ERISA-Seventh Circuit Rules That A Supplemental Life Insurance Policy Is Subject To ERISA, So That Its Benefits Are Paid To The Designated Beneficiary

In Cehovic-Dixneuf v. Wong, No. 17-1532 (7th Cir. 2018), the Seventh Circuit Court of Appeals (the “Court”) began the case by noting that ERISA requires administrators of employee benefit plans to comply with the documents that control the plans.  In the case of life insurance policies, that means death benefits are paid to the beneficiary designated in the policy, notwithstanding equitable arguments or claims that others might assert.

In this case, the deceased employee was Georges Cehovic, whose employer offered its employees an insurance benefit plan through ReliaStar Life Insurance Company.  Georges had two policies under the plan with ReliaStar: a basic life insurance policy with a death benefit of $263,000, and a supplemental life insurance policy with a death benefit of $788,000.  On both policies, Georges listed his sister, plaintiff Emma Cehovic-Dixneuf, as the sole and primary beneficiary.  After Georges died, his ex-wife, defendant Lisa Wong, claimed that she and the child she had with Georges were entitled to the death benefits from the supplemental policy.  However, noted the Court, any equitable arguments Wong might make can gain no traction, however, if the supplemental life insurance policy is covered by ERISA.

The district court granted summary judgment for plaintiff Cehovic-Dixneuf, finding that the supplemental life insurance policy is indeed covered by ERISA (so she gets the benefits as the designated beneficiary). The Court affirmed this decision.  It said that defendant Wong failed to offer evidence to the district court showing any genuine issue of any fact material to the case.  She did not present her evidentiary objections to Cehovic-Dixneuf’s evidence in the district court when she could and should have.

As one aspect of the case, the Court found that the supplemental life insurance policy is covered by ERISA.  The Court said that (based on 7th Circuit precedent) five elements must be shown for ERISA to cover an employee welfare plan like an insurance plan: (1) a plan, fund, or program, (2) established or maintained, (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits, (5) to participants or their beneficiaries.

The Court concluded that all of those criteria are satisfied here.  The life insurance policy was part of a program established by Georges’s employer for the purpose of providing death benefits to participants or their beneficiaries.  The safe harbor regulation from ERISA coverage, found in 29 C.F.R. § 2510.3-1(j), does not apply in this case.  This obtains, since, as here, when an employer has performed all administrative functions associated with the maintenance of the policy, the policy does not meet the requirement for application of the safe harbor contained in 1(j)(3) of that regulation.

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