State law requires notice of conversion right when exiting group life plan

[J Simmons]

A state law that applies to group life policy requires that individual's be given an individual conversion right when they become no longer eligible to be covered under the group life policy.

The state law also requires that the individual be provided a notice at that time that explains the conversion rights and how to take advantage of those rights.

The state law also includes extra provisions that by their terms apply only to group life policies of governmental employers (which would be exempt from ERISA)

The plan that I'm dealing with is clearly an ERISA one; the employer is private, not governmental.

Does anyone know off the top if the two provisions of state law that by their terms apply to all group life policies would be preempted by ERISA (ERISA § 514(a)) or exempt from preemption under ERISA § 514(b)(2)(A)?

[GBurns]

While ERISA pre-empts state law as regards to employee benefits plans it does not pre-empt the state regulation of insurance policies.

Remember that the group life insurance policy is not the Plan. It is the mechanism by which the benefits under the plan are provided.

[Guest Sieve]

I'd agree with George and go with 514(b)(2)(A) preemption.

[J Simmons]

I'd agree with George and go with 514(b)(2)(A) preemption.

I'll take that to mean you think that 514(a) preemption does not apply, but that the 514(b)(2)(A) savings clause does and that you think that this state law does apply to the ERISA plan.

[J Simmons]

I thought I'd report what appears to be a finer split of hair than I was expecting by a couple of court decisions.

The notions pitted against one another are the preemption clause (ERISA § 514(a) that preempts state laws that relate to any employee benefit plan) and the savings clause (ERISA § 514(b)(2)(A) that saves from preemption those state laws which regulate insurance, banking, or securities). Is a state law directed at group policies preempted because the law relates to an employee benefit plan or saved because it regulates insurance? Which is the primary characteristic of such a state law?

That's what I suspected courts would sort out, and the distinction that George drew (and Larry agreed with the result) would be the deciding factor.

A couple of court decisions seized on a different distinction. If the state law puts the obligation to provide the notice of individual conversion right on the ER, then ERISA preempts that state law. The reason that ERISA preempts that state law is that "ERISA also contains elaborate provisions setting forth the content and timing of notice of such plan information to be given to plan participants". Aucoin v RSW Holdings LLC, 476 FSupp2d 608, 615 (MD La 2007), quoting Howard v. Gleason Corporation, 901 F2d 1145 (2d Cir 1990), and then continuing:

A state law that purports to impose on an employer obligations of the same general type as those imposed by ERISA cannot be said to have only a "remote" or "tenuous" effect on the plan. The conversion option is a benefit of the Plan, and [state law] regulates the notice that must be provided to employers concerning the existence and exercise of that option. The state's notice requirement directly affects a primary administrative function of the benefit plan.

The state statute I'm dealing with does not clearly require the notice be provided by the employer, but does put notice-related obligations on the employer: "Written notice presented to the individual or mailed by the policyholder to the last known address of the individual or mailed by the insurer to the last known address of the individual as furnished by the policyholder shall constitute notice for the purpose of this section."

[Don Levit]

John:

ERISA does not address continuation of group life insurance, correct?

If true, then how can ERISA preempt state law?

Don Levit

[J Simmons]

Hi, Don,

Take a look at the two cases cited. Those might answer your question.

[GBurns]

Continuation of coverage is an insurance policy clause and thus the notice of conversion rights first comes from the insurance company.

The notice, if any, from the plan or employer is separate from the obligations of the insurer.

So, I could see where ERISA governs the actions of the employee benefit plan, but does not pre-empt the contract provisions of the insurance policy nor the required actions of the insurer as dictated by state insurance law.

[Don Levit]

George:

I agree with you.

The major part of the responsibility lies with the insurer.

The employer has a minor, tenuous relationship to the law, imo.

Don Levit

[Guest Tauriffic]

George:

I agree with you.

The major part of the responsibility lies with the insurer.

The employer has a minor, tenuous relationship to the law, imo.

Don Levit

Interesting issue. This just came up for me last week. In my case, state law does not dictate who the notice must come from (employer or insurer). Client is thinking of terminating group life plan, and contract puts burden on employer to send notices of plan termination and makes employer facilitate continuation requests for the insurer. State law only says that group life policies in the state must provide continuation coverage for five-year employees if applied for within 31 days of plan termination. So I can't see an employee arguing a state law cause of action, since state law provides neither a requirement that employers make notice nor a remedy.

[jpod]

If the contract says that the employer has some responsibilities, then the employer's assumption of those liabilities by contract becomes an element of the ERISA plan. It wouldn't matter whether that language is in there because it is reflective of state law or simply because the insurance company wanted it to be in there. The preemption issue is rendered moot. At least that's how I see it.

[Guest Tauriffic]

If the contract says that the employer has some responsibilities, then the employer's assumption of those liabilities by contract becomes an element of the ERISA plan. It wouldn't matter whether that language is in there because it is reflective of state law or simply because the insurance company wanted it to be in there. The preemption issue is rendered moot. At least that's how I see it.

I fully agree.

[GBurns]

It seems that you are saying that the contract determines whether ERISA applies rather than the facts and circumstances, state law or even ERISA itself.

I always thought that you could not "sign away" the application of a statute.

[Guest Tauriffic]

It seems that you are saying that the contract determines whether ERISA applies rather than the facts and circumstances, state law or even ERISA itself.

I always thought that you could not "sign away" the application of a statute.

I'm saying state law is not an issue (at least in my case), so the contract controls under ERISA (and would control at common law anyway).

[GBurns]

What state are you in ?

I can see that there might be no notice requirement for the holders of a Certificate of Coverage from the insurer although I have my doubts, but there should be a notice requirement to the group policy holder, the employer. Then I bet that there is a requirement for notice to affected parties such as beneficiaries, in that Master policy, if not also state law.

Then there are the provisions of the employee benefit plan document of which this group life is a part.

[Don Levit]

Folks:

This is an interesting discussion.

While not dealing with conversion rights of a life policy, The Self-Compliance Tool for Part 7 of ERISA

HIPAA and Other Health Care-Related Provisions speaks about various notice requirements, such as for preexisting condition exclusions and certificates of creditable coverage.

In general, these requirements are up to the plan to follow through on.

However, there is a Special Accountability Rule for Insured Plans.

"Under a special accountability rule in ERISA section 701(e)(1)© and 29 CFR 2590.701-5(a)(1)(iii), a health insurance issuer, rather than the plan, may be responsible for providing certificates of creditable coverage by virtue of an agreement between the two that makes the issuer responsible. In this case, the issuer, but not the plan, violates the certificate requirements of section 701 (e) if a certificate is not provided (An agreement with a TPA that is not insuring benefits will not transfer responsibility from the plan).

Despite this special accountability rule other responsibilities, such as a plan administrator's duty to monitor compliance with a contract, remain unaffected."

"Under 29CFR2590.701-5(a)(2)(ii), plans and issuers must furnish an automatic certificate of creditable coverage" in various COBRA situations.

So, as my rabbi says, "You're both right!"

Shalom,

Don Levit

[Guest Tauriffic]

What state are you in ?

I can see that there might be no notice requirement for the holders of a Certificate of Coverage from the insurer although I have my doubts, but there should be a notice requirement to the group policy holder, the employer. Then I bet that there is a requirement for notice to affected parties such as beneficiaries, in that Master policy, if not also state law.

Then there are the provisions of the employee benefit plan document of which this group life is a part.

I'd rather not give the state. You'll have to take my word for it that in my state, no one is ever surprised at the scant authority on point on a legal issue. There is a notice statute, but it does not distribute the burden of notice, leaving it to the agreement of the parties. As far as requirements in the policy or EB document, we are on the same page.

[GBurns]

Which means that no one can point out what you might have missed.

This reminds me of another thread where the issue of the infallibility of lawyers was raised.

In my state of Florida, we have both the Florida Statutes and the Florida Administrative Code with which to regulate insurance. There are other states, such as Texas, that have similar dual structure.. Often people look at 1 and forget about the other. There are also some issues that are vaguely or faintly addressed in the regulations but are addressed in the policy form etc that is approved by the State for that particular insurance product. Whatever is approved for the policy form etc become regulated issues under state insurance regulations making it not just a simple common law/contract issue or an ERISA issue but a state regulation of insurance issue.

Also, some group products might be "out of state" products, so while not subject to the state in which sold are still subject to the regulations of the state of domicile or origin of the product.

[Guest Tauriffic]

Which means that no one can point out what you might have missed.

This reminds me of another thread where the issue of the infallibility of lawyers was raised.

In my state of Florida, we have both the Florida Statutes and the Florida Administrative Code with which to regulate insurance. There are other states, such as Texas, that have similar dual structure.. Often people look at 1 and forget about the other. There are also some issues that are vaguely or faintly addressed in the regulations but are addressed in the policy form etc that is approved by the State for that particular insurance product. Whatever is approved for the policy form etc become regulated issues under state insurance regulations making it not just a simple common law/contract issue or an ERISA issue but a state regulation of insurance issue.

Also, some group products might be "out of state" products, so while not subject to the state in which sold are still subject to the regulations of the state of domicile or origin of the product.

I guess I'm not sure where you're coming from. I'm making no claims as to infallibility. I practice in securities regulation too, so believe me, I am well aware of regulation under both statutory and regulatory regimes. I think we're on the same page in any event.

EDIT: Our insurance regulations actually exempt exercise of continuation rights from the notice or replacement coverage provisions of the administrative code. So it appears that the contract does control. Whether the contract comes from out of state would appear irrelevant since I'm only concerned with my employer's duties. The insuer's jurisdiction has no jurisdiction over my client.

[GBurns]

So what happens if the state regulations that govern the out-of-state group product dictate that notice be given ?

[Guest Tauriffic]

So what happens if the state regulations that govern the out-of-state group product dictate that notice be given ?

It's a fair question and may ultimately boil down to choice of law.

As a practical matter, I think the notice obligations would arise as a function of the subject policy. In other words, those states that allocate notice burdens for continuation coverage (by statute, regulations, or otherwise), will only do so in relation to policies issued in that state. You would be hard-pressed to find a regulation that said, "insurer's issuing group policies must give notice of continuation rights upon plan termination to all insureds in whatever jurisdiction the insureds reside." In my state, notice of replacement rights (the closest analogy to continuation coverage) is dictated only in relation to policies issued in the state. I'm guessing it's the same in most states. Why would a state purport to afford non-residents notice rights?

More important, the state law would probably not apply under basic conflicts of law principles if the group policy were issued to an out of state employer with out-of-state plaintiff-insureds. If there were a choice of law provision, the case may be different. Then you'd have to see whether the law would even be applicable to insureds. Most likely, the law would probably exist as a condition to issuing policies in the state as opposed to existing as an independent right of the insured. Assuming there were independent notice obligations running to the policy holder of an ERISA-regulated plan, then you may run into ERISA preemption issues.

EDIT: Oh, and your infalibility comment just registered with me. I practice in a very small and very tight-knit community in which there are a handful of employee benefit attorneys. So you'll understand if I'm a bit hesitant about sharing my jurisdiction. I'm not trying to dodge criticism of any oversights by failing to quote the statutes, I'm just a paranoid attorney who has been burned before!

[GBurns]

I hope your advice works out for your client.

I can think about 10 cases where Florida took action on behalf of Florida residents who had problems with out-of-state policies. I also know of 18 to 32 states taking action in 3 to 5 out-of-state cases.

[Don Levit]

This case may be of some help.

The converted policy was medical insurance, but still applicable, imo.

Go to:

http://caselaw.lp.findlaw.com/data2/circs/9th/9917437p.pdf.

Don Levit

[J Simmons]

Also of interest on this topic about the individual conversion right is the approach taken by the 9th Circuit in Miller v Rite Aid, 504 F3d 1102 (9th Cir 2007).

[Guest mjb]

If the contract says that the employer has some responsibilities, then the employer's assumption of those liabilities by contract becomes an element of the ERISA plan. It wouldn't matter whether that language is in there because it is reflective of state law or simply because the insurance company wanted it to be in there. The preemption issue is rendered moot. At least that's how I see it.

I thought the issue was settled by the US Supreme Court in Engelhoff v. Egelhoff, 121 S.ct 1322 and later cases that state laws laws were preempted if they prevented uniform administration of a plan. In Engelhoff the supremes held that a state law that automatically disinherited from employee benefits upon divorce was prempted by ERISA because it prevented the plan from carrying out a uniform procedure under its own rules.

[Guest mjb]

I also know of 18 to 32 states taking action in 3 to 5 out-of-state cases.

And as a famous student of the game once said "90% of baseball is half mental".

[GBurns]

In some of the cases 32 states took action, in some of the cases only 18 took action. Not all states took action on all the cases. Some took action on all, some took action on a few.

As for baseball, it is quite conceivable that 10% is physical and the remaining 90% is split with half of the 90% mental and half luck. Maybe that's what that baseball student meant.

[Guest Tauriffic]

FYI..Howard v. Gleason Corp., 901 F.2d 1154 (9th Cir. 1990) held state notice of continuation rights were preempted by ERISA in the context of an ERISA Group Life and Disability Plan

[GBurns]

Note the wording of the Conclusion, "We hold that ERISA preempts New York Insurance Law § 4216(d) as applied in this case .... ". In this case.

The facts and circumstances, in this case, led to this particular conclusion by this Court. Another Court in a different case might come to a different conclusion based on the facts and circumstances of that case.

[Don Levit]

George:

Can you provide a few of the facts and circumstances, and how a bit of a difference could have swung the decision the other way?

Or, better yet, can you or tauriffic provide us the link for the case?

Don Levit

[GBurns]

Go to Google or the search engine of your choice and enter a search term such as " Howard Gleason Corp ERISA " (without the "" of course.

[Don Levit]

George:

Thanks for the tip.

This is a very interesting case.

It went into great detail, including whether this particular law was one regulating insurance, and, thus, preempt from ERISA.

The court decided this was not a law regulating insurance, even though it was part of the insurance code of New York.

On a different topic of ERISA preemption, I found these excerpts interesting:

"New York life insurance law 4216(d) is preempted when applied to employers who provide group insurance with a conversion privilege as part of an ERISA benefit plan. (it seems to suggest that insurers may have to do this).

Notice must be given by either the insurer or the policyholder - here the employer."

"But ERISA also contains elaborate provisions setting forth the contents and timing of notice of such information to be given to plan participants. 29USC Sections 1022, 1024(b)."

Don Levit

[J Simmons]

It seems, in trying to harmonize and make sense of what the courts have said on this topic, is that legal obligations of the ER to provide notices regarding an ERISA benefit are only as set forth in ERISA and any state law that attempts to define those notice obligations is preempted. Aucoin v RSW Holdings LLC, 476 FSupp2d 608, 615 (MD La 2007) and Howard v. Gleason Corporation, 901 F2d 1145 (2d Cir 1990). (As mjb pointed out, this is consistent with the notion of Engelhoff v Egelhoff, 121 S.Ct 1322, to promote uniform administration of multi-state plans.)

However, another court (the 9th Circuit in Miller v Rite Aid, 504 F3d 1102 (9th Cir 2007)) first concluded that an individual conversion right incident to a group (ERISA) policy is not itself an ERISA benefit. Therefore, ERISA did not preempt the state law that dictated what notice rights must be given to the individual regarding those conversion rights. I don't recall whether it was raised or separately discussed as an issue in Aucoin or Gleason whether the individual conversion right under the group policy was or was not an ERISA benefit--those courts might simply have assumed that the individual conversion rights were ERISA benefits and thus not analyzed for whether they are or are not.

[Guest Tauriffic]

It seems, in trying to harmonize and make sense of what the courts have said on this topic, is that legal obligations of the ER to provide notices regarding an ERISA benefit are only as set forth in ERISA and any state law that attempts to define those notice obligations is preempted. Aucoin v RSW Holdings LLC, 476 FSupp2d 608, 615 (MD La 2007) and Howard v. Gleason Corporation, 901 F2d 1145 (2d Cir 1990). (As mjb pointed out, this is consistent with the notion of Engelhoff v Egelhoff, 121 S.Ct 1322, to promote uniform administration of multi-state plans.)

However, another court (the 9th Circuit in Miller v Rite Aid, 504 F3d 1102 (9th Cir 2007)) first concluded that an individual conversion right incident to a group (ERISA) policy is not itself an ERISA benefit. Therefore, ERISA did not preempt the state law that dictated what notice rights must be given to the individual regarding those conversion rights. I don't recall whether it was raised or separately discussed as an issue in Aucoin or Gleason whether the individual conversion right under the group policy was or was not an ERISA benefit--those courts might simply have assumed that the individual conversion rights were ERISA benefits and thus not analyzed for whether they are or are not.

You are all confusing benefits with regulated benefit plans. The relevant inquiry of whether aplan is regulated under ERISA is found in the Fort Halifax case and centers on whether the employer must engage in an "ongoing administrative scheme" to facilitate the benefits. Also, whether the group policy is self-funded by the employer will affect the preemption analysis.

EDIT: GBurns, you are correct. The individual conversion right is not an ERISA benefit plan because there is no ongoing administrative scheme and the rigth is provided by the insurer in a non-funded plan, as opposed to the employer.