Employee Benefits-Sixth Circuit Rules That Stop-Loss Insurer Was Not Liable For Plan Beneficiary’s Health Care Expenses

In Clarcor, Inc. v. Madison National Life Insurance Company, Inc., No. 11-6177 (6th Cir. 2012) (Unpublished Ruling), the plaintiff, Clarcor, Inc. (“Clarcor”), had sued the defendant, Madison National Life Insurance Company (“Madison”), asserting that Madison had wrongfully denied Clarcor’s claim for insurance coverage. The district court granted summary judgment for Madison, and Clarcor appealed.

In this case, Clarcor provided health insurance for its employees through the self-funded “Henderson Hourly Union Medical Plan” (the “Plan”). To insure against major employee health care expenses incurred under the Plan, Clarcor obtained from Madison an Excess Loss Insurance Policy (the “Policy”). The Policy covered health care expenses exceeding $250,000 per Plan beneficiary per year.

The dispute in this case arose because one of Clarcor’s employees, I.K., incurred a considerable amount of health care expenses. The last day I.K. was “regularly scheduled” to work at Clarcor was October 20, 2007. At that time, I.K. was placed on FMLA leave, which continued until January 12, 2008. I.K. did not return to work after the expiration of her FMLA leave, and was not offered COBRA coverage, but was instead placed on short-term disability. While on short-term disability, Clarcor continued to take benefit deductions from I.K’s compensation for health insurance coverage and continued to submit I.K.’s name to Madison as one of the beneficiaries of the Plan, for whom Madison would be liable for excess health expenses. I.K.’s employment (and the short-term disability leave) was terminated on June 23, 2008, and the next day, for the first time, she was offered COBRA coverage by Clarcor. She elected to receive to COBRA coverage. I.K.’s health care expenses during the relevant time period exceeded $250,000 and, in June 2009, Clarcor submitted a claim for this excess to Madison under the Policy. Madison refused to reimburse Calcor for any of I.K’s expenses incurred after January 12, 2008, that is, after I.K. came off of FMLA leave and went onto short-term disability.

In analyzing the case, the Sixth Circuit Court of Appeals (the “Court”) found that, under the plain and unambiguous terms of the Plan, I.K. was not eligible for Plan coverage following the commencement of her short-term disability leave. This obtains because, while on such leave, she was not a full-time employee or covered by an applicable exception from the full-time requirement. I.K. did not regain this eligibility by electing COBRA coverage, since in her case she was not covered by the Plan on the date before the day of the applicable qualifying event, namely, the day of her termination of her employment. As such, under the terms of the Policy, Madison was not liable for any of I.K.’s health care expenses incurred after the short-term disability leave began, including those incurred while she was receiving COBRA coverage. Accordingly, the Court affirmed the district court’s summary judgment in favor of Madison.