A recent district court case demonstrates how important it is for employers to maintain summary plan descriptions (SPDs) that clearly and unambiguously describe benefits available under their welfare benefit plans. In this case, the widow of a former employee of a company that maintained a life insurance plan sued the company for breach of fiduciary duty for failing to inform her and her husband about an option to accelerate life insurance benefits under a “living benefits” option. The employer’s group life insurance plan permitted a terminally ill participant to elect accelerated payment of a portion of his or her life insurance benefit under certain conditions. If the participant had elected the living benefits option, he would have been entitled to an up-front payment of $100,000 to be deducted from the $300,000 payable to his wife on his death. However, the company employee who advised the participant and his wife about their benefits following diagnosis of the participant’s terminal illness, failed to inform the couple of this option, telling them only of their right to convert the group coverage to individual coverage. The participant failed to convert the policy and his coverage lapsed. Several months later, the participant died, and the insurance company denied the widow’s claim for benefits, triggering her lawsuit against the employer.

Drawing upon a long line of precedent established by the U.S. Court of Appeals for the Seventh Circuit, the district court denied the widow’s claims against the company because the SPD was unambiguous and clearly described the living benefits option available to terminally ill participants. As a result, there was no breach of fiduciary duty, despite the incomplete information communicated in person by the company’s human resources representative. (Pfiel v. Edward Kraemer & Sons Inc., W.D. Wis. 2010)