Coulda, Shoulda, Woulda – Divorce is Expensive

Divorce Effects Cancellation of Dependent Life Insurance Coverage

Employer provided life insurance programs are controlled by the Employee Retirement Income Security Act (“ERISA”) and its terms and conditions. Unlike insurance obtained directly by the insured for the benefit of a beneficiary the ERISA policy provides limited coverages for which the employee/insured has no control.

In David Glenn Morris v. Southern Intermodal Xpress, Assurant Employee Benefits, Union Security Insurance Company, No. 18-10785, United States Court of Appeals for the Eleventh Circuit (December 4, 2018) David Morris filed a federal civil action to recover benefits allegedly due him under a life-insurance policy governed by ERISA.

Morris sued both Southern Intermodal Xpress (“SIX”), which offered the policy to its employees, and Union Security Insurance Company (“Union”), which issued the policy and then denied Morris benefits under the trade name Assurant Employee Benefits. The district court liberally construed his complaint as bringing a claim for wrongful denial of benefits under an ERISA plan, pursuant to 29 U.S.C. § 1132(a)(1)(B); dismissed the complaint as to SIX for lack of a connection to the decision to deny benefits; and then granted summary judgment in favor of Union on the merits of Morris’s claim.

THE INSURANCE

Morris was insured under a group term-life-insurance policy offered by his employer, SIX, and issued by Union. The policy insured Morris’s life and also provided dependent life-insurance benefits. Dependent insurance extended to “eligible dependents,” which the policy defined as a “lawful spouse” and certain children. Dependent insurance ended if, among other things, a dependent was “no longer eligible.” Morris was married at the time he became insured, but he divorced on September 24, 2015. Nearly two months later, his ex-wife died.

FACTS

After his ex-wife’s death, Morris filed a claim for dependent life-insurance benefits under the policy. Union denied the claim because, in its view, dependent coverage ended as of the date of divorce. At the time of her death, according to Union, Morris’s ex-wife was not his lawful spouse and so was not an eligible dependent under the policy.

Morris then sued both SIX and Union “pursuant to . . . ERISA,” demanding payment of the “death beneficiary proceeds” related to his ex-wife’s death. He claimed that he was entitled to benefits as the “named beneficiary.” He attached to his complaint a copy of the policy and a letter from Union denying his appeal.

SIX moved to dismiss the complaint for failure to state a claim. SIX argued that it could not be held responsible for wrongful denial of benefits because, as the documents Morris submitted with his complaint demonstrated, it had no role in denying benefits. Rather, SIX asserted, Morris’s claim was against Union alone. Union filed an answer and then moved for summary judgment.

Morris’s complaint did not identify a specific ERISA provision as the basis for his claim. But given his allegations that he was wrongfully denied benefits under an “ERISA policy,” the district court liberally construed his complaint as raising a claim under 29 U.S.C. § 1132(a)(1)(B), which authorizes an ERISA-plan “participant or beneficiary” to sue “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”

The district court then granted SIX’s motion to dismiss. Later, the district court granted summary judgment to Union, determining that Union correctly denied the claim under the terms of the life-insurance policy. The court reasoned that dependent life-insurance coverage for Morris’s ex-wife had ended before her death because she was no longer his “lawful spouse” as of the date of divorce.

ANALYSIS

Morris argues that the district court erred in forcing him to proceed under 29 U.S.C. § 1132(a)(1)(B), that he stated a plausible claim against SIX because SIX offered the policy under which, in Morris’s view, benefits were owed, and that the court erred by failing to compel SIX to pay dependent benefits following the death of his ex-wife.

First, the district court did not err by liberally construing Morris’s complaint to raise a claim under 29 U.S.C. § 1132(a)(1)(B). That provision of ERISA authorizes a participant in or beneficiary of an ERISA plan to bring a civil action “to recover benefits due to him under the terms of his plan.” 29 U.S.C. § 1132(a)(1)(B). Because Morris filed suit “pursuant to . . . ERISA” to recover “death beneficiary proceeds” he claimed were owed under an “ERISA policy,” the district court properly construed his claim as one “to recover benefits due to him under the terms of his plan” under § 1132(a)(1)(B). Furthermore, any state-law claim that Morris’s complaint may have raised was preempted by ERISA.  That provision converts state-law claims into federal ERISA claims.

Second, the district court did not err by dismissing the complaint for failure to state a claim against SIX, Morris’s employer. The court concluded that SIX was not liable  because nothing in the complaint indicated that the denial of benefits was caused by any impropriety on SIX’s part. The court noted that the policy itself gave Union “sole discretionary authority” over the benefits decision, that Union alone issued the decision denying Morris’s claim for benefits and his appeal based on its interpretation of the policy, and that Morris had not alleged any impropriety in SIX’s handling of the claim paperwork before Union made its decision. The court concluded that any improper denial of benefits was attributable to Union, not to SIX.

By granting summary judgment to Union on the merits of Morris’s claim for unpaid benefits, the district court determined that Union correctly denied benefits under the terms of the life insurance policy.

The Eleventh Circuit agreed with the district court that Union’s decision to deny benefits was the correct one under the terms of Morris’s life-insurance policy. Morris’s policy provided coverage to “eligible dependent[s],” which included a “lawful spouse.” Coverage ended if a dependent was no longer “eligible.”

Because Morris’s ex-wife was not his “lawful spouse” as of the date of their divorce, she ceased to be an “eligible” dependent as of that same date. By the time of Morris’s ex-wife’s death nearly two months later, any dependent coverage had ended.

Morris’s assertion that he is a “named beneficiary”— in the sense that he may have been entitled to benefits notwithstanding the divorce — finds no support in the language of the policy because the ex-wife was no longer an insured or eligible for the dependent coverage.

ZALMA OPINION

It is essential to the interpretation of an insurance policy that the court asked to interpret it read the words of the policy. In this case the clear and unambiguous language of the policy only allowed coverage for a dependent lawful spouse. Since the divorce was final she was no longer a dependent nor was she a lawful spouse. Clear language of a policy must be enforced where there is no ambiguity and in this case it was.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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