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When Anthony Hayes’ employment ended, so did his employer’s life insurance policy. Hayes then missed the deadline to convert his coverage to an individual policy. After Hayes died, his surviving spouse filed suit seeking relief under a provision of the Employee Retirement Income Security Act that allows “a participant or beneficiary” of an employee benefit plan “to recover past due benefits” “in accordance with the terms of [the] the plan.”
IN Kathy Hayes v. Prudential Insurance Company Of AmericaNo. 21-2406, United States Court of Appeals, Fourth Circuit (February 23, 2023) Ms. Hayes sought benefits under an employee life insurance policy based on equity – that the decedent was too ill to convert his employee life insurance policy to a personal policy even though he did not meet the requirement of the ERISA plan.
FACTS
Hayes worked as an environmental engineer for DSM North America, Inc. and had employer-provided life insurance with defendant Prudential Insurance Company. Prudential was both the insurer and the administrator of the employer-provided benefit plan. The plan gave Prudential “the sole discretion to interpret [the plan’s] terms and conditions. . . and to determine eligibility for benefits.”
In 2015, Hayes lost his job due to medical issues and his employer’s life insurance coverage lapsed. However, the terms of the plan allowed former employees to convert the employer’s coverage to an individual policy. To do so, the plan required Hayes to initiate the conversion process “no later than” 31 days after his employer’s provision of coverage ended or 15 days after receiving “written notice of the conversion privilege.” The parties agree that Hayes’ deadline for conversion was December 23, 2015.
Hayes did not contact Prudential about converting his life insurance policy until 26 days after the conversion deadline. Hayes’ health continued to deteriorate and he died in June 2016.
Plaintiff filed a request for benefits, which Prudential denied. The claims administrator explained that Hayes’ employer provided “coverage terminated on 11/16/15,” and while Hayes “was eligible to convert his basic group life insurance,” “there is no conversion policy on file.”
The district court ruled in favor of Prudential. The court concluded that Prudential was “reasonably denied [p]plaintiff’s request for benefits” because “Hayes received timely notice of his conversion rights” and “did not convert his life insurance policy to an individual policy during [c]inversion [p]period.”
ANALYSIS
ERISA regulates employee retirement plans by establishing standards of conduct, responsibilities, and obligations for those plans’ trustees, and by providing appropriate remedies, sanctions, and easy access to the federal courts. ERISA creates a wide variety of public and private enforcement mechanisms.
The law allows lawsuits to recover benefits owed under the terms of the plan, but it does not allow a court to change those terms. As plaintiff admits, Hayes failed to convert his life insurance coverage within the time specified in the policy. Thus, awarding benefits would require the very step that the statute does not permit: changing the terms of the plan to provide a solution to its conversion deadline.
The plaintiff countered that she is not arguing that the plan terms should be rewritten. Instead, she asks the court to apply the equitable tolling doctrine to allow for an exception to the life insurance conversion deadline set forth in the policy because Hayes was incapacitated during the conversion period.
It doesn’t matter that Congress enacted a statute here, ERISA—to enable courts to help “implement” the agreement. The Act neither addresses access to equitable tolling nor purports to change the terms of any ERISA plan. For that reason, the Fourth Circuit was reluctant to apply equitable tolling principles that would effectively rewrite the plan.
The life insurance conversion deadline at issue here is not a statute of limitations, nor does it act as one.
However, no claim for benefits arises when a participant misses a deadline for conversion. In fact, a Participant whose policy has lapsed, unconverted, has no benefits under the Plan for any subsequent event because that Participant lacked coverage.
Employers have wide discretion to design staffing plans as they see fit, but once a plan is established, the administrator’s duty is to ensure that the plan is maintained in accordance with the written instrument. Prudential did not abuse its discretion in discharging its duty and the trial court properly resolved the sole claim before it based on agreed facts and consistent with well-settled law. The district court’s judgment was upheld.
Equitable tolling is a way of dealing with an unfair outcome between litigants. However, ERISA plans must be executed by the plan administrator as written. While it was unfortunate that the decedent could not immediately switch from his employer life insurance to a personal insurance policy, the plan was clear and the administrator had no choice but to refuse to pay for a life insurance policy that was no longer in effect.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and zalma@zalma.com
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