Be sure to exercise your conversion rights

When leaving an employer, an employee may have the right to “convert” group life insurance coverage into an individual policy. Not all employer-provided group policies offer this conversion right but many do. Most such policies provide the right to convert the group life insurance coverage into an individual life insurance policy within 31 days of receiving a conversion notice. Some policies require that the policy be converted within a certain number of days from employee termination.

We have seen numerous incidents of either the employee not understanding his or her right to convert or, worse yet, not receiving notice from the plan or claim administrator (aka, the employer or the insurance company) of the right to convert. Under such circumstances, a question arises as to whether the plan or insurance company is responsible for payment of life insurance benefits if the employee dies and the policy was not previously converted, and such employee never received notice of his ability or right to do so from the administrator. In such circumstances, an argument exists that the administrator breached its fiduciary duty owed to the plan participant/employee due to the fiduciary’s failure to provide appropriate notification containing the life insurance conversion form. Many courts have concluded (wrongly n our opinion) that such a breach of fiduciary duty does not result in a recoverable remedy under the Employee Retirement Income Security Act (“ERISA”), specifically ERISA § 502(a)(2). Section 502(a)(2) permits civil actions for appropriate relief for breach of fiduciary duty but only holds those plan fiduciaries liable for losses to the “plan.” In a recent unpublished opinion from the U.S. Court of Appeals for the Sixth Circuit, the court recently looked at this issue and determined that the surviving spouse of the deceased employee, who never received the conversion forms, was provided no remedy under the ERISA statutory scheme even assuming the breach of fiduciary duty claim could be proved. The claimant in that case (Walker v. Federal Express Corp.) sought review by the United States Supreme Court. The Supreme Court declined to review the appeals court decision. So, despite a clear breach of the duty, the spouse received nothing.

What we learned from this ruling and others is that an employee must be mindful of his/her own employer provided benefits to ensure continued access to some of those benefits should he/she be terminated for any reason. If you have a group life insurance policy and find yourself no longer working for that employer who provides such coverage, review your plan or policy language in detail to determine if you have the right to convert the policy. You need to figure out the steps to be taken to convert this policy to individual coverage and file all necessary forms and applications in a timely manner. Life insurance coverage is relatively inexpensive under these circumstances. Do not miss out.

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