The U.S. District Court for the District of Massachusetts has ruled, in Erban v. Tufts Medical Center, that an employer may violate its fiduciary duties by failing to inform a participant about vital plan information.
Law. A person who is not a named fiduciary may nonetheless be a “functional fiduciary” to the extent it “exercises any discretionary authority or discretionary control respecting management of such plan or…has any discretionary authority or discretionary responsibility in the administration of such plan.”
The Supreme Court has held that an entity may act as a fiduciary when it “answer[s] beneficiaries’ questions about the meaning of the terms of a plan so that those beneficiaries can more easily obtain the plan’s benefits.” A fiduciary, may be liable when it misleads beneficiaries while “offer[ing] beneficiaries detailed plan information in order to help them decide whether to remain with the plan,” particularly where “reasonable employees…could have thought that [the employer] was communicating with them both in its capacity as employer and in its capacity as plan administrator.”
Facts. A plan participant, who was enrolled in his employer’s basic and supplemental life insurance plan, died shortly after terminating employment. During his period of disability, the employer informed the employee that after his basic life insurance policy terminated, he had 31 days to convert the policy to an individual policy and provided him with a conversion form and additional information.
When his spouse applied for life insurance benefits, the plan’s insurer denied the claim because premium payments had stopped, thereby terminating the coverage, and because no conversion form had been received. The spouse sued the employer for a violation of its fiduciary duties due to its failure to communicate the plan’s continuation and conversion provisions in terms she could understand. The employer then asked for the lawsuit to be dismissed because the plan had no conversion policy and other forms of continuation coverage had been adequately explained.
Plan provisions granted the insurer “full discretion and authority to determine eligibility for benefits and to “construe and interpret all terms and provisions of the Policy.” However, participants and beneficiaries of the plan would contact the employer’s HR office with benefits-related questions. The employer, as plan administrator was also a plan fiduciary.
District Court. The court first ruled that the plan document’s provision did, in fact, create a “right to convert” terminated life insurance coverage.
Then, citing prior cases, it noted that, “although fiduciaries need not generally provide individualized unsolicited advice, they do have an affirmative duty to convey material information when they know that silence could be harmful… and cannot remain silent if [they] know or should know that the beneficiary is laboring under a material misunderstanding of plan benefits.” However, “a fiduciary is not obligated to seek out employees to ensure that they understand the plan’s provisions.”
The court then turned to the specifics of this case and, having looked at communications from the employer. it ruled that the employer did not breach its duty with regards to information on the basic insurance conversion claim. Therefore, the court granted the employer’s motion for summary judgment with respect to the conversion claim for the basic life insurance, even though the spouse had said she did not understand the communications.
However, with regards to the supplemental insurance claim, the court said that the employer’s knowledge of the employee’s condition and its role “answering questions about the meaning of the terms of [the] [P]lan” created an affirmative duty to inform. None of the employer’s communications with the employee and his spouse clearly communicated that a $400,000 supplemental policy was in force and also required conversion.
It ruled that if “the written materials are inadequate, then the fiduciaries themselves must be held responsible for the failure to provide complete and correct material information.” Having failed to do so, the employer was liable for the amount of supplemental insurance coverage.