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Do you have an employer-sponsored group long-term disability insurance policy, a group life insurance policy or a group medical insurance policy? What do you do when your employer-sponsored group plan is terminated and you have the option to continue or convert the policy? Should you choose to continue or convert your life, health or disability insurance plan, what law governs any claims you make under the new policy? As we have discussed in previous articles on this blog in depth, the Employment Retirement Income Security Act of 1974, otherwise known as ERISA, governs most employer-sponsored benefit plans, including long term disability insurance, life insurance, health insurance and retirement plans. ERISA was enacted to protect employees from abuse of those employer-sponsored benefits plans and requires that the plan and claim administrators, usually the employer and the insurance company, adhere to strict fiduciary standards when resolving disputes that fall under ERISA. However, not all insurance policies fall under ERISA, even if the policy was originally part of an employer-sponsored plan.
In this article, we address the first step in assessing an insurance claim that may or may not be governed by ERISA, with a focus on whether ERISA applies to your continued or converted long term disability insurance, life insurance or health insurance policy. In general, for ERISA to apply, the employer-sponsored plan must meet certain requirements and must not be established or maintained by a church or government entity. However, sometimes ERISA may apply to a policy that is no longer sponsored by your employer, which may depend on whether the policy is considered a “continued” or a “converted” policy. This article discusses this nuance in depth, first outlining the difference between a “continued” and a “converted” insurance policy and then discussing when ERISA may apply to each.
What is a “Continued” Insurance Policy and When does ERISA Apply?
A “continued” insurance policy arises where the terms and conditions of the group policy allow the employee an option to continue the policy, exactly as it is, for a certain period of time regardless of separation from the employer that originally provided the plan. Because a continued policy remains the same as the original employer-sponsored policy, ERISA typically continues to govern those claims. For example, in Alexander v. Provident Life & Acc. Ins. Co., 663 F.Supp.2d 627 (E.D. Tenn. 2009), the plaintiff’s employer sponsored a disability insurance policy. Plaintiff’s employment terminated, but the policy had a provision that allowed for continued coverage within a certain period of time, regardless of employment. Specifically, the provision stated that it was “non-cancellable and guaranteed continuable at guaranteed premiums to [the policyholder’s] 65th birthday, or five years, whichever is later.” Under the terms of this policy, the plaintiff was free to continue the policy at the guaranteed premiums, regardless of whether he was still employed by the employer that brokered the original deal to get that policy. In this case, the plaintiff elected to continue coverage under the same policy number and under express language that the policy “continued.” In this case, the court found that ERISA still governed this policy because the same considerations existed under ERISA and there was no change in the terms or conditions of the policy, as it just “continued” from the original employer-sponsored plan.
What is a “Converted” Policy and When does ERISA Apply?
In contrast, a “converted” policy is one where the right to convert from a group policy to an individual policy typically arises after the group policy has terminated and the group policy provides for a right of conversion. When a plan is considered “converted” the ERISA analysis becomes more difficult than a continued policy. Under a converted policy, if the issue is whether the policyholder has a right to convert the policy and that right is governed by an ERISA plan, then the courts will typically find that ERISA governs that dispute. However, if the policyholder has already exercised his or her individual right to convert the policy, and maintains an otherwise individual plan based on the provision arising in an ERISA policy, the determination becomes more complicated.
In some circuits, because the converted policy arose out of an ERISA governed policy, it is considered indelibly tied to the ERISA governed policy. As such, in those circuits, a policy that arises from a conversion provision in an originally ERISA governed plan will continue to be governed by ERISA. However, in other circuits the term “conversion” is taken in a more literal sense. In those circuits, when a policy converts from a group to an individual policy it is considered entirely converted for the purposes of ERISA. What this means is that once a policy becomes an individual policy no longer governed under the terms of the group-sponsored plan, the plan is no longer governed by the terms of ERISA because it is no longer established or maintained by your employer.
For example, in Arancio v. Prudential Ins. Co. of America, 247 F.Supp.2d 333 (S.D.N.Y. 2002), the Plaintiff Arancio had exercised his right to convert his group disability insurance policy into an individual disability insurance policy. Although the right to convert originated with his former employer, Riverbay, after conversion, Plaintiff Arancio held the policy the same as any other individual. The Policy named Prudential, and not the employer, as the administrator. Further, Riverbay no longer financed the policy and instead Arancio paid the premiums. The court also noted that, under the converted policy, all communication regarding the claim were directly between Plaintiff Arancio and Prudential, without involving Arancio’s former employer. In effect, Plaintiff Arancio converted his formerly group plan into an individual policy directly with Prudential and the court found that, as such, his disability insurance policy had the requisite independent relationship to remove it from ERISA.
Determining whether a converted policy is governed by ERISA can be a complex undertaking and the above are just a few considerations to keep in mind when a continued or converted policy may or may not still be subject to ERISA.
Having an experienced disability, health and life insurance attorney matters to the success of your insurance matter, particularly when complicated issues like the above apply to your claim. If your claim for health, life, short-term disability or long-term disability insurance has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.Share This Article