FIRST CIRCUIT FINDS INSURER BREACHED ITS FIDUCIARY DUTY BY NOT CONFIRMING EVIDENCE OF INSURABILITY
In
Shields v. United of Omaha Life Insurance Company, 50 F.4
th 236 (1
st Cir. 2022), the First Circuit Court of Appeals vacated a judgment of the Massachusetts District Court that found United of Omaha had no fiduciary duty to Shields regarding enrollment in the benefit plan, and remanded the case to the district court.
Shields’ husband’s employer provided the husband with a life insurance benefit plan. When the husband was hired in 2008, he applied for the guaranteed issue of life insurance, along with supplemental life coverage in an amount equal to three times his salary. Because the amount of supplemental coverage he requested exceeded the guaranteed limit by $100,000, Shield’s husband was first required to submit evidence of insurability to United of Omaha. Under the terms of the plan, it was generally expected that the employer would provide the appropriate form to the employee and submit it to United of Omaha. The form was never provided to the husband and never submitted to United of Omaha, but the employer withheld premiums for the full amount of coverage applied for.
At the district court level, the court ruled in favor of United of Omaha on all counts. Specifically, it found that because the plan language unambiguously required United of Omaha to approve evidence of good health in order to trigger the supplemental coverage, a claim for benefits pursuant to 29 U.S.C. § 1132(a)(1)(B) failed. The district court also found that Shields failed to prove that United of Omaha breached any fiduciary duty.
On appeal, the First Circuit upheld the district court with respect to the benefit claim pursuant to § 1132(a)(1)(B). The court held that by failing to submit any document regarding the husband’s health, Shields failed to satisfy the plan requirements and therefore no benefits were payable pursuant to that claim.
The court also refused to accept Shields’ argument that United of Omaha had waived its right to enforce the evidence of insurability requirements because of the actions of Shields' employer. Admittedly, the employer had wrongly communicated to Shields that he was covered for the supplemental coverage for which he was paying premium. However, United of Omaha argued, and the court explained, that the evidence was lacking as to whether the employer was acting as an agent for United when those representations were made. However, instead of basing its conclusion as to waiver on those grounds, the court focused on the strict elements of proving waiver under First Circuit precedent. The court held that Shields had not established that United of Omaha had exhibited conduct or expressed language consistent with and indicative of an intent to voluntarily relinquish a particular right such that no other reasonable explanation was possible.
However, the court ultimately vacated the district court’s determination regarding the breach of fiduciary duty. United of Omaha argued that because the benefit plan was self-administered by Shields’ employer, United of Omaha had no obligation to ensure that Shields’ husband had submitted evidence of insurability. However, the First Circuit held that because United of Omaha had authority under the plan documents to determine eligibility for benefits, United of Omaha had an obligation to timely determine whether Shields’ husband was eligible for the excess coverage once it began accepting premiums. The court was also persuaded by the absence of any language in the plan documents that specifically assigned the duty to verify that employees who paid premiums for supplemental coverage were eligible to do so. The court held that the employer’s obligation to collect premiums and transmit them to United of Omaha did not place responsibility on the employer to ensure ineligible employees were paying premium. The court also seemed to indicate that language in the plan which specifically assigned the responsibility for enrolling eligible persons for coverage to the employer would be sufficient.
The court held it did not have sufficient information to determine whether United of Omaha had made any effort to confirm the husband’s eligibility for coverage. It therefore remanded the case to the district court for further proceedings to make that determination.
At least in the First Circuit, this decision sends a directive to ERISA plans that the obligation to ensure that only eligible employees submit premium for coverage should be clearly delineated between the employer and the insurer.
