Life Insurance – ERISA – Part 3

Repeating what was stated in the post immediate to this one, “It is important to understand how difficult claims that are governed by the Employee Retirement Income Security Act (ERISA) can be.  The law in this area of law is very tough for claimants.”  This is illustrated again in a December 2020, opinion styled, Erica Talasek v. Unum Life Insurance Company of America, et al.  The opinion is from the Southern District of Texas, Houston Division.

The insured, Ben Talasek, had life insurance through a Plan his employer, NOV, offered.  NOV delegated authority and discretion to UNUM to handle claims and made benefit determinations.

Ben was covered by basic life insurance coverage and Ben also enrolled in a voluntary supplemental plan during November 2013.  Unlike the basic life insurance, which did not require medical underwriting, the supplemental life insurance required an employee to submit evidence of insurability and obtain approval for coverage by Unum.  On January 18, 2014, Unum sent Ben a letter informing him of an error in his application and the need for additional information.  Around this time, Ben was diagnosed with pancreatic cancer.  Ben called Unum on January 21, 2014 to check on the status of his application and was told about the January 18 letter.  Ben corrected the error on the Evidence of Insurability Form and supplied additional information.  Ben called Unum again on February 12, 2014 to check on the status of the application and was told that the standard turnaround time for a coverage decision was 4-6 weeks.  On March 3, 2014,several weeks after receiving his cancer diagnosis, Ben provided blood and urine samples and basic health history as part of Unum’s requirement that he prove insurability prior to approval of coverage.  He did not mention the cancer diagnosis.

The Administrative Record includes a March 6, 2014, letter addressed to Ben (at the same address as the January 18, 2014 letter Ben received) stating that Unum could not approve Ben’s application due to abnormal blood test results.  The Administrative Record does not contain any letter approving Ben’s application for supplemental life insurance benefits.  NOV received notice that Unum did not approve Ben’s application for supplemental benefits.  Despite the notice and the statements in the Plan that supplemental life insurance coverage is contingent on approval by Unum, NOV began deducting the increased premiums for supplemental coverage from Ben’s paycheck in April 2014 and continued to do so through 2017.  NOV also sent annual benefit confirmation statements to Ben for the years 2014 through 2017 which identified supplemental life insurance coverage as part of his benefits.  Ben passed away from pancreatic cancer on December 24, 2017.

In January 2018, Plaintiff submitted a claim for both basic and supplemental life insurance benefits under the Plan’s group life insurance policy.  Unum approved her claim for basic life insurance benefits but denied the claim for supplemental life insurance benefits.  Unum advised Plaintiff it was denying the claim because it had rejected Ben’s application for supplemental life insurance on March 6, 2014 due to the abnormal test results from his required insurability medical examination.  Plaintiff appealed Unum’s unfavorable decision on grounds that NOV deducted premiums for supplemental life insurance and sent Ben confirmation statements reflecting the supplemental life insurance coverage was part of his benefits and that Ben never received notice that this application for supplemental coverage was rejected.  Unum did not change its original claim decision.

The Defendants in this case filed motions for summary judgment.

First, with only narrow exceptions, the evidence a court may review to decide an ERISA benefits claim is limited to the Administrative Record.  Second, the Federal Rules of Evidence, including the hearsay rule, do not govern the admissibility of, or preclude the court’s consideration of, evidence in the Administrative Record.

Generally, if the plan at issue lawfully delegates discretionary authority to a plan administrator, the Court’s review is limited to determining whether the plan administrator abused that discretion.

The Court then went over, in detail, the evidence in the case.

Plaintiff argues that Unum’s acceptance of the premiums for supplemental life insurance which were deducted from Ben’s paychecks and sent to Unum by NOV creates coverage.  The Fifth Circuit, in it’s 2007 opinion, Amschwand v. Spherion Corp., has rejected the argument that the payment of premiums can create coverage that otherwise does not exist.

Plaintiff also argued estoppel as a cognizable legal theory.  This theory has been recognized by the Fifth Circuit.  The elements of ERISA estoppel are: (1) a material misrepresentation; (2) reasonable and detrimental reliance upon the representation; and (3) extraordinary circumstances.

The first element was discussed in the previous post.

The second element of ERISA estoppel requires reliance on a material misrepresentation that is both detrimental and reasonable.  Because an ERISA plan cannot be modified by oral or informal communications, an employee cannot reasonably rely on material misrepresentations contained in informal documents if the unambiguous terms of the plan or policy refute entitlement to benefits.

As to NOV, Plaintiff cannot meet her burden as tothe second element of an ERISA estoppel claim.  Plaintiff has presented a genuine issue of material fact regarding detrimental reliance but cannot show that the reliance was reasonable.  Under the terms of the group supplemental life insurance policy, Ben was required to submit Evidence of Insurability in support of his application, and Unum coverage would begin only after Unum approved the Evidence of Insurability form.  In light of the policy requirements, it was not reasonable for Ben and Plaintiff to rely on NOV’s conduct in deducting premiums and sending benefit confirmation statements as supplemental life insurance coverage.  Reliance on NOV’s payroll deductions and benefit statements was not reasonable in light of the requirement in the policy that Unum approve the Evidence of Insurability form before coverage would begin.  In addition, the 2016 Benefits Confirmation Statement sent by NOV gave further notice to Ben and Plaintiff that regardless of the elections reflected in the statement, “Insurance company approval through the Evidence of Insurability (EOI) process must be granted for these benefits before coverage and deductions can begin.”

The facts of this case make reliance on NOV’s representations particularly unreasonable.  Ben and Plaintiff knew he had cancer before he submitted the signed and corrected Evidence of Insurability Form on January 28, 2014, on which he failed to give honest answers about his medical history.  Ben also knew his application for supplemental life insurance had to be approved by Unum because he called to inquire about the status of the approval during January and February 2014,and was told the underwriting decision usually took between four and six weeks.  He also submitted to a paramedical examination and gave blood and urine samples for the Evidence of Insurability on March 3, 2014.   Yet, after early March 2014 he never again inquired of Unum about the status of his application.  These case-specific facts, in addition to the policy language, prevent reliance on the deduction of premiums and annual benefit statements from being reasonable.

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