Sixth Circuit Revives Life Insurance Claim Against Wal-Mart

On April 12, 2022, the US Court of Appeals for the Sixth Circuit ruled in Chelf v. Prudential, et al. that an employer may be acting as a fiduciary when mishandling premiums for group disability and life insurance.

As a full-time Wal-Mart employee, Elmer Chelf was insured under group short-term disability (STD), long-term disability (LTD) and basic life insurance plans. He further elected optional term life insurance under a group policy insured by Prudential. When Mr. Chelf died of natural causes in April 2016, he was on medical leave and receiving LTD benefits. From the onset of his medical leave in October 2014, Wal-Mart continued to charge Mr. Chelf STD and LTD premiums. Mr. Chelf paid those premiums for 18 months along with basic life premium payments. However, these premiums were charged in error by Wal-Mart; the STD and LTD plans contained a waiver of premium provisions relieving participants from paying them while on leave.

After his passing, Mr. Chelf’s widow filed claims with Prudential for life benefits due. Prudential approved the basic life claim but denied the optional life claim on the basis that coverage had terminated. Ms. Chelf sued, alleging Wal-Mart breached its fiduciary duties under ERISA by charging Mr. Chelf premiums in error, failing to send his premium payments to Prudential to cover the optional life coverage, failing to inform him that PTO could be used to cover any premiums due, and failing to notify him of his right to convert group life coverage to an individual policy. Ms. Chelf also sued Prudential, which eventually settled and was dismissed from the lawsuit.

The lower district court found Wal-Mart was not acting as a fiduciary but merely performing administrative functions in collecting and applying premiums. The Sixth Circuit disagreed, finding Wal-Mart acted as a life plan fiduciary because it exercised control over plan assets (handling Mr. Chelf’s premiums) and was clearly designated in plan documents with authority to make decisions, including the power to correct errors. The case has been sent back to the lower court to examine the facts and determine what remedy is owed to Ms. Chelf.

The Chelf case serves as a good illustration of how employers can find themselves in hot water when administering life insurance coverage. Depending on which plan functions the employer controls, they may be unknowingly acting as a fiduciary and potentially liable for errors. ERISA plan sponsors should always take great care to adequately communicate benefit eligibility and handle premium payments consistent with the plan terms. Procedures related to employee’s STD, LTD and life coverage while on leave, including any obligation to provide notice of conversion rights, must not be overlooked.

Chelf v. Prudential, et al »