Imagine you paid premiums for years toward insurance you assumed you had. The employer collected your premiums via payroll deduction and remitted the amount to the insurance company, who accepted the payments. Now imagine that you’ve experienced an event that means you need to utilize the insurance you have paid for all these years, only to learn that you were ineligible to receive any payments after submitting a claim. Finally, imagine how angry you may feel.
If you’re reading this, you aren’t likely the disgruntled employee in this scenario. You probably have some authority or working knowledge of your company’s employee benefit plans and you may be asking yourself this question: who’s at fault?Â
What happened in the Sun Life Settlement?
Unfortunately, the scenario described above really happened and happens more frequently than most of us care to think about. For life insurance company, Sun Life, a class action lawsuit was filed against them on behalf of many participants who paid premiums but were denied a right to their claim because they were declared ineligible.
Here is what prompted the lawsuit. A participant in a group-sponsored life insurance plan filed a life insurance claim for her adult son who had sadly passed away. Unfortunately, because of his age, he was no longer eligible for the coverage as a dependent child despite the employer having continued to deduct premiums for the coverage. The employee then filed this lawsuit on behalf of a class of similarly situated employees. Sun Life agreed to settle these claims because they thought it better for all parties not to undergo time-consuming and costly litigation.
While lawsuits are not common, the situation involves an industry-wide issue related to ERISA group plans where employers commonly serve as the plan administrators, enroll their employees for coverage, maintain their employees’ eligibility information and deduct premiums from their employees’ payroll. Insurers are not generally provided the ongoing, detailed enrollment information until a claim is made; upon which time the insurer will check to make sure the recipient is eligible before paying the claim.
If an employer collects payment and an insurer denies the claim due to ineligibility, who is responsible – the employer or the insurance company?
Well, given the choice between suing a small or medium-sized company or a behemoth insurance company, most plaintiffs’ attorneys will steer their clients toward the deeper pockets. However, that doesn’t mean the employer bears no responsibility nor that employer could not be joined as a party later in the suit if finger-pointing proves to be the best defense.
What should employer plan sponsors do?
At the end of the day, an employer is responsible for managing the eligibility rules of its benefits plans. It may be relatively easy and straightforward to know that a terminated employee is no longer eligible to participate in your medical plan (except through COBRA continuation coverage) but non-medical benefits are sometimes forgotten. It is reasonable to imagine a scenario where an employee doesn’t know the dependent eligibility rules of these plans or forget about them and continues to pay the premiums on a dependent who has long exceeded the age limit. As an employer sponsoring an ERISA plan, you have a fiduciary obligation to make sure your employee’s money is spent for their benefit. This includes making sure money is not collected for coverage which the employee or dependent is ineligible.Â
We suggest employers review their eligibility rules on an annual basis, following enrollment, to ensure employees and dependents continue to be eligible for elected benefits. Employers who are list billed by the insurance carrier should still review eligibility to make sure premiums collected from employees are accurate. This review should look at a range of eligibility rules for all benefits before payroll deductions begin, including (but not limited to):
Dependent child life insurance for age limits, student status and/or disability provisions;
Spouse dependents with all coverages to ensure marital status;
Sending proper notices regarding conversion rights when dependents are no longer eligible for coverage;
Life insurance for amounts above guaranteed issue limits to ensure that evidence of insurability (EOI) has been received and approved by your insurance provider; and
And any other coverages that require evidence of insurability.
Additionally, it is important to confirm the rules of when employees lose eligibility for all benefit plans if they cease being actively at work for leaves (other than FMLA) including workers compensation and layoff.
What should you do if you receive a Settlement Notice from Sun Life?
Read the contents of the packet and don’t throw it away! The notice provided by the court-appointed settlement administrator will include specific instructions to employees who are deemed part of the class. The notice will also include specific instructions for you, the employer. If you have employees who are deemed part of the class, you may need to send a court-approved notice to your affected employees (past and present). If an employer sends the notice to their employees, the proposed settlement includes a release for such employers from any claims an employee may have relating to this matter. If you use a TPA to help you administer this plan, you should notify your TPA to coordinate a communication plan with any employees deemed part of the settlement class.Â
Please reach out to your C&B Team to help you determine your specific obligations if you receive a Sun Life Settlement Notice. If you would like to learn more about how to check the eligibility rules of your benefits plans or conduct an eligibility audit, please contact your C&B Team.