Lots of companies load their policies and benefit package details on their in-house networks these days. It’s a reasonably hassle-free way of making critical info available to employees without all that wasted paper. But there are situations where relying on your intranet can expose you to some thorny legal problems.
Take, for instance, the case of Raymond Thomas, who was trying to collect on the life insurance benefit of his late sister, Judith.
Judith began working for Countryside, a home mortgage provider, in 2002. As an active employee, she automatically received various benefits, including basic life Insurance. She also opted to enroll in Countrywide’s voluntary life insurance plan, which required her to pay “contributions” to cover the premiums.
Judith stopped working for Countryside in 2004, alleging that she was disabled. She never returned to work, and eventually passed away in 2008. Her brother Raymond was named as beneficiary on both her insurance policies.
The company’s benefits policy stated that the life insurance coverage ends when an “employee is no longer in active service.” Since Judith hadn’t been working when she died, the insurance company denied Raymond’s claim for the proceeds of his sister’s policies.
Key clause
And this is where the case starts to get tangled. Countryside had opted to place its summary plan description on the company intranet, rather than distribute written copies. And in that SPD, there was a clause stating that an employee who wasn’t in “active service” could continue her life insurance coverage — with a waiver in premiums — if that employee simply provided proof of her disability within a year of leaving her job.
But Raymond claimed his sister never knew of that clause, because she hadn’t received a copy of the SPD. The company argued that Judith had access to the Countryside intranet — and therefore the SPD — the whole time she had worked for the mortgage provider.
Kenneth Mason, writing on the Spencer Fane law firm blog, described the judge’s decision:
The court concluded that the steps taken by the employer did not comply with the DOL regulations governing the electronic distribution of SPDs. … [T]hose regulations limit this option to participants who can effectively access electronic documents wherever the participant is reasonably expected to perform his or her duties, and for whom access to the employerâs electronic information system is a regular part of those duties.
While that may have been true of this employee before she became disabled, it was not the case when she actually needed the SPD. This was after she had terminated her employment (due to the disability), thereby losing access to the intranet. As a result, she could not access the SPD during the 12-month period in which she was required to submit proof of her disability.
What’s more, the judge said, Countryside had failed to notify her when the SPD was posted in 2004 — another breach of DOL regs.
Could get costly
So what happens now? Here’s Mason’s take:
Because the employer had effectively failed to provide this employee with an SPD, the court concluded that the insurerâs denial of her claim for the waiver-of-premium benefit was arbitrary and capricious. As a result, the beneficiary will likely be entitled to the policy proceeds.
Whether this case will end there is an open question. Typically, employer life insurance policies obligate the employer to provide copies of the SPD to all participants. Because this employer did not do so, the insurer may expect the employer to reimburse it for some or all of the policy proceeds.
Those proceeds, by the way, would total $208,000.
Case cite: Thomas v. Cigna Group Insurance.
For more HR News, please visit: Posting benefits info on your network: Court points out a potential danger zone
Source: News from HR Morning