Worker-Paid LTD Coverage Can’t Be Severed From Employer’s ERISA Plan


Duncan v. Unum Life Ins. Co. of Am., 2022 WL 2812659 (M.D. Tenn. 2022)

Accessible at material/pkg/USCOURTS-tnmd-3_20-cv-00600/pdf/USCOURTS-tnmd-3_20-cv-00600-0.pdf

A person sued an insurer in state courtroom after it denied parts of his declare for long-term incapacity (LTD) advantages. Searching for the safety of ERISA preemption, the insurer efficiently eliminated the case to federal courtroom. In reference to the person’s request for a jury trial, the federal courtroom wanted to find out whether or not the LTD coverage was topic to ERISA. (Generally, there is no such thing as a proper to a jury trial for ERISA lawsuits.) To do that, the courtroom analyzed whether or not the LTD coverage was a part of an employer-sponsored ERISA plan or whether or not it fell inside the DOL’s regulatory protected harbor exempting sure “voluntary” insurance coverage preparations from ERISA if staff pay the complete premium and the employer makes no contributions and doesn’t endorse the association.

The employer supplied quite a lot of advantages, with protection offered beneath 4 separate insurance policies obtained from the identical insurer and offered as a gaggle advantages plan for workers—fundamental life, voluntary life, short-term incapacity, and the LTD protection. The employer paid the premiums for the fundamental life protection, whereas premiums for the opposite sorts of protection have been employee-funded. The courtroom agreed with the insurer that the LTD coverage was a part of the employer’s general plan and was endorsed by the employer, making the protected harbor inapplicable. It rejected the person’s competition that the LTD coverage must be severed from the employer’s different advantages and analyzed individually beneath the protected harbor. Distinguishing a case the person cited in assist of severing the LTD coverage from the others, the courtroom famous that, amongst different issues, the insurance policies in that case have been issued by totally different insurers, whereas right here the employer procured all the insurance policies from the identical insurer on the identical time. The courtroom defined that “employee-funded incapacity advantages aren’t severable from employer-funded insurance policy” for functions of evaluating ERISA’s applicability—notably when the employer “actively engaged in choosing each the employer-funded and employee-funded insurance policies that comprise a advantages package deal.” There was proof right here that the employer utilized for the protection, chosen the sorts of protection that might be included within the plan, and retained the correct to amend, modify, or terminate the plan—actions that mirrored endorsement. Because the LTD coverage was a part of the general ERISA plan, the person was not entitled to a jury trial.

EBIA Remark: As a result of state-law claims sometimes carry greater potential damages and penalties than these accessible beneath ERISA, people usually search to make use of the voluntary plan protected harbor to keep away from ERISA’s software, whereas insurers take the other stance (see, e.g., our Checkpoint article). For employers, misunderstanding the protected harbor’s parameters—believing that the protected harbor applies when in actual fact it doesn’t—can result in ERISA compliance failures. Given the info recognized by the courtroom, nevertheless, it seems that this employer supposed all elements to be a part of its ERISA advantages program. For extra info, see EBIA’s ERISA Compliance handbook at Sections VII.C (“Detailed Assessment of Voluntary Plan Secure Harbor”) and XXXVI.J.2 (“Is There a Proper to Jury Trial Below ERISA?”).

Contributing Editors: EBIA Workers.


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