Ninth Circuit Revives Breach of Fiduciary Duty Claim Against Employer for Failing to Notify Terminally Ill Employee of Loss of Life Insurance Coverage

In Estate of Foster through Foster v. Am. Marine SVS Grp. Benefit Plan, No. 20-35023, __F.App’x__, 2021 WL 461938 (9th Cir. Feb. 9, 2021), the Ninth Circuit Court of Appeals revived ERISA breach of fiduciary duty claims against an employer who failed to provide a sick employee with important information about his life insurance benefits.

This case involves the unfortunate situation of a terminally ill employee, Kirk Foster, who died two months after he was no longer covered by his former employer’s group life insurance policy. Plaintiff-Appellant Kelly Foster (“Foster”) is the representative of her husband Kirk’s estate. “This appeal concerns whether Kirk received sufficient notice that his life insurance coverage would end [as of the date his employer stopped paying premiums] unless he converted the policy to an individual policy and started paying the premiums himself.”

Kirk worked for American Marine when he became terminally ill in March 2015 from esophageal cancer. American Marine laid him off on February 1, 2016 and worked with him to file a claim for long-term disability (“LTD”) benefits with United, which United approved on February 15. Kirk continued to receive his salary via accrued vacation and sick days until April 15. However, Kirk volunteered to train his replacement, which he did from April 21 to April 26. American Marine stopped paying for his life insurance benefits on April 30. Kirk received LTD benefits until his death on June 24.

Foster sought payment of Kirk’s life insurance benefits from United, but United denied the claim. As summarized by the court:

“United concluded that Kirk was ineligible for life insurance benefits when he died on June 24, 2016, because (1) his life insurance coverage ended when American Marine stopped paying premiums on April 30; (2) he failed to exercise his conversion privilege within thirty-one days, or by May 31; and (3) his death in June did not occur during the conversion period. United also determined that, although Kirk was totally disabled as of February 1, 2016, he did not qualify for a waiver of the life insurance premium because he had not completed the disability elimination period, which required nine consecutive months of total disability coupled with premium payments. Relatedly, according to United, Kirk did not qualify for life insurance benefits under the provision that grants benefits to employees who die during the disability elimination period, because the period ended for Kirk in April when American Marine stopped paying premiums.”

Of the five claims asserted against Defendants, the district court dismissed two and granted summary judgment to Defendants on the remaining three claims. The Ninth Circuit determined that the district court erred in granting summary judgment to American Marine on Counts III and VI. Count III alleged that Defendants failed to provide notice that Kirk’s life insurance benefits were ending, thereby denying him his conversion privilege. Count VI alleged that American Marine breached a fiduciary duty to Kirk.

The court explained that a fiduciary “has an obligation to convey complete and accurate information material to the beneficiary’s circumstance, even when a beneficiary has not specifically asked for the information.” Given the circumstances of Kirk’s employment termination, it was not enough that American Marine provided Kirk with the Life Certificate/SPD, which apprised him of his conversion rights. The court held “that American Marine was required to provide further explanation under the circumstances. Although Kirk had notice of the existence of the conversion policy, the Life Certificate/SPD is ambiguous as to the exact date that the thirty-one-day conversion clock started for Kirk.” The ambiguity was magnified when American Marine continued to pay Kirk’s life insurance premiums after he was laid off. As the employer, it knew when Kirk’s benefits would end because it controlled when it stopped paying premiums. The court also noted that American Marine knew that Kirk was severely ill. The court reversed the district court insofar as it held that American Marine had no duty to notify Kirk that his life insurance coverage would end on April 30, beyond sending him the Life Certificate/SPD. The court found a genuine issue of material fact as to whether Kirk knew when his coverage would end. The court affirmed in part; reversed and remanded in part.

Though this decision is an unpublished decision, it is part of a recent wave of cases which hold employers responsible for failing to provide important information to employees who lose life insurance coverage as a result of disability and/or loss of employment. Employers should not assume that provision of life insurance policy documents is enough to satisfy their fiduciary obligations.