Life Insurance Claim Denials caused by Portability and Conversion Mistakes

Life Insurance Claim Denials caused by Portability and Conversion Mistakes

During the last four years, I have had several cases in which children and widows of deceased employees were denied the life insurance benefits that had been purchased through their employer’s benefit plan.  In each case, the employer, in conjunction with the life insurer, botched the “conversion” process.

Employers often will sponsor “group” term life insurance plans for their employees.  The employees are usually given a small policy for which the employee pays no premium.  In many cases, the employees can also purchase additional “voluntary” term life insurance for much higher policies.  The greater the premium, the more the total insurance.

What is little understood is that when the employee quits or retires, the coverage will cease.  There is usually a 30 or 31 day period in which the employee must file a new application to “convert” the group policy to an “individual” policy.  This is often called “portability” of the policy.  The beauty of this choice is that the employee who elects to “convert” need not pass a physical or be otherwise insurable.  The employee can be very sick, in fact.  By law, the insurer must accept the employee.  (They may charge a king’s ransom for premiums.)

The key is: the employee must properly make the election and fill out the correct applications with the insurer.  Otherwise, the coverage ends. Life insurers usually are not keen on writing these types of policies, so they will not go out of their way make sure they are converted.

I have been seeing employers who: (1) fail to inform their employee of these conversion rights, or (2) misinform the employees about these conversion rights.

Every case is different. The first question is:  what does the plan state?  What does the summary plan description state? What did the retirement benefits counseling documents state?  The written documents will play a big role in any eventual lawsuit. The second question is: what did the employer tell the employee?

I have seen unusual life insurance policies that state “We will contact you within 30 days to discuss conversion.”  Then, the insurer does not contact the retiree.  That is a problem.  The insurer broke the promise.

I have also seen large employers give their employees written documents stating that there is active coverage when there is not.  This is a misrepresentation of true state of affairs, and it may cause the employer to be liable for the value of the policy.

There is even a reported case in which the employer remained silent about the employee’s conversion benefits and was held liable for those benefits.  The retiree was very ill and his girlfriend  (and beneficiary of the life insurance policy) called to ask about continuing “his benefits.”  The company explained how to continue his health insurance under COBRA, but said nothing about his life insurance benefits.   The Court of Appeals held the employer responsible for paying the life insurance benefits.

Most of these conversion disputes are governed by ERISA (Employee Retirement Income Security Act)—at least with private employers.  Under ERISA, aggrieved beneficiaries may have a claim for breach of fiduciary duty in these situations.  ERISA prescribes duties for any employer, agent, insurer, or other persons who advise employees and their families regarding benefits—“fiduciaries” under the statute.  The fiduciary can be liable to misrepresenting important details to participants.  And, as I mentioned earlier, sometimes they can be liable for not providing enough information.

If you are being denied life insurance proceeds because the insurer claims that your loved one failed convert or “port” the group life policy, please give us a call at 740-374-5346.

 

Ethan Vessels

Fields, Dehmlow & Vessels, LLC