Allstate Can’t Nix Retirees’ERISA Lawsuit Over Lifetime Benefits

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

Sept. 28 — Allstate Insurance Co. lost its bid to dismiss a putative class action challenging the insurance giant’s decision to terminate life insurance benefits it provides to retirees ( Turner v. Allstate Ins. Co. , M.D. Ala., No. 2:13-cv-00685-WKW, 9/27/16 ).

Chief Judge W. Keith Watkins of the U.S. District Court for the Middle District of Alabama denied in part Allstate’s motion to dismiss. The retirees sufficiently alleged that Allstate violated the Employee Retirement Income Security Act by failing to provide life insurance at no cost for the rest of their lives, Watkins said. In addition, the retirees adequately alleged that Allstate breached its fiduciary duties by failing to communicate truthfully about the terms of the company’s employee group life insurance plan.

The Sept. 27 decision is the latest development in two putative class actions against Allstate by retired former employees fighting the company’s decision to stop paying their life insurance premiums after the end of 2015. In December 2015, Watkins ordered Allstate to continue paying life insurance premiums and in a second Sept. 27 decision, he upheld and extended that order.

Allstate’s Representations

The retirees alleged and presented evidence that Allstate represented to them that the retiree life insurance benefit would be permanent, “paid-up” for life, in effect for the remainder of retirees’ lives and until death, and with no premiums due. The policies would also be provided by Allstate upon retirement with all associated premiums paid for by the insurer for life and without further contribution from retirees, the court noted.

Allstate admitted that it did make these representations, the court said.

The insurer argued that employee welfare benefits such as life insurance don’t vest simply because they continue into retirement, particularly when other plan provisions establish that benefits can be terminated.

In rejecting this argument, the court noted that Allstate retirees didn’t claim that their life insurance benefit vested simply because they received a promise that it would continue into retirement. Rather, the retirees alleged that Allstate violated the plan by failing to provide permanent, paid-up insurance and by canceling the plans.

Allstate’s reservation of rights to cancel benefits could reasonably be understood to apply to other benefits under the plan, including employee group life insurance policies, or to the potential to modify retiree life insurance offered to existing employees, the court said. However, this reservation of rights couldn’t apply to retiree life insurance that—according to Allstate’s representations—the retirees received upon their retirement, fully paid up, with no further premiums due, the court said.

The retirees’ case involves an “alleged promise of paid up insurance” that by Allstate’s own admission, the insurer never intended to provide and by definition, once issued, couldn’t be canceled or terminated at Allstate’s discretion, the court said.

The court allowed the retirees’ ERISA claims to move on, but it dismissed their state law breach-of-contract claim because it was preempted by the federal statute.

Heninger Garrison Davis LLC, Kearney D. Hutsler III and the Pearl Law Firm represented the retirees. Lehr Middlebrooks & Vreeland PC and Sidley Austin LLP represented Allstate.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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