Just Because You Have Insurance Doesn’t Mean That You Have Coverage

[author: Angela Bohmann]

A recent federal court decision from the Eastern District of Wisconsin dealt with a situation of an employer who failed to provide a former employee proper COBRA notices and failed to accept a premium payment for the COBRA coverage. The employer had sent the required COBRA notice when the employee terminated employment but had not sent the employee and spouse the initial COBRA notice required when the employee and his spouse first became covered under the plan. When the employee sent a COBRA premium later than its due date, the employer refused to accept the payment and cancelled the coverage. The employee sued the employer claiming various COBRA violations.

The employer had an employee benefits liability insurance policy with Travelers Insurance and the employer tried to get Travelers to pay for defending the action. Travelers declined on the grounds that the policy excluded a loss for which the employer “is liable because of liability imposed on a fiduciary by [ERISA].”

The court determined that the COBRA notice violations would constitute violations by the plan administrator who is an ERISA fiduciary. Because a core duty of the fiduciary is to disclose appropriate information, the employer’s failure to advise the employee of the initial COBRA notice would result in liability imposed on the fiduciary under ERISA. The court also concluded that the plan administrator would be acting as a fiduciary in refusing to accept the COBRA premium payment. Therefore, despite having an employee benefits liability insurance policy in place, the employer found itself without coverage.

The lesson for employers: Review your insurance policies and riders — fidelity bonds, fiduciary liability coverage, directors and officers liability coverage, and employee benefits errors and omissions coverage. Get advice from an experienced consultant or attorney to make sure you have the coverage you need and want – and thought you had.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Stinson Leonard Street - Employee Benefits & Compensation | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.