evidence that the HR manager knew at the time of his statements that Myron had not satisfied the good health requirement.
Fourth, the court held that United did not breach any fiduciary duty to notify Myron that he was not eligible for additional voluntary life insurance benefits since it was never informed that Myron had selected excess coverage and did not make an insurability determination that would have triggered a duty to notify Myron of his ineligibility.
Fifth, as a matter of first impression, the court held that because United had discretion to choose when to accept premiums and when to determine if an employee is eligible for coverage, it has a fiduciary duty to make eligibility determinations for each employee for whom it accepts premiums reasonably proximate to the acceptance of those premiums. The court noted that this conclusion was in accordance with decisions from the Fourth and Eighth Circuits. See McCravy v. Metropolitan Life Insurance Co., 690 F.3d 176 (4th Cir. 2012) and Silva v. Metropolitan Life Insurance Co., 762 F.3d 711 (8th Cir. 2014). The court found convincing the argument advanced by the Department of Labor in its amicus brief that failure to impose a fiduciary duty on an insurer in this context would incentivize a system in which the insurer is completely blind to whether employees paying for coverage are actually eligible for that coverage while it continues to accept premiums for non-existent coverage. The court found that fact issues remain as to whether United breached its duty to Myron. The district court must address whether United took reasonable steps to confirm Myron’s eligibility in a timely manner after accepting his premiums.
The court affirmed in part, vacated in part, and remanded the matter to the district court for further proceedings.
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