ERISA Grants to Plan Administrator Authority to Interpret Plan

ERISA Administrator Paid Domestic Partner Based on its Interpretation of the Plan

When an estate was unhappy with decision of an ERISA Plan administrator who paid benefits to a domestic partner instead of the decedent’s estate and children, sued the insurer acting as Plan administrator seeking a duplicate payment.

In Sharon Engle v. Land O’Lakes, Inc.; Unum Life Insurance Company of America, No. 18-2821, United States Court of Appeals For the Eighth Circuit (September 3, 2019) an action under the Employment Retirement Income Security Act (ERISA), see 29 U.S.C. § 1001 et seq., Sharon Engle sought a declaratory judgment that the administrator of a group insurance plans paid benefits to the wrong person, a domestic partner rather than the estate of the decent. The Eighth Circuit was forced to deal with a statute that gives broad power to the plan administrator.

FACTS

Terry Engle was an employee of Land O’Lakes, Inc., when he tragically died in a car crash. As an employee of Land O’Lakes, Engle had both life insurance and insurance for accidental death provided by Unum Life Insurance Company of America. Under the terms of those plans, Land O’Lakes was designated the fiduciary and plan administrator, but it delegated to Unum the discretion to interpret the plans and to make benefit determinations.

The plans specify that, when, as here, there is no designated beneficiary, payments will be made, in Unum’s discretion, either to the decedent’s estate or to surviving family members in a designated order, starting with a spouse, then to children, and then to parents. After Engle died, Unum wrote a letter to his mother, Sharon Engle (whom we will call “Sharon” to avoid confusion), and sought her help in identifying a beneficiary.  Sharon explained that Engle did not have an estate and that none would be opened for him. She also advised that at the time of his death, he was survived by two minor children and one Jaclyn Jones, a woman whom Sharon identified as Engle’s domestic partner.

Unum asked Jones to complete an affidavit verifying that she was Engle’s domestic partner. Sharon told Unum “Terry & Jaclyn lived together & were to be married.” Sharon asked how much longer claims processing would take, and when the Unum representative explained it would not take long and that no additional information (besides Jones’s affidavit) was needed, Sharon “understood & call ended cordially.” Jones soon returned a completed affidavit to Unum, and shortly thereafter Unum paid her $266,000 under the life and accidental-death plans.

Sharon contacted Unum about three months later to complain that it had paid Jones rather than Engle’s children. She then opened an estate for Engle and became its personal representative.  The district court sided with Sharon and held that Unum had adopted an unreasonable interpretation of the plans to support its decision to pay Jones rather than Engle’s estate.

ISSUES

The crux of the parties’ dispute is whether Unum reasonably interpreted the plans as allowing it to pay a decedent’s domestic partner in the absence of a designated beneficiary.

ANALYSIS

When Unum made the payments it was operating under Sharon’s assurance that Engle did not and would not have an estate, so it was reasonable for Unum to determine whether Engle had a “spouse.” The parties dispute whether the word “spouse,” as used in this portion of the plans, encompasses domestic partners.

Unum thought so even though the plans’ glossary contained no definition for the word “spouse.” Unum relied instead on a reference to “spouse” found elsewhere in the plans.

Unum interprets the phrase “wherever used” broadly to mean that the term “spouse” includes a domestic partner even in the provisions involving the payment of benefits. The district court read an implied limit into the spousal-enlargement language and held that the phrase “wherever used” meant only wherever the word “spouse” appeared under the headings relating to insurance coverage, and not to benefits.

The district court adopted a reasonable reading of the plans, though its interpretation is not without its own difficulties. If the spousal-enlargement language applies only to uses of the word “spouse” under the heading in which it appears, then curious anomalies arise in other parts of the plans where “spouse” is used. For example, the term “spouse” is used several times in the plans’ insurance-portability sections without any enlargement, and it would seem odd to interpret “spouse” there as not including domestic partners when domestic partners are deemed to be spouses in the coverage sections.

The job for a court in these circumstances is not to adopt some reasonable alternative to Unum’s interpretation of the plans, or even to adopt the best reading of them. A court must instead determine whether the party given the job of interpreting the plans (Unum here) came up with a reasonable interpretation.

Even if no enlargement language appeared anywhere in the plans, it would be reasonable for Unum to interpret the term “spouse” to include domestic partners, even if that reading might not have resonated in days gone by.

The spousal-enlargement language states broadly that “‘[s]pouse’ wherever used includes domestic partner[s].” That language can reasonably be construed to limit the designation requirement to the insurance-coverage setting and that requirement makes little sense in the benefits context.

CONCLUSION

If the Eighth Circuit had the authority to interpret the plans instead of Unum it might interpret them as the district court did. But the plans expressly gave Unum authority to determine eligibility for benefits and the amount of any benefits, to resolve factual disputes, and to interpret and enforce plan provisions. The U.S. Supreme Court bound the Eighth Circuit in Conkright v. Frommert, 559 U.S. 506, 517 (2010) when it required deference be given to the plan administrator’s decisions.

Deference is near its zenith when the plan administrator opts to pay benefits rather than keep the money for itself. The Eighth Circuit could see no reason why it would have helped Unum’s bottom line to pay Jones rather than Engle’s estate. Therefore, it held that Unum reasonably interpreted the plan as allowing it to pay a decedent’s domestic partner in the absence of a designated beneficiary.

ZALMA OPINION

Claims under ERISA plans cannot be treated like a standard commercial insurance policy claim. Rather, the statute provides certain authority to the plan administrator that is not subject to judicial review unless the action is patently unreasonable and in violation of a fair interpretation of the plan to the benefit of the insurer rather than the decedent or his estate. Since they paid benefits based upon a reasonable interpretation of the Plan the decision made by Unum must be, and was, honored.


© 2019 – 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.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

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