District Court Addresses HR Department’s Misinformation on Life Insurance Coverage

On January 23, 2023, in Erban v. Tufts Medical Center Physicians Organization, et al., the US District Court for the District of Massachusetts found that employers and human resources personnel, when acting as plan fiduciaries, have an affirmative obligation to not make any harmful omissions in communications with participants and beneficiaries regarding options to continue life insurance coverage.

The plaintiff in this case, Lisa Erban, sued Tufts Medical Center Physicians Organization (Tufts) and its HR director Nicolas Martin for life insurance benefits totaling $800,000, following a lapse in coverage for her late husband, Dr. John Erban. Tufts’ group life insurance policy was issued by the Hartford and named Tufts as Plan Administrator, making Tufts an ERISA plan fiduciary with a duty to act in the interests of participants and beneficiaries.

Dr. Erban worked as an oncologist at Tufts Medical Center for over 30 years. In August 2019, he was diagnosed with glioblastoma, an especially aggressive type of brain tumor that left him cognitively impaired. He passed away in September 2020. Immediately following his diagnosis, Dr. Erban went on medical leave. Tufts terminated his employment six months later. During his leave, Dr. Erban and his family communicated with Tufts, specifically Martin, about how to preserve his life insurance coverage. Tufts provided Dr. Erban with a form to convert his group life insurance coverage into an individual policy.

However, Tufts never addressed another provision in the life plan, i.e., the Sickness or Injury Continuation provision. This provision allowed life insurance coverage to remain in effect for twelve months following an employee’s last day of work if premium payments continued. Just before Tufts terminated Dr. Erban’s employment, Lisa Erban emailed Martin pleading, “I just want to make sure there is no lapse in coverage.” Martin’s response did not state that Tufts would stop making premium payments when Dr. Erban’s employment terminated, or that the life insurance coverage would lapse if Hartford did not receive the conversion form within 31 days.

Following Dr. Erban’s passing, Hartford denied Lisa Erban’s claim for payment as a beneficiary under Dr. Erban’s life insurance policy because the coverage had lapsed. Specifically, the Hartford’s denial explained that premiums stopped when Dr. Erban’s employment terminated, thereby terminating group coverage, and no conversion form was received by Hartford within 31 days after the group policy terminated. Following an unsuccessful appeal, Lisa Erban filed the lawsuit.

In reviewing the validity of Erban’s claims on a Motion to Dismiss (an early stage in litigation), the court focused on ERISA plan fiduciaries’ affirmative duty to provide certain material plan information when it is known that failure to convey the information would be harmful. When Dr. Erban sought information on how to continue group life insurance coverage at the onset of his medical leave, and later when Lisa Erban sought assurances that coverage would not lapse with his employment termination, Tufts was aware of Dr. Erban’s terminal diagnosis and the critical importance of preserving life coverage. Tufts remained silent on the option to continue group coverage under the Sickness or Injury Continuation provision, and the Erbans relied on that silence to their detriment. Further, Tufts provided inconsistent information on when it would stop making premium payments, thereby misleading the Erbans on the deadline to convert the group coverage to an individual policy. Tufts had an affirmative duty to fully and plainly inform Dr. Erban (as the participant) and Lisa Erban (as an inquiring beneficiary) of all the options to continue group coverage and that failure to file the conversion form by a certain date would result in the loss of benefits.

The court also addressed HR director Martin’s individual status as ERISA plan fiduciary by examining his interactions with the Erbans. Those interactions revealed that the Erbans needed and asked for the HR department’s help. The Erbans developed a working relationship with the HR department and reasonably relied on HR to work together with them, explain and employ all options to preserve or continue all available benefits and guide them through that process. The court found a plausible claim that Martin, as HR director, acted as a fiduciary by developing a position of trust with the Erbans, going beyond conducting mere administrative tasks to affirmatively take on the responsibility of making sure there was no lapse in benefits.

While not a final judgment, the court’s Motion to Dismiss opinion signals Tufts’ liability for the value of the lapsed group life benefits, $800,000. The Erban case serves as yet another illustration of the risk imposed by inaccurate or incomplete communications with employees regarding life insurance coverage. ERISA requires employers and their designees, when acting as plan fiduciaries, to accurately communicate the plan terms. Unsolicited advice is not required, but when answering questions from employees, technically not misinforming may not be good enough. There must also be no harmful omissions. To guard against this risk, employers should carefully review the terms of their life plan in order to understand what’s required of them (e.g., sending conversion or portability forms). Further, a process should be established to timely provide complete and clear information on how to preserve coverage following changes in eligibility status. This may include sending life plan documents to participants in response to a coverage inquiry, even if the documents were previously provided.

Erban v. Tufts Medical Center Physicians Organization, Inc., et al. »