In Federal Insurance Company v. American Home Assurance Company, the 11th Circuit discussed what constitutes a fiduciary duty. The employer knew that Mr. Mathis was dying of terminal cancer and had to retire. During the exit interview, the employer was very focused on medical needs and health insurance and did not provide information regarding conversion rights for the life insurance policy. After Mr. Mathis died, his widow found that there was no life insurance and that the insurance policy could well have been converted and would have given his terminal condition.
The employer tendered the claim to two of its insurance companies. One insurance company, Federated, stepped forward and settled the claim. The other insurer refused to pay. So Federated sued the other insurer for indemnity and right of contribution. In other words, it was seeking a share of what was paid to settle the claim. However, the second insurance company, Colonial, had an exclusion for ERISA claims in its policy which is why it refused to pay toward the settlement.
Interestingly, Federated argued that the failure to disclose was a ministerial act and not a fiduciary duty and therefore the exclusion should not apply. The court examined a case from the Distruct of Columbia Circuit known as Eddie v. Colonial Life Insurance Company and explored the issue of fiduciary duties. The Eddie court had held that fiduciary duties are not limited to the statut’es express provisions, but include duties also derived from common law trust principles. The court agreed with Eddie that the “duty disclosed material information is the core of a fiduciary’s responsibility, and intimating the common law of trust” even before ERISA was enacted. The court agreed also with Eddie’s statement that “a trustee is [under] a duty to communicate to the beneficiary material facts effecting the interests of the beneficiary which he knows that the beneficiary does not know and in which the beneficiary needs to know for his protection in dealing with third parties” quoting restatement (Second) of Trust §173. Therefore, the court found that the insurance exclusion would apply, because it did relate to ERISA and Federated was denied any recovery.
While this case involved two (2) insurance companies figuring it out, it actually could have been Ms. Mathis going against the employer and asserting this breach of fiduciary claims. So as it actually turns out, this case may be helpful to employees who failed to receive accurate information when the “trustee” or employer/plan administrator knows of that need.