Life Insurance And ERISA Ruling

Here is a case from the United States 7th Circuit that deals with life insurance when the policy is an Employee Retirement Income Security Act (ERISA) policy.  The case is styled, Emma Cehovic-Dixneuf v. Lisa Wong.

Pursuant to 29 U.S.C., Section 1104(a)(1)(D), ERISA requires administrators of employee benefit plans to comply with documents that control the plans.  In the case of life insurance policies, that means death benefits are paid to the beneficiary designated in the policy, notwithstanding equitable arguments or claims that others might assert.

In this case, the employee, Georges Cehovic, had two life insurance policies through his employer and the policies named his sister Emma as the sole and primary beneficiary.  When Georges died, his ex-wife, Wong, claimed that she and the child she had with Georges were entitled to the policy benefits.

The district court granted summary judgment for Emma, this appeal followed, and this court affirmed the district court ruling.

It is virtually impossible to avoid a written designation of a beneficiary for a life insurance policy governed by ERISA.

Wong argued that one of the policies were not governed by ERISA.

Five elements must be shown for ERISA to cover an employee welfare plan like an insurance plan.

  1.  a plan, fund or program
  2. established or maintained
  3. by an employer or by an employee organization, or by both
  4. for the purpose of providing medical, surgical, hospital care, sickness, accident, disability death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits
  5. to participants or their beneficiaries.

All of these criteria were satisfied in this case.

Wong asserts, however, that the policy should fall outside ERISA because Georges paid all of the premiums on the policy himself and, she says, with marital assets, without any direct subsidy from the employer.  That is not enough to avoid ERISA coverage.  The safe-harbor regulation excludes from coverage some group insurance programs, but with four requirements that must all be satisfied:

For purposes of title I of the Act and this chapter, the terms “employee welfare benefit plan” and “welfare plan” shall not include a group or group type insurance program offered by an insurer to employees or members of an employee organization, under which

1)  No contributions are made by an employer or employee organization;

2)  Participation in the program is completely voluntary or for employees or members;

3)  The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and

4)  The employer or employee organization receives no consideration in the form or cash or otherwise in connection with the program, other than reasonable compensation, excluding profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.

Wong cannot satisfy the third required element here.

The court then discussed at length why this third element was not satisfied and is a must read for someone confronting this type of situation.