A recent US District Court case out of Michigan places a spotlight on how important it is for employers to properly administer their benefit plans. In the case of Van Loo v. Cajun Operating Company, a deceased employee had been incorrectly told she was enrolled on the employer’s voluntary supplemental life insurance plan. The employee had signed up for the supplemental life insurance and paid premium to the employer for over five years, however the employer never asked the employee to complete an evidence of insurability (EOI) form which was required by the life insurance carrier at time of enrollment. When the employee passed away after her battle with esophageal cancer the employer’s insurance carrier paid the base life benefit however denied the supplemental life insurance claim due to lack of EOI being completed and approved. The court found the administrative error to be a breach of fiduciary duty and awarded the employee’s family $314,000 to be paid by the employer and not the life insurance company.
What appears to be a simple mistake on the part of the employer turned out to be very costly in this scenario and can happen to any employer who is self-administering their benefits and not paying attention to their plan administration. For those employers who choose to outsource their plan administration, you will want to make sure that your third party administrators have the appropriate processes and safe guards in place to avoid any errors that may ultimately fall back upon the employer.
As recommended by the Wagner Law Group, “In the wake of Van Loo, employers that self-administer welfare benefit plans must be careful to follow and enforce all insurance policy terms and limits that they are administering.” At HCW, we take the time to make sure that our clients are educated on each of their carrier’s process and procedure for benefit enrollment and administration. Our clients who contract with us for benefit administration, enrollment services, and/or education services, can be assured that we have the appropriate people, process, and checklists in place to make sure we consistently do things correctly on our clients’ behalf. If your organization has any questions or concerns about your benefit plan administration please reach out to one of our consultants at 919-403-1986.