A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

A widow who tried to collect twice on the same life insurance policy was shut down by a federal district court in Manhattan.

The case is Dillon v. Metropolitan Life Insurance Company, 09-civ-7958 (SDNY Dec. 28, 2011).

The plaintiff’s husband, when he contracted cancer, was insured under a group life insurance policy with his employer administered by MetLife. The plan allowed that if an employee stopped working due to illness or disability, the employee had the option of converting the policy into an individual policy. The employer made a mistake by prematurely ending the group coverage, and the insured-husband purchased a conversion policy, then died three days later.

MetLife paid the group policy in the amount of $837,000, but denied the widow’s claim under the conversion policy for the same amount. It did so after determining that the group policy had been wrongfully terminated. Litigation ensued with the plaintiff claiming she was entitled to the death benefit of the conversion policy because she had paid its premium. The court ultimately agreed with the insurer. Here’s a synopsis of some of the key legal points:

The plaintiff filed a breach of contract action in state court that was removed to federal court on the grounds that there was ERISA preemption. The court held that the breach of contract claim did not apply and instead the claim should have been brought as a wrongful denial of benefits under ERISA. Nevertheless, the court allowed the plaintiff’s claim to survive, only to reject it for a different reason. But this is a reminder to life insurance attorneys that ERISA cases must be analyzed differently.

In any case, an “arbitrary and capricious standard,” which applies when the plan administrator is granted discretion to award or deny benefits under the plan, was determined to be the governing standard. The court held that this standard was not satisfied because the plan did not base its denial of the claim on substantial evidence. Nonetheless, the court held that the plaintiff’s claim must fail because it was clear under the plan that an employee was not permitted to simultaneously hold two policies, in that a conversion policy was supposed to be in place of, and not in addition to, a group policy. Plan participants were only entitled to have an individual policy once their group coverage expired. They were not intended to have both.

As a post-script, it’s interesting that the case was brought in the first place. In my experience, courts are most reluctant to award a windfall to a plaintiff based on an administrative error made by an insurance company. (However, they often do not hesitate to penalize plaintiffs for their own procedural errors – but, alas, I digress).

The court likely saw that an award of twice the policy amount would be a windfall to the widow in the sense that it was twice the amount contemplated under the insurance contract. From another perspective, other widows in similar circumstances, whose spouses did not have their group coverage wrongfully terminated, would only receive a single death benefit. Of course, no death benefit, no matter how large, can compensate fully for the death of a loved one, and so no windfall could really be had by the widow in this case, but still, at least in my opinion, the result was a predictable one.

 

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