Tenth Circuit Reinstates Life Insurance Breach of Fiduciary Duty Claim

On February 9, 2024, in Watson v. EMC Corp., the US Court of Appeals for the Tenth Circuit ruled that an employer may be liable for the value of group life insurance benefits that would have been available under an insured policy absent the employer’s failure to adequately inform the employee of the plan’s conversion requirements.

The plaintiff in this case, Marie Watson, sued EMC Corporation, her husband’s former employer, for leading her husband to believe his basic life insurance coverage remained in force following the termination of his employment. EMC’s group life insurance policy was issued by MetLife. EMC was an ERISA plan fiduciary with a duty to act in the interests of participants and beneficiaries. Ms. Watson’s husband, Thayne Watson, was insured under the group plan for basic life insurance benefits totaling $663,000.

Mr. Watson was a participant under EMC’s group life plan for many years before accepting a voluntary separation plan (VSP) in 2015. Under the VSP, Mr. Watson stopped working for EMC, but EMC continued to pay him without interruption to his employee benefits through November 24, 2016. At the end of the VSP, Mr. Watson emailed EMC to ensure his benefits would remain in place. EMC informed Mr. Watson that his benefits would remain active and that he would be billed by EMC’s payroll vendor ADP to continue benefits. Nine months later, Mr. Watson unexpectedly passed away. He paid all bills sent to him by ADP prior to his death.

Following Mr. Watson’s passing, MetLife denied Ms. Watson’s beneficiary claim based on a failure to convert his group life insurance coverage to individual coverage at the end of the VSP period. Ms. Watson sued EMC for an ERISA breach of fiduciary duty, alleging that EMC provided misleading information, which led to Mr. Watson’s failure to convert his group life insurance coverage to an individual policy. The district court found in EMC’s favor, reasoning that because Mr. Watson failed to convert or pay any premiums on converted coverage, there was no policy under which Ms. Watson could recover.

On appeal, the Tenth Circuit found that even though no benefits were due under the terms of the group life insurance plan (because coverage had ended prior to Mr. Watson’s death) or an individual policy (because Mr. Watson did not convert his group coverage to an individual policy), Ms. Watson may be able to recover under ERISA’s equitable remedy. Specifically, in addition to offering plan beneficiaries the right to recover benefits due under the terms of a plan, ERISA also offers a “catchall” equitable relief for beneficiaries harmed by breaches of fiduciary duties. The Tenth Circuit sent the case back to the district court to consider Ms. Watson’s claim for breach of fiduciary duty under ERISA’s equitable relief provision separately, regardless of whether benefits are due under the terms of either the group plan or a converted individual policy.

The Tenth Circuit’s ruling here is not unique. Rather, it aligns with other circuit courts that have addressed similar issues and found that ERISA can provide monetary relief for breaches of fiduciary duties even when there is no claim for benefits under the terms of the plan. While not a final judgment against EMC, the Watson case serves as yet another illustration of the risk imposed by inaccurate or incomplete communications with employees on life insurance coverage. ERISA plan sponsors should always take great care to adequately communicate with plan participants about when group life insurance coverage terminates under the terms of the plan, including any conversion options.

Watson v. EMC Corp. »