Life Insurance ERISA Plan

Life Insurance attorneys in the Dallas and Fort Worth area will see life insurance policies that are ERISA plans. They learn quickly that ERISA plans are different from other types of life insurance plans. This is illustrated in a 5th Circuit Court of Appeals case styled, Ellis v. Reliance Standard Life Insurance. Here is what that case says.
In this life insurance benefit dispute Patricia Ellis appeals the district court’s grant of summary judgment in favor of her deceased husband’s life insurance provider, Reliance Standard Life Insurance Company (“RSL”). The district court held that RSL did not abuse its discretion as a plan administrator when it calculated the death benefit paid to Mrs. Ellis following her husband’s death using his 2009, as opposed to his 2010, income.
The late Randolph Ellis was employed by Taylor Morrison Inc., a homebuilding company, as a commissioned real estate salesman starting in 2005. Taylor Morrison offered life insurance to its employees. The insurance was underwritten and administered through RSL. The policy is governed by the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.
The policy pays its beneficiary “[t]wo (2) times earnings, rounded to the next higher $1,000, subject to a maximum of $700,000.” “Earnings” is defined under the policy as “the greater of $60,000 or the amount of wages Taylor Morrison paid to the insured as reported on his/her W-2 form for the year just before the date of loss.” If the W-2 for the year just before the date of loss is for less than a full year, the amount is annualized.
The policy contains two provisions concerning the effects injury or disability have on coverage. These two provisions are the “waiver of premium in event of total disability” provision (“waiver provision”) and the “continuation of individual insurance” provision (“continuation provision”). The waiver provision states that RSL will extend insurance in one year increments if the insured meets six criteria:
1) an Insured becomes totally disabled prior to age 60;
2) the Total Disability begins while he/she is insured;
3) the Total Disability begins while this [p]olicy is in force;
4) the Total Disability lasts for at least 6 months;
5) the premium continues to be paid; and 6) [RSL receives] proof of Total Disability within one (1) year from the date it began.

This extended life insurance coverage pays the beneficiary “the amount that was in force at the time that Total Disability began.” That amount cannot increase. Additionally, if an individual qualifies for the waiver provision, neither the employer nor the insured is required to pay premiums and any premiums paid following the disability are refunded.
The continuation provision allows the insured to extend insurance coverage for a period of up to twelve months if the insured continues to pay the premium and the reason for the insured’s ineligibility is illness or injury. The continuation provision, therefore, is a gap-filling provision allowing coverage to continue during illness or injury for up to twelve months, so long as premiums are paid. The waiver provision, in contrast, addresses total (i.e. permanent) disability, can be extended in one year increments, and does not require payment of premiums. The policy contains no language suggesting that either the waiver or continuation provision would take precedence in the event an insured qualified for both.
The policy also contains a section addressing “Changes in Amount of Insurance,” which covers what circumstances may change the size of the death benefit. This provision requires that an individual must be “Actively at Work” for the amount of the death benefit to change. “Actively at work” is defined as “actually performing on a Full-time basis each and every duty pertaining to his/her job in the place where and the manner in which the job is normally performed.” “Full-time” is defined as a minimum of 32 hours of work each week.
Mr. Ellis began his policy with RSL in 2008. He was diagnosed with carcinoma on August 22, 2010. He stopped working on November 19, 2010. During the 2009 tax year Mr. Ellis earned $144,065.85. During the 2010 tax year Mr. Ellis earned $334,478.99.
On November 19, 2010, Mr. Ellis filed a claim for disability benefits and was subsequently paid such benefits under RSL’s short- and long-term disability insurance coverage. He received disability payments from the date of his diagnosis until his death on November 10, 2011.
Absent the application of the waiver or continuation provision, the policy would have been automatically terminated when Mr. Ellis stopped working full-time for Taylor Morrison on November 19, 2010. Taylor Morrison, however, began paying Mr. Ellis’s premiums under the continuation provision following his disability. Subsequently, on August 25, 2011, Mr. Ellis applied for a waiver of premium in the event of total disability. At that time, he met the six requirements necessary for the waiver provision to apply. RSL did not officially confirm Mr. Ellis’s enrollment in waiver provision benefits until August 2012, many months after his death.
Mr. Ellis died on November 10, 2011. Mrs. Ellis submitted a claim for death benefits on January 4, 2012. Under the policy, RSL paid plaintiff $325,600: two times Mr. Ellis’s 2009 income of $147,790.23, rounded up to the nearest thousand. RSL calculated the death benefit using Mr. Ellis’s 2009 W-2 income because it was the income “in force” when total disability began (i.e., the income indicated on his W-2 from the year prior to his 2010 disability).
Mrs. Ellis challenged the amount of the death benefit to RSL on July 24, 2012. She argued that that the “date of loss” for purposes of determining the death benefit should have been the date of Mr. Ellis’s death, November 10, 2011. Following from this, the death benefit would be calculated using Mr. Ellis’s 2010 W-2 income because that was the year prior to Mr. Ellis’s death. This change would have resulted in a benefit of $677,000: an increase of over $350,000.
On August 7, 2012, RSL declined to adjust the death benefit paid to Mrs. Ellis. RSL noted that Mr. Ellis began receiving disability payments and stopped working on November 19, 2010, and was later granted the Waiver of Premium in Event of Total Disability benefit. Since the waiver provision states that the amount of insurance will be the amount that was in force at the time that total disability began, the policy required that November 19, 2010 be used as the date of loss. Thus, RSL used the prior year’s 2009 W-2 income to calculate the benefit owed. Also on August 7, 2012, RSL, for the first time, confirmed in writing that Mr. Ellis “had qualified” for the waiver provision of the policy starting on November 19, 2010. Mrs. Ellis internally appealed this determination and RSL’s Quality Review Unit affirmed the determination of the death benefit on December 19, 2012.
The district court granted RSL’s motion for summary judgment. The district court held that Ellis’s argument that “date of loss” referred to death and not to the beginning of total disability was inconsistent with the terms of the policy. It also held that RSL did not “abuse its discretion or interpret the contract in an unreasonable fashion” when it concluded that the waiver of premium application could be considered in force even if it had not been formally approved before death.
In discussing the case, this Court stated that the policy clearly states that RSL “shall serve as the claims review fiduciary . . . and has the discretionary authority to interpret the Plan and the insurance policy and to determine eligibility for benefits.” As a consequence, RSL is a plan administrator and the court examines its decision for an abuse of discretion.
Again, the policy provides that the death benefit will be paid in the amount of “two (2) times earnings, rounded to the next higher $1,000, subject to a maximum of $700,000.” “Earnings” is defined as “the amount of wages Morrison paid to the insured as reported on his/her W-2 form for the year just before the date of loss.”
“Date of loss” is not defined in the general definition section of the policy. Mrs. Ellis argues that the term is ambiguous in the policy and should be held to mean “date of death.” That argument is unpersuasive. The language in the waiver provision makes clear that the date when coverage under the waiver provision begins is the day that the insured became “Totally Disabled,” irrespective of the use of the term elsewhere in the contract.

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