Anyone who has ever read an insurance policy knows how complicated these documents can be. In fact, they seem to be made to mislead and confuse the policyholder. Perhaps nowhere is this confusion more prevalent than in life insurance policies, which have seemingly endless pages nuancing circumstances that will not be covered.
But are there limits to how misleading these documents can be? Are there any overarching laws or regulations that force insurance companies to provide a basic level of clarity in their communications to potential policyholders?
A recent case
A recent case, reported in HRDive online, suggests that there are some limits here. In the case, a widower is suing MasterCard on a claim that the company breached its fiduciary duty as a life insurance provider under the Employment Retirement Security Act (ERISA) by underpaying on his late wife’s life insurance claim.
Although the plaintiff and his late wife had allegedly purchased insurance worth three times her salary, he received payments for only one year’s worth of her regular salary. The defendant MasterCard claims it has no record of the more extensive coverage being purchased.
According to the 8th Circuit Court in this case, the defendant had a fiduciary duty to the plaintiff. This means that they cannot make materially misleading representations to an insurance policyholder. According to the article, the 8th Circuit Court interprets the fiduciary duty in this type of circumstance to include advising and informing about “circumstances that threaten the interests of one to whom the fiduciary duty is owed,” and a material misrepresentation can include any statement that is “substantially likely to mislead a reasonable employee making decisions about employer benefits and entitlements.”
In the case at hand, the plaintiff and his late spouse did not know they were getting a lesser insurance package than they had intended. The company should have informed them of exactly what they were purchasing and should not have used language that could mislead them into this misunderstanding.
Some important points
When looking at a case like this, it is important to keep in mind:
- ERISA: This case falls under ERISA law, which covers employer-provided insurance matters. Non-employment-provided insurance is not covered by ERISA, and so there are different rules and standards involved.
- Insurance providers have a duty: With or without ERISA governance, insurance companies have a basic duty to provide clear and factual information that is not intended or likely to mislead their customers.
- You have rights: In cases of life insurance denials, many people feel like they have no rights or options. It is important for you to know that there are clear rules and regulations governing the insurance industry. You have rights.
If you have been denied or been underpaid on a life insurance claim, you should seek legal counsel immediately to determine your next steps. Not every claim denial is an instance of bad faith, so it is important to talk with an attorney who can look at the facts and help you determine whether you have a viable claim.