Part 1: Lying or Cheating to Help the Insurer Deny a Claim
To attract the best employees, employers must provide good pay and good benefits. Many employers provide health insurance. Others may also provide long-term disability insurance. And some provide life insurance. These policies are often sold to employers with the promise or implication that all the employer has to do is send the premiums (some or all of which may be paid by payroll deduction from the employees). The insurance company handle everything. But when the insurance company refuses to pay a benefit and the employee sues, the employer is shocked to find that it is actually the plan administrator for the plan. And as such, it had duties and liabilities that it never knew or never fully grasped. Often the insurer is only the claims administrator. As plan administrator, the employer could have liability for the insurer's acts and omissions!
When an employee is hurt or becomes very sick and can no longer work, he or she may have to file for long term disability benefits. The employer may have concerns about terminating the employee or may be angry at the employee for not “toughing it out.” So, some employers allow false, inaccurate, or incorrect information about the employee to be provided so that the insurer can deny the claim. For example, the employer may provide the wrong job description, the wrong wage information, or even implicate that the employee is engaged in some fraud or wrongful conduct.
If the insurer (a fiduciary) engages in shenanigans and the employer, as plan administrator (also a fiduciary), has reason to know about it, the employer cannot turn a blind eye, take the ostrich approach, or help “shaft” the employee.
There are three easy ways for a plan administrator/employer to get “tagged” under 29 U.S.C. § 1109(a) (ERISA) for misconduct of an insurer:
- The fiduciary knowingly participates in, or conceals, the breach of the other fiduciary.
- If the fiduciary's own breach enables another fiduciary to commit a breach.
- “If [the fiduciary] has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach.” 29 U.S.C. § 1105(a).
Employers should ensure that they provide accurate information to the insurer.
Many plans allow the insurance company to rely on information provided by the employer. If the information provided is false, the employee can make a claim against the employer as plan administrator and the insurer as the claims administrator. To avoid liability, employers should tell the truth to the insurer, make certain that any information provided is consistent with all company records, and if a claim is denied based on erroneous facts, provide any additional or corrective information as soon as possible.
How does this happen?
Perhaps the job description provided to the insurance company is inaccurate. Human resources had a job description on file that was sent, but the employee's supervisor would confirm that the duties actually performed by the employee are different. It is far better to provide complete truthful information to the insurer and let the chips fall where they may than to try to manipulate the facts to generate a result.
To be clear, we do not represent employers or plan administrators. We only represent employees and individuals. If plan administrators wish to disregard and violate their fiduciary duties our job is to hold them accountable. Insurers have an economic incentive to deny claims. But it is actually in the employers' best interests to do the right thing.