At some point, as electronic communication becomes the norm – and as paper virtually disappears from the workplace – we will surely see a softening of the conditions imposed by the Department of Labor (“DOL”) on the electronic distribution of summary plan descriptions (“SPDs”). But a recent decision by a New York federal court confirms that we are not yet at that point.
The facts at issue in Thomas v. CIGNA Group Insurance were not that unusual. An employer had elected to post its various SPDs on its intranet, rather than distributing paper copies. These included an SPD for a life insurance plan under which an employee had over $200,000 of coverage. The employee terminated employment due to disability in 2004. She then died in 2008, having allowed her life insurance coverage to lapse due to non-payment of premiums.
The insurance policy did include a “waiver-of-premium benefit” – under which a disabled employee could maintain coverage simply by submitting proof of disability within 12 months after becoming disabled – but the employee had failed to submit the necessary proof. The employee’s designated beneficiary contended that this was because the employee had never received a copy of the SPD in which this option was described. This was the primary legal question addressed by the court.
The court concluded that the steps taken by the employer did not comply with the DOL regulations governing the electronic distribution of SPDs. As explained in our September 2008 article, those regulations limit this option to participants who can effectively access electronic documents wherever the participant is reasonably expected to perform his or her duties, and for whom access to the employer’s electronic information system is a regular part of those duties. While that may have been true of this employee before she became disabled, it was not the case when she actually needed the SPD. This was after she had terminated her employment (due to the disability), thereby losing access to the intranet. As a result, she could not access the SPD during the 12-month period in which she was required to submit proof of her disability.
The court also noted that, even if the employee had continued to have access to the employer’s intranet, the employer had failed to notify her when the SPD was posted. Such notice is another condition imposed by the DOL regulations. Although the employee’s 2002 offer letter had stated that benefits-related information was available on the company intranet, the earliest version of the SPD that was actually posted on the intranet was dated January 1, 2004, and the employee was never notified of that post. Without such notice, the posting of a document on an employer’s intranet is no different than stacking paper copies of an SPD in the Human Resources Department – an approach specifically disapproved of in the DOL regulations.
Because the employer had effectively failed to provide this employee with an SPD, the court concluded that the insurer’s denial of her claim for the waiver-of-premium benefit was arbitrary and capricious. As a result, the beneficiary will likely be entitled to the policy proceeds.
Whether this case will end there is an open question. Typically, employer life insurance policies obligate the employer to provide copies of the SPD to all participants. Because this employer did not do so, the insurer may expect the employer to reimburse it for some or all of the policy proceeds.
In any event, this decision confirms that – at least for now – any employer wishing to rely solely on the electronic distribution of SPDs should continue to comply with the DOL regulations in this area. An employer that fails to do so could find itself saddled with unanticipated liabilities.