DOL Settlement with Unum Highlights Risks for Employers Administering Supplemental Life Coverage

June 18, 2024

On June 11, 2024, the DOL announced a recent settlement with Unum Life Insurance Company of America (Unum) following an investigation into the carrier’s group supplemental life insurance claims practices. The DOL investigation found that Unum routinely accepted premiums (via employer payroll deductions) for many years without verifying if participants satisfied an evidence of insurability (EOI) standard. Then, when a plan participant died, Unum would deny the death benefit, claiming it never received EOI. Similarly, Unum routinely provided coverage to dependents without EOI, despite a plan exclusion for totally disabled dependents. If the dependent died within two years of enrollment, Unum would then review their medical records to determine whether they were disabled at the time of enrollment. If the dependent was disabled at the time of enrollment through the date of their death, Unum would deny the claim. Unum failed to clearly inform participants and dependents that dependent coverage would be delayed through a period of disability.

These practices left beneficiaries without the life insurance benefit that plan participants had paid for and believed was in place prior to their deaths. The DOL’s announcement noted that parallel investigations found that other life insurers engage in similar prohibited practices. (See our previous Compliance Corner article covering a DOL settlement with Prudential).

The Unum settlement provides protections for participants who have paid premiums for extended periods of time and are thereby led to reasonably believe their coverage is in force. First, Unum is prohibited from denying a death claim based on lack of EOI when premiums were collected for 90 days or more. Second, Unum is prohibited from denying continued coverage based on EOI for any participant who has been paying premiums for more than one year. Third, for any participant that has not submitted EOI as required under the group life policy terms but has been paying coverage for less than one year, Unum can only require EOI as of the date of the participant’s first premium payment. Meaning, Unum cannot request or consider information regarding a medical issue, diagnosis, new prescription, or any other relevant insurability fact arising after Unum’s receipt of the participant’s first premium payment. Fourth, Unum must direct all group policyholders (employers) to not collect employee premiums on coverage that requires EOI until confirming that Unum has approved the required EOI. In the event a group policyholder then collects premiums without first confirming that Unum has approved the required EOI, the employer may be liable for any death claim filed on coverage lacking EOI.

As to Unum’s total disability exclusion for dependent coverage, the settlement allows Unum to deny death claims filed within two years of the dependent’s enrollment if the dependent has been continuously confined to a home, hospital, hospice, or similar healthcare facility. Unum is required to provide group policyholders clarification on its current total disability exclusion for dependent coverage (i.e., only in cases of confinement).

Importantly, for employers sponsoring group life insurance plans, the DOL settlement affirms that employers may be liable for claims if they collected premiums without first confirming that Unum approved the employee’s or dependent’s EOI. This is consistent with federal courts across the country that have found employers liable for breach of fiduciary duty under ERISA when collecting premiums on life insurance coverage that is not in force. Two of these cases were featured in Compliance Corner: Gimeno v. NCHMND, Inc. and Skelton v. Radisson Hotel Bloomington.

Employers should work with their life insurance carriers to maintain a safeguarded system for verifying enrollment and collecting premiums. Any discrepancies should be reviewed with legal counsel.

DOL and Unum Settlement Agreement