Eighth Circuit Affirms Life Insurer Breached ERISA Fiduciary Duties with Broken Enrollment System

On May 6, 2022, the US Court of Appeals for the Eighth Circuit ruled in Skelton v. Radisson Hotel Bloomington, et al. that a life insurer, when assuming a fiduciary role to determine eligibility and enrollment, must maintain an effective enrollment system. Specifically, the system must sync lists of eligible enrolled participants maintained by the insurer and employer.

The plaintiff in this case, Corey Skelton, sued his late wife Beth Skelton’s employer, Radisson Hotel Bloomington (“Radisson”), and the group life insurance carrier, Reliance Standard Life Insurance Company (“Reliance”), for mishandling the family’s supplemental life insurance enrollment. Radisson served as life plan administrator with Reliance designated as claims review fiduciary. After initially waiving supplemental coverage at the time of her hire, Ms. Skelton enrolled in the maximum supplemental life insurance offered under the plan, $238,000. The life plan provides that when an employee requests supplemental life insurance after her initial hire period, an Evidence of Insurability (EOI) form is required. Reliance must then approve the request before the insurance becomes effective. The parties disputed whether Ms. Skelton ever completed an EOI form. Regardless, Radisson sent Ms. Skelton a benefit verification document and began charging her supplemental life premiums. Thereafter, while she was on medical leave, Reliance approved Ms. Skelton’s life waiver of premium claim, relieving her of paying premiums while unable to work.

Following Ms. Skelton’s passing, Reliance denied her supplemental life benefit asserting the required EOI was not received. Radisson acknowledged that Ms. Skelton was incorrectly charged premiums for supplemental coverage that Reliance had not approved. Reliance’s “bulk billing” system, whereby Radisson collected premiums from employees and remitted them in one monthly check along with only the total number of employees insured, contributed to this error. Reliance’s system did not collect information that would allow it to assess whether Radisson sent any mistakenly billed premiums to Reliance.

After settling with Radisson, Mr. Skelton proceeded to judgment against Reliance in federal district court. He was successful, with the court finding Reliance breached its ERISA fiduciary duty to ensure premiums were not collected until coverage was effective. On appeal by Reliance, the Eighth Circuit agreed with the district court, describing Reliance’s enrollment administration as “a haphazard system of ships passing in the night.” Reliance failed to communicate with Radisson which employees sought coverage but still needed to submit an EOI. Combined with Radisson’s anonymous bulk checks, neither entity learned which employees the other one thought were or were not enrolled. Reliance could not be willfully blind to its faulty enrollment system, which allowed Reliance to profit on a broken promise to Ms. Skelton that she would not pay premiums until her application was approved. The Eighth Circuit found that as an ERISA fiduciary, Reliance had a duty to verify that premiums came only from properly enrolled, eligible participants.

The Skelton case serves as another illustration of how plan fiduciaries can set themselves up for failure in administering life insurance coverage. Employers should work with their life insurance carriers to maintain a safeguarded system for verifying enrollment and collecting premiums. Life plans using bulk billing should consider conducting an eligibility audit with their carrier and legal counsel.

Skelton v. Radisson Hotel Bloomington, et al. »