OUR PERSPECTIVE


SOMETIMES THE SMALL THINGS CAN BE VERY EXPENSIVE

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  • Life insurance plan not administered correctly
  • Evidence of insurability critical issue
  • District Court holds employer liable for $300,000

Over the past 20 years more and more employers have increasingly reached the conclusion that administering a benefit plan has become increasingly complex, especially medical plans. This complexity has led many employers to outsource their total benefit administration. Yet, there remains a number of employers who still self-administer their plans, particularly their non-medical plans which are often considered to be "less complicated." The view of many that life insurance is simple or easy can lead to some costly errors.

Recently, the US District Court for the Eastern District of Michigan ruled in Van Loo v. Cajun Operating Company that an employer was liable for over $300,000 because of errors in handling the Evidence of Insurance provisions of their Group Life Plan. Simply, the employer represented that coverage over the EOI limit was in place and took payroll deductions, even though the EOI was never properly completed. The error persisted in subsequent annual enrollments. When Van Loo passed away, Cajun's insurance carrier denied the amounts over the EOI threshold as there were no health statements on file. In the end, the District Court ruled that Van Loo had relied on representations that she had the requested coverage and paid for it. What is most compelling is that the Court has ruled that Cajun is responsible for the payment, not the insurance company.

This particular ruling is specific to the facts of the case but it raises large dollar issues around seemingly "small aspects" of plan administration:

If you self-administer your life plan are you certain all amounts of coverage above the EOI threshold have been properly approved?

If you outsource your life plan administration does your outsource provider have all proper documentation for coverage amounts?

If you outsource your life plan administration will your outsourcer assume plan/financial liability for "small errors" such as the one highlighted by Van Loo v. Cajun?

When was the last time you audited your life plan administration processes?

EBCG LLC focuses not only on the design and financing of benefit plans but also on the management and administration of these plans. Please contact us at 847-923-7388 if you would like to discuss the contents of this blog or any similar matter.

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