Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
The U.S. Supreme Court declined to review an appeals court decision that Section 502(a)(2) of the Employee Retirement Income Security Actdoes not permit a life insurance beneficiary to recover unpaid benefits as a remedy for a plan administrator's alleged fiduciary breaches (Walker v. Federal Express Corp., U.S., No. 12-465, 1/7/13).
The beneficiary sought to recover life insurance benefits from the employee life insurance coverage her spouse elected while he was employed by Federal Express Corp. FedEx denied the beneficiary's claim because the insured had failed to convert his group life insurance coverage into an individual life insurance policy after FedEx terminated him.
The beneficiary filed a lawsuit and alleged that FedEx and ADP Inc., which provided Consolidated Omnibus Budget Reconciliation Act notifications on FedEx's behalf, had breached fiduciary duties under ERISA by failing to properly notify the insured of his rights to convert the life insurance policy.
Clyde Walker began working for FedEx in 1983 and participated in its ERISA-governed group term life insurance policy. Walker suffered a debilitating stroke and took a leave of absence in October 2001. Walker began making out-of-pocket premium payments for his health and life insurance coverage during his leave of absence because those premium payments could not be deducted from his paycheck.
FedEx terminated Walker in March 2002 after he failed to return from his leave of absence. To continue his life insurance coverage after his termination, Walker was required to convert his group life insurance coverage into an individual life insurance policy within 31 days of receiving the conversion notice. Walker needed to apply to an appropriate insurance company and make a premium payment to successfully convert his policy.
Walker failed to convert his life insurance coverage and died in June 2002. FedEx did not pay life insurance benefits to Walker's beneficiary following his death. The beneficiary filed a life insurance claim in July 2006, but FedEx denied this claim because Walker had failed to convert his life insurance policy. After exhausting administrative remedies, the beneficiary filed a lawsuit in the U.S. District Court for the Western District of Tennessee and sought recovery of Walker's life insurance benefits.
The beneficiary alleged that FedEx and ADP breached fiduciary duties by failing to provide appropriate COBRA notification that contained the life insurance conversion form. FedEx moved for summary judgment and argued that ERISA provided no remedy for the beneficiary's fiduciary duty claim and that ERISA did not require notice of life insurance conversion rights.
The district court agreed with FedEx and dismissed the beneficiary's fiduciary breach claim after concluding that ERISA Section 502(a)(2) precluded individual recovery. The beneficiary appealed.
In an unpublished opinion, the U.S. Court of Appeals for the Sixth Circuit affirmed the district court's decision (135 PBD, 7/16/12; 39 BPR 1371, 7/17/12; 53 EBC 2959). According to the appeals court, ERISA Section 502(a)(2) permitted civil actions for appropriate relief under ERISA Section 409, which holds plan fiduciaries personally liable for plan losses due to breaches of fiduciary duties. Section 502(a)(2) barred “Plaintiff's recovery for individual relief in the form of payment for the individual insurance policy and requires Plaintiff to allege injury with respect to the actual plan,” the appeals court said.
In her petition for certiorari, the beneficiary asked the Supreme Court to decide whether the Sixth Circuit erred when it determined she was not entitled to recover individual benefits under ERISA Section 502(a)(2) and whether ERISA required FedEx to provide notice of conversion rights from group life insurance to individual life insurance policies.
The petition for review was filed by Florence M. Johnson of Johnson & Brown, Memphis, Tenn.
The full text of the Sixth Circuit opinion is at http://op.bna.com/pen.nsf/r?Open=mmaa-93qpsa.
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