Unintended Errors in Benefits Communications May Result in Liability under ERISA

Employee benefits issues have become increasingly complex.  It is, therefore, not surprising that, from time to time, those charged with administering ERISA plans may make mistakes in communicating with participants about benefits.  However, as the decision in Winkelspecht v. Gustave A. Larson Company, et al., (pdf.) illustrates, those mistakes may prove costly to employers sponsoring and administering ERISA plans.  In Winkelspecht, an email from an employer’s Administrator of Payroll and Benefits, erroneously advising a participant that the company would continue to pay his life insurance premiums post-retirement, provided the basis to find the employer and the life insurance plan liable for the benefit under principles of ERISA estoppel. 

The Facts

Mr. Winkelspecht (referred to as “Wink” in the decision) retired after 35 years with his employer.  Prior to retirement, he contacted his employer to inquire about continuing his life insurance benefits post-retirement.  The life insurance, in the amount of $103,000.00, was insured through a policy with a third-party insurer, with premiums paid by the employer.  The company’s regular Administrator of Payroll and Benefits was on maternity leave at the time, so Wink’s question was fielded by a temporary employee.  The temporary employee responded, by phone and then by email, that the life insurance benefit would be continued and paid for by the employer.  The contrary was true.  The summary plan description (SPD) advised participants that they had 31 days after their employment ceased to convert into “portable coverage” and pay the first premium.  When Wink died, his daughter learned from the life insurance company that the coverage had terminated at the time of Wink’s retirement. Wink’s wife (as beneficiary) sued the employer, the plan, and the life insurance company for the benefits.

The Decision

The court granted the life insurance company’s motion for summary judgment and dismissed it from the case.  Although it was the insurer and payor of the life insurance benefit being sought, the court concluded that the life insurance company had not made any misrepresentations to Wink and, consequently, could not be held liable under estoppel or for breach of fiduciary duty.  Additionally, because the plaintiff was not entitled to a life insurance benefit under the clear terms of the life insurance policy, there was no contractual basis to hold the life insurance company liable.

The court also granted the plaintiff’s motion for summary judgment on her estoppel claim, finding evidence of:  (1) a knowing misrepresentation; (2) made in writing; (3) reasonable reliance on that representation; and (4) damages. The court surveyed the law in the Seventh Circuit and declined to require an “intent to deceive” as an essential element of an estoppel claim; a knowing misrepresentation sufficed, the court concluded.  The court also rejected the employer’s argument that the plaintiff’s claim sought an improper modification of the plan.  The SPD may have advised employees that their coverage would terminate if not converted, but it was silent on who would be responsible for paying the premiums for the coverage.  By assuring Wink that his employer would pay the premiums, the temporary administrator was not construing the plan; rather, “she was assuring him of [the employer’s] intent.”

The court also found the employer liable for breach of fiduciary duty.  The court agreed that the temporary administrator was not an ERISA fiduciary.  Nevertheless, it concluded that her misrepresentation triggered fiduciary liability for the employer (in its capacity as plan administrator) because, inter alia, the employer held the temp out to participants as its representative for benefits purposes, and did not adequately train her on issues surrounding the life insurance plan.  The court distinguished Seventh Circuit law refusing to hold fiduciaries liable for misrepresentations made by non-fiduciary agents, explaining that, in those cases, the fiduciaries had satisfied their duties by distributing to participants clear and complete plan documents.  In this case, the court stated, the employer had distributed an SPD which did not clearly address who would be responsible for the life insurance premiums in question.

The Remedy

Notwithstanding its finding that the employer was liable for breach of fiduciary duty under ERISA, the court denied the plaintiff’s motion for summary judgment on her fiduciary breach claim.  Citing case law limiting relief for fiduciary breaches to “appropriate equitable relief,” the court stated that it was unclear what, if any, relief the plaintiff might be entitled to for such a breach.  Notably, the court did not specify what the plaintiff’s remedy would be for her estoppel claim.  Since the life insurance benefit insured with the life insurance company had been terminated, compelling the employer to pay the premiums promised would not have resulted in the plaintiff receiving the $103,000.00 life insurance proceeds. 

Lessons Learned . . .

Plan administrators should continue to train and monitor those charged with communicating with participants about benefits to ensure that they are conveying complete and accurate information.  In parallel, they should carefully review their plan documents and written communications to ensure their clarity.  Although neither of these steps is likely to avoid participant litigation entirely, both may strengthen an employer/plan administrator’s defenses if litigation surfaces.

 

 

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.