Conversion of Group-Term Life Policy

[PJ2009]

An employee terminated employment and has sued the plan sponsor of a group-term life insurance plan for failure to notify the employee of his right to "convert" to an individual policy. Clearly, COBRA does not apply to life plans. My questions are:

1. Does ERISA preempt this claim so that it does not matter what State law may require (i.e., require conversion rights, require advance notice, etc.)? If so, there would be no remedy for the employee, because to my knowledge, ERISA does not require conversion rights or advance notificatin.

2. If the life insurance contract itself provides for the conversion right, but does not specifically require the plan sponsor to notify the former employee of his conversion rights, has the plan sponsor, by its failure to notify the individual, breached any "fiduciary duty"?

I realize there are sub-issues galore, but I thought I would ask if anybody has encountered this issue and has any opinions that could help us navigate through this grey area.

Thanks much.

[jpod]

I've seen the issues many times in discussions with other lawyers, but I'm not up on the latest case law or how these cases get settled. However, it seems to me that if the group insurance imposes an obligation on the plan sponsor to do X, Y and Z in connection with a conversion right under the policy, and the plan sponsor does not do X, Y and Z, there is at least the strong potential for a viable breach of ERISA fiduciary duty claim against the plan sponsor. Not sure how you measure damages if the employee hasn't died yet.

[PJ2009]

Hello,

I have finally returned to this matter. It occurred to me that we are probably dealing with an ERISA plan and that the conversion right would have had to be communicated to all participants via a Summary Plan Description. I wonder if this would constitute constructive notice of such a feature? I also am thinking that perhaps ERISA would preempt any state laws on this matter. By the way, the life insurance policy does not require any kind of special notification to employees who terminate employment about their conversion rights, which are clearly spelled out in the policy.

Any additional thoughts would be most appreciated before I get lost in Court Case Land.

Thank you.

[J Simmons]

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