Say It Loud and Clear

Although group insurance coverage normally expires on the last day of employment, most group policies have provisions that allow the coverage to be converted to an individual policy.

Under the law, the burden of clear notice to the employee of this conversion option is placed upon the employer, while the employee, once properly notified, has the burden of arranging for the individual policy to be issued.

Although these statements of the law are well accepted, the facts of individual cases sometimes lead to the conclusion that a review is in order so that employer and employee are both aware of what is required of them.

Such a case is Hauth v. Prudential Insurance Company, 2010 WL 3168279, in which the notice purportedly given by the employer was scrutinized to see if it was adequate when the employee, although terminally ill, failed to convert to an individual life policy.

Although there was a note in the benefits administrator‘s file that notice of the conversion privilege had been given to the employee the day after employment termination, there was no indication in the record of how the purported notice had been given or the form in which it had been given.

Relying on Canada life Assurance Co. v. Estate of Lebowitz, 185 F. 3rd 231 (4th Cir. 1999),the court ruled that any notice of conversion required by an insurance policy must be in writing, and must include:

* The date when the group coverage would expire.

* The date when the right of conversion to individual coverage would expire.

* The procedure to be followed by the employee when converting from group to individual coverage.

* The amount of the premium required to convert the policy.

Without these four requirements being clearly met, the court ruled that there was not the written notice of conversion required by the group policy and that therefore, claimant is entitled to collect under the terms of the group policy even though no longer employed.

In an unusual move for a court, it used “common sense” to make the cheese more binding. The court noted that the claimant was gravely ill when terminated (in fact, he died 41 days after termination). In such circumstances, the court found that there was no logical reason to suppose that had he been given adequate written notice of his right to convert a group life policy to individual coverage, that he would not have done so.

There is a lesson to be learned here for everybody involved in group insurance, the employee, employer and even the insurance company:

When the group policy calls for written notice to the employee of the right to convert a group policy interest to an individual interest, the employer should make certain the notice is in writing, contains the expiration date of policy coverage and of the right to convert the policy, and the amount of the premium the employee will have to pay to convert the policy.

The insurance company also has a great interest in seeing that the employer complies or it may wind up having to pay the piper.