The Eighth Circuit Court of Appeals held Reliance Standard Life Insurance Company was a fiduciary that breached its fiduciary duties of prudence and loyalty to its life insurance participant.
Background
Beth Skelton was a corporate group sales manager for Davidson Hotels LLC. With her employment, she was able to enroll in a number of employee benefit plans, including life insurance. Initially, she enrolled in basic life insurance. However, she later sought to enroll in the supplemental life insurance.
Ms. Skelton received a benefit verification form that showed she had supplemental life insurance coverage and the corresponding premiums were deducted from her paycheck by Davidson Hotels and submitted to Reliance Standard.
Soon thereafter, she became ill and went on disability, eventually passing away. Her husband and beneficiary, Corey Skelton, submitted a claim for benefits to the insurance company, Reliance Standard Life Insurance Company, but the claim was denied. The reason was Ms. Skelton never completed an Evidence of Insurability (“EOI”) form. Thus, she was never actually enrolled in the supplemental life insurance.
Lawsuit against Reliance Standard
Mr. Skelton sued both Davidson Hotels LLC and Reliance Standard. Davidson quickly settled but the case proceeded against Reliance.
The trial court found that Reliance Standard had breached its fiduciary duty for failing to have an accurate system that would not allow the collection of premiums until participants were actually enrolled and coverage was effective. The trial court ordered Reliance to pay the difference owed between the settlement amount with Davidson and the entirety of supplemental life insurance benefits.
Reliance then appealed to the Eighth Circuit.
Appellate Court Held Reliance Standard Accountable
On appeal, the Eighth Circuit began by examining whether Reliance was a fiduciary regarding enrollment. In reviewing the life insurance policy and Reliance’s duties, it held that Reliance was indeed a fiduciary that owed the duties of prudence and loyalty to plan participants.
Next, the Court looked at Reliance’s actions to determine whether Reliance breached those fiduciary duties. In collecting premiums, Davidson would send to Reliance the number of employees being insured and one bulk check for all premiums. Reliance would send to Davidson a monthly report with all pending applications but did not distinguish which ones had already submitted EOIs and those who did not. Between how the plan was set up and administered as well as Reliance’s system of incomplete communication, the Eighth Circuit held that Reliance breached its fiduciary duties.
Ultimately, the Court agreed Reliance owed the difference between the amount Davidson settled for and the supplemental life insurance benefit amount.
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