Enforceability of Change

[J Simmons]

An ER sponsors a group LTD policy for its EEs, premiums for which are paid in part by the EEs electing to be covered. The first LTD policy used offsets benefits payable by SSDI payments to the EE and to the spouse and any dependent residing with the EE.

The ER replaces that first LTD policy on 1/1/2006 with a second LTD policy, from a different insurance company. The second LTD policy offsets benefits payable by SSDI payments to EE, to spouse, or to any dependent regardless of where the dependent resides.

An EE that elected coverage (and payroll reduction to cover that part of the premium not paid by the ER) dating back to 2001 becomes disabled on 8/20/2006. EE divorces. Spouse gets custody of EE's dependent child. The dependent child receives SSDI payments.

Insurance company offsets the LTD benefits by the SSDI received by EE's dependent child that does not reside with EE, as permitted by the second LTD policy but not the first.

Neither the ER nor the second insurer distributed an SMM to EEs until well after the 8/20/2006 disability of this EE (in fact, no SMM was provided EEs until after 7/29/2007--the 210th day after 2006 when the second LTD policy took effect). EE learned about the change only after the 8/20/2006 onsent of disability, when the second insurance company first learned of the dependent child's receipt of SSDI and sought a repayment from EE.

May the ER validly enforce the change in the offset against EE given that no SMM was timely distributed?

[Guest Sieve]

The answeer is Yes, the new provision certainly can be enforced.

I have not done the research--so I may be way off base--but it is my understanding that lack of a timely SPD or SMM will not void a plan provision or a plan change unless the changed provision was relied upon to the partcipant's detriment. Of course, it may not be difficult to argue successfully that there was detrimental reliance in some (maybe most) instances--for example, when a retiree claims that a change in NRA from 60 to 65 for future accruals was not communicated and therefore the retiree left employment earlier than he/she otherwise would have if the change had been known.

Here, however, where the change reflects a disability provision, was there really reliance by the participant? Could the participant control the medical condition causing the disability? Would the participant really have bought some other LTD on his/her own, or would SSDI benefits not been applied for?

In this case, I don't see how--based on these facts--that there was any reliance on the prior LTD provision to the detriment of the participant.

I have seen a situation where a change (reduction) in group-term life insurance coverage was not communicated, and high-paid employees were found to have relied on the higher amount to their detriment, and therefore the full amount of the prior coverage had to be paid (although I don't remember who was on the hook). But, absent more/better facts, I don't think anything like that is likely to be present with this LTD policy, however, since individual employees rarely purchase their own LTD (although that would be a fact that could possibly change the result).

[J Simmons]

Thanks, Larry, for your reply. The life insurance situation, was that litigated? If so, do you have a court, caption and case number?

[Guest Sieve]

Unfortuantely, I don't have that info--sorry. All I can remember is that it was about 20 years ago, and dealt with airline pilots. I'm not sure of the basis of the decision, either, except that I recall being surprised that the higher insurance amount was upheld (but, then, a lot of things surprise me that don't surprise normal people . . .!!).