Case Review Corner: When "Oops, We Forgot!" Costs the Insurance Company (Maybe)
It’s actually good when insurance is like a gym membership.
Whatever brought you here, I hope we can make a difference.
Ever feel like you're paying for something you're not actually getting? Like that gym membership you swore you'd use? Well, our latest "Case Review Corner" dives into a legal kerfuffle that explores this very feeling, but with much higher stakes (and thankfully, no spandex involved). The case of Lorna Shields v. United of Omaha Life Insurance Company brings us a tale of a deceased husband, a life insurance policy with a curious "good health requirement," and an insurance company that might have been a tad too chill about checking if anyone actually met it. Let's unpack this ERISA-governed saga out of the First Circuit.
Reviewing the Facts: Myron, Lorna, and the Policy That Wasn't Quite
Myron Shields worked for Duramax Marine, and like any responsible human, he signed up for life insurance through his employer, underwritten by United of Omaha. He opted for both the basic policy (twice his salary, up to $300,000 – not bad!) and the "voluntary" life insurance, where he could snag an extra one to three times his salary, maxing out at $200,000. Myron went for the gusto: three times his salary. He even dutifully named his wife, Lorna, as the beneficiary. So far, so good, right?
Here's where things get a little… sticky. The voluntary policy had a catch: if you wanted coverage beyond a certain "guaranteed issue" amount ($100,000 in Myron's case), you had to prove you were in reasonably good health. Think of it as the insurance company saying, "Sure, we'll bet on your life, but only if you look like a good bet." Myron enrolled in 2008, selecting the maximum excess coverage. Now, here's the head-scratcher: neither United of Omaha nor Myron's employer ever actually gave him the "Evidence of Good Health" form to fill out. It's like ordering a pizza with extra cheese and the delivery guy forgetting the cheese, but still charging you for it…every month…for ten years.
Fast forward to June 5, 2018. Sadly, Myron passed away. Lorna, understandably, filed a claim for the life insurance benefits. United of Omaha paid out the $136,000 from the basic policy and the $100,000 guaranteed issue from the voluntary policy. But that extra $100,000 Myron had signed up for? Denied! United's reasoning: no "Evidence of Good Health" on file. Lorna, feeling understandably shortchanged (pun intended?), wasn't having it and sued.
The Legal Issue(s): Did United of Omaha Drop the Ball (and Their Fiduciary Duty)?
Lorna's lawsuit raised a couple of key legal questions:
Recovery of Plan Benefits: Was Lorna entitled to the extra $100,000 in benefits under the terms of the policy? (The court said "nah" on this one, finding Myron never actually provided the required good health evidence).
Breach of Fiduciary Duty: Did United of Omaha screw up their responsibilities under ERISA by accepting premiums for years without making sure Myron actually qualified for the full coverage he was paying for? It's like the insurance company was happily taking Myron's money, whistling a merry tune, and hoping no one would notice the whole "good health" thing. (The court said "maybe" on this, sending it back for another look).
What Was the Court's Reasoning? A "Maybe" on the Fiduciary Duty Front
The First Circuit agreed with the lower court on the "no extra benefits" part, but they had some thoughts on whether United of Omaha acted like responsible grown-ups when it came to their fiduciary duties. Here's the gist:
Taking Money for Nothing? The court found it problematic that United of Omaha accepted premiums for the extra coverage for almost a decade without ever confirming if Myron met the "good health" requirement. It's like they were saying, "Your money's good, but your health… eh, we'll get to that later (never)."
A Duty to Pay Attention? The court suggested that United of Omaha, having the power to decide who's eligible for coverage, might have a responsibility to actually, you know, check if the people paying for that coverage are eligible. They compared it to other cases where insurance companies got dinged for accepting premiums for ineligible dependents or without confirming insurability.
Not So Fast on Dismissal: Because of this potential "oops" moment on United's part, the court decided the lower court jumped the gun by granting summary judgment to the insurance company on the breach of fiduciary duty claim. They sent that part of the case back for further consideration.
What the Claimant Did Right:
Signed Up for Coverage (Optimistically): Myron took the initiative to enroll in what he believed was full life insurance coverage for his family.
Named a Beneficiary: He ensured Lorna would be taken care of financially.
Lorna Fought Back: Lorna didn't just accept the partial denial; she pursued the claim and ultimately filed a lawsuit to challenge the insurance company's decision.
What the Claimant Could Have Done Better:
Read the Fine Print (and Follow Up!): While it's easy to gloss over insurance paperwork, this case highlights the importance of understanding the conditions for coverage, especially those pesky "good health requirements." Myron might have benefited from proactively asking about the form when he enrolled.
Kept Records: While the case doesn't explicitly state this, keeping records of enrollment forms and any communication with the employer or insurance company is always a good idea.
For Legal Professionals: First Circuit Remands Fiduciary Duty Claim Against Insurer for "Passive" Premium Acceptance
The First Circuit's decision in Shields v. United of Omaha offers a significant point for ERISA practitioners. While affirming the district court on the denial of plan benefits due to the lack of "Evidence of Good Health," the appellate court vacated the summary judgment ruling on the breach of fiduciary duty claim. The court's reasoning suggests a potential fiduciary obligation for insurers to take reasonable steps to determine an employee's eligibility for voluntary coverage requiring proof of good health within a reasonable time after accepting premiums for that coverage.
The court distinguished this from a mere failure to pay benefits under the plan (§ 1132(a)(1)(B)), suggesting that United of Omaha's prolonged acceptance of premiums for excess coverage without ensuring the "good health requirement" was met could constitute a breach of the fiduciary duty to act solely in the interest of plan participants and beneficiaries (§ 1132(a)(3)). The court found persuasive the arguments from McCravy v. Metropolitan Life Insurance Co. and Silva v. Metropolitan Life Insurance Co., indicating a trend towards holding insurers accountable for passively accepting premiums for coverage for which an employee may not qualify. This case signals a potential avenue for relief under ERISA's fiduciary duty provisions in situations where insurers appear to benefit from a lack of diligence in verifying eligibility for voluntary benefits.
Conclusion: A Reminder That Insurance Companies Can't Just "Set It and Forget It"
The Shields v. United of Omaha case serves as a compelling reminder that even in the often-complex world of ERISA and insurance policies, there's an expectation of basic fairness and responsibility. While Myron Shields' beneficiary didn't immediately receive the full death benefit, the court's decision leaves the door open for holding the insurance company accountable for potentially dropping the ball on verifying his eligibility for that coverage while happily taking his premiums. It's a win for making sure insurance companies can't just "set it and forget it" when it comes to their obligations to policyholders.
If your life insurance claim has been denied, especially for voluntary coverage, you may have more options than you think. Learn about your rights under ERISA by contacting Dorian Law PC today for a confidential review of your case.