Justinian Lane

Insurer fraudulently conceals information from policyholder, then uses preemption to avoid paying when policyholder dies

This time, it's ERISA preemption:

WASHINGTON - Dying of cancer, Thomas Amschwand did everything he was told to make sure his wife would collect on the life insurance policy he had through his employer.

"He was obsessed with dotting every `i' and crossing every `t'," Melissa Amschwand-Bellinger recalled about her husband, who died in 2001 at age 30.

But Spherion Corp., the temporary staffing company where Amschwand worked, told Amschwand-Bellinger she would not receive any of the $426,000 in benefits she believed she was due. When she went to court, Spherion succeeded in getting her lawsuit thrown out. The Supreme Court on June 27 refused to review the case.

Amschwand-Bellinger received a refund of the few thousand dollars in insurance premiums she and her husband dutifully had paid. The total, she said, would not cover the costs of his funeral.


Spherion's decision to deny benefits to Amschwand-Bellinger turned on an odd set of facts. Spherion, which employs about 300,000 people, switched insurers after Thomas Amschwand was diagnosed with a rare form of heart cancer. The new policy did not take effect until an employee worked one full day. Spherion never informed Amschwand of the requirement.

Amschwand asked repeatedly whether there was anything else he needed to do and was told no. He asked that the new policy be sent to him. Spherion never did so.

He died without returning to work. His widow said he easily could have worked a day if that was what it took to activate the new policy. Spherion could have waived the one-day-of-work provision, as it did for other employees but not for Amschwand.

Source: Employers use federal law to deny benefits - Yahoo! News

Rather than buying an insurance policy, Amschwand in essence made an interest-free loan to his insurer.  How, I ask you, how is this fair in any sense of the word?

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Posted at 2:10 PM, Jul 07, 2008 in Preemption
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Answer: it's not. Ugh. This is just disgusting.

Posted by: Kia | July 7, 2008 2:17 PM

The false outrage is funny.

Who would write such gotcha provisions? Who would enforce an unconscionable provision? Who would obstruct any remedy?

What type of person is it?

One guess.

Posted by: Supremacy Claus | July 7, 2008 5:35 PM

Your title -- "Insurer fraudulently conceals information from policyholder, then uses preemption to avoid paying when policyholder dies" -- is misleading.

First, the "insurer" didn't fraudulently conceal anything. The employer did. (Assuming that its refusal to communicate its insurance policy's Active Work Rule was fraudulent).

Secondly, the insurer did not "use preemption." The employer did. The insurer was not a party to the suit.

The suit was not against the insurer because there was no contractual claim. The suit was against the employer, as an ERISA plan administrator, for breach of fiduciary duty.

Under ERISA, proper damages against a plan administrator for breaches of fiduciary duty turn on a complex analysis regarding what type of damages would have been available in equity before its merger with the law. In this case, the court, agreeing with several other circuits, determined that the proper damages in equity would have been disgorgement of the profit made by the trustee of the res, or the plan administrator in this case.

Thus, the plaintiff is only awarded the premiums paid into the plan.

Posted by: Lawyer | July 7, 2008 6:16 PM

Thanks for the clarification of the applicable law, lawyer. With that out of the way, do you have an answer to the broader question of how this is fair?

Posted by: Justinian Lane | July 7, 2008 11:59 PM

Its not fair. Ask any attorney who represents employees caught up in ERISA what once was a shield protecting employees has through the miracle of the federal courts become a sword to attack them. I had a recent employer life insurance case with a client who died due to injuries sustained in a motorcycle accident. The insurer paid the portion for the death but denied paying the accidental death portion of the policy stating that he died due to cardiac arrest (this happens in all deaths as the heart stops beating!). They stood by this position despite the treating physician's affidavit stating that he died as a result of infection caused by a lacerated spleen (an emergency splenectomy was performed). He remained hospitalized for over two months after the surgery and never left.

We filed suit in federal court and had to settle for less than the policy limits due to the standard in ERISA which is an abuse of discretion standard. Its bull and everyone who deals with it knows its bull. In my case the administrator was the insurance company, so there was a certain incentive for them to deny the claim. A true employer administered plan might have been more honest.

At least this poor family has lots of company. Perhaps they'll take the time to let the swimmer know that his baby has mutated into a monster. Thats a reference to Sen Ted Kennedy who was one of the writers of the initial ERISA law.

Posted by: Steve | July 8, 2008 2:53 PM