The Fourth Circuit Court of Appeals, in Dawson-Murdock v. Nat’l Counseling Group, Inc., has allowed a life insurance beneficiary to sue her husband’s employer for breach of fiduciary duties concluding that she had sufficiently alleged that the employer was an ERISA fiduciary.
Law. Under ERISA, a named fiduciary is anyone who is identified as such by the plan documents, and a functional fiduciary is anyone who has discretionary control over the plan’s management and assets.
Background. An employee obtained life insurance coverage through his employer’s ERISA-covered group life insurance plan. The governing plan document identified the employer as the ERISA plan administrator and named fiduciary. The employer’s administrative responsibilities for the plan included: (i) collecting premium payments; (ii) providing the insurer with information about who was eligible for coverage; and (iii) informing the insurer when an individual’s coverage ended.
The employee moved from full-time to part-time employment status and, as a result, became ineligible to participate in the life insurance plan. The employer, however, did not inform the employee that by transitioning to part-time employment he: (i) had become ineligible to participate in the plan; and (ii) had the option to convert his life insurance coverage. In addition, the employee continued to pay (and the employer continued to accept) premiums for the life insurance coverage, even after he commenced part-time employment.
The employee died, and his spouse, as designated beneficiary, filed a benefits claim. The insurer denied the spouse’s claim on the basis that the employee had not converted his life insurance coverage after he became ineligible to participate in the plan. During the following months, the spouse was in contact with the employer’s vice president of human resources, who said the employer would pay her life insurance claim and that she did not have to appeal the insurer’s denial of benefits.
The employer later changed its decision and told the spouse that it would not pay her claim. By then, the period during which the spouse could have appealed the insurer’s denial of benefits had expired.
The spouse sued the employer, alleging that it had breached its fiduciary duties by not informing the employee that he had become ineligible for coverage and that he had the option to convert his coverage. The spouse also asserted that the employer had breached its fiduciary duties under ERISA by telling her that she did not need to appeal the insurer’s denial of benefits.
Fourth Circuit. The spouse argued that the employer’s conduct was necessarily fiduciary because it was both the ERISA plan administrator and the named fiduciary. The spouse also argued that the employer was a functional fiduciary under ERISA because of the vice president’s conduct. Conversely, the employer argued that, although it was both an ERISA plan administrator and a named fiduciary, its conduct was not fiduciary in nature under ERISA because it only acted in an administrative capacity.
The Fourth Circuit rejected the employer’s argument, affirming that a named fiduciary is an ERISA fiduciary. It further determined that the spouse’s complaint adequately alleged that the employer was a functional fiduciary because of its status as plan administrator and because of the vice president’s individualized advice to the spouse regarding her claim. The Fourth Circuit also noted its prior decisions in which it had held that a plan administrator acts in a fiduciary capacity when it verifies employee eligibility for plan participation.
The Court’s decision in Dawson-Murdock v. Nat’l Counseling Group, Inc. is available by clicking here.