Whenever a company switches benefit plan carriers, there’s always the potential for unexpected problems during the changeover. One common glitch: some employees enrolled in the old plan fall through the cracks when transferring to the new carrier.

 What happens if, for technical reasons, an enrollee is declared ineligible for the new plan? Read the facts and decide - Who won this case?

The facts: A long-time employee was forced to on long-term disability while he battled a usually fatal form of cancer. During the last stages of his lengthy illness, the company switched its supplemental life insurance plan for employees.

The employee passed away, and his family put in a claim for a $150,000 death benefit. The TPA denied the claim, because the plan documents stated that only active employees were eligible to enroll in the new plan.

The employer said: While the situation was unfortunate, the eligibility conditions spelled out in the plan document were crystal clear.   Nothing in the plan document stated that exceptions would be made to carry over inactive employees who were inactive due to a pre-existing illness or serious injury. 

The employee’s family said: The family was eligible for death benefits under the company’s old life insurance plan. Even after the plan switch, the man was still technically employed by the company. He was placed on  long-term paid disability during the final months of his life.

Who won? The employee’s family.

Why: The court said the company, as sponsor of both the old and new plans, had dropped the ball on its ERISA obligations. Simply changing carriers wasn’t enough to release the firm from all of its legal obligations to employees enrolled under the old plan.

Specifically, it was up to the company – before the new policy took effect – to inform anyone who’d soon lose their benefits. It was the firm’s duty to give the man’s family a heads up that, as an inactive emplyee, he’d become ineligible for the new plan. 

After all, the judge said, management at the company knew ahead of time about the employee’s failing health and inability to work.

Cite: Miller v. Rite Aid Corp., Miller v. Rite Aid Corp, 9th Circuit Crt.,
No. 05-35505, 10/11/07.