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Life Insurance Lost with End of Employment – Can it be Fixed?

Posted by David P. Martin | Sep 28, 2021 | 0 Comments

Many employees are covered by life insurance through their employer. Many of those policies have policy terms allowing the policy to be converted so it can be retained at a cost to the individual after employment ends, or there may be a waiver of premium provision that allows the policy to continue for free if the individual ceases work due to disability. If an employer provides a leaving employee with the wrong information, the employee can lose coverage, which may leave the employee uninsurable when due to his illness or injury.

Sauls v. Liberty Mutual Personal Ins. Co., C. A. 2:21-0288-MBS, at *1 (D.S.C. July 14, 2021) discusses this circumstance, which occurs more often than many realize.
The employee had a recurrence of multiple myeloma. The employee had life insurance coverage and long-term disability (LTD) coverage. The LTD was denied due to a pre-existing condition. Despite knowing of the serious condition, the employer represented there was no right to convert the life insurance coverage. The employee was terminated because of his inability to work. In essence, he was sent home to die.

Suit was filed by the personal representative, contending that the “Decedent inquired as to continuing his life insurance benefits after he became unable to continue active employment, but was told by Kettler [the employer] that there were no options to do so.
According to Plaintiff, Kettler failed to advise the decedent of any right to convert his benefits under the Group Life Policy to an individual policy. As a result, Decedent's benefits under the Group Life Policy lapsed. The decedent died on February 13, 2019. Plaintiff, as beneficiary, made a demand for payment from Kettler for the benefits that would have been due under the Group Life Policy had it been in force, but no benefits have been paid.”

The employer filed a motion to dismiss, but this was denied. A breach of fiduciary duty existed, as fiduciaries have a duty, to tell the truth, and not misinform. The case demonstrates something that has been seen with many employers governed by ERISA, but also by entities not governed by ERISA; such as cities, and hospitals. When asked about benefits, employers must tell the truth.

Alabama law has a notice of conversion rights statute. Alabama Code § 27-18-11 provides, “The group life insurance policy shall contain a provision that if the insurance, … ceases because of termination of employment … such person shall be entitled to have issued to him by the insurer, without evidence of insurability, an individual policy of life insurance …”. Since the statute regulates insurance in the state it is not pre-empted by ERISA. The result in Sauls has and should be, the same result here in Alabama. If you have a rejected or denied life insurance claim from a benefit in the workplace, give our experienced life insurance attorneys a call. We will review the facts to see how we can help.

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David P. Martin

Senior & Managing Attorney


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