Many employers permit insurance companies to make available to their employees voluntary insurance arrangements, such as supplemental disability or cancer policies. In many instances, employers are unaware if these arrangements are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and its attendant fiduciary and reporting and disclosure requirements. Recently, the United States District Court for the District of New Jersey issued a decision in the case of McCann v. UNUM Provident, et al., in which it found that a group discount on premiums under a supplemental long-term disability (“LTD”) policy (the “Policy”) was sufficient to hold that the Policy is subject to ERISA.
Plaintiff Kevin McCann purchased the Policy from defendant Provident Life and Accident Insurance Company (“Provident”) as part of the Residents’ Supplemental Disability Insurance Plan (“RSDP”) during a two year fellowship at the Henry Ford Hospital (the “Hospital”). Although McCann paid all the premiums, he received a fifteen percent group premium discount under the Policy as a result of his association with the RSDP and the Hospital.
In 2007 McCann was deemed “totally disabled” and began receiving LTD benefit payments. McCann’s payments ceased in 2009 after Provident determined he was no longer disabled. Shortly thereafter, McCann appealed Provident’s determination, and following Provident’s denial of his appeal, filed a breach of contract claim alleging, among other things, that ERISA did not apply. Provident filed a summary judgment motion arguing, in part, that McCann’s complaint is governed by ERISA.
In general, a disability insurance policy is covered by ERISA if it is it is obtained through a plan, fund, or program that is established or maintained by an employer for the purpose of providing benefits to its participants or beneficiaries (emphasis supplied). An employer will not be considered to have established or maintained an ERISA plan if, among other things, no contributions are made by an employer or employee organization. The McCann court determined that the premium discount constituted an employer contribution and, therefore, the Policy was within ERISA’s jurisdiction.
Because ERISA limits damages insurers must pay if they lose a lawsuit it is quite common for them to claim that ERISA applies if they are subsequently sued by the insured. However, employers considering making available voluntary insurance arrangements should make their own independent determination at the outset so that they can properly assess their fiduciary liability and put in place adequate procedures for complying with ERISA’s reporting and disclosure requirements.