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Ninth Circuit Rules for Insured in ERISA Employee Benefits Dispute Under Federal Agency Law

Posted Thursday, September 21, 2017 by McKean J. Evans

The Ninth Circuit Court of Appeals recently ruled in favor of an insured in a dispute over coverage under an ERISA-governed benefits plan. In Salyers v. MetLife, Case No 15-56371 (September 20, 2017), the court applied the federal common law of agency to find that the employer’s actions waived the insurer’s right to deny coverage.

Susan Salyers bought a $250,000 life insurance policy on her husband through an employer-sponsored plan. After Salyers’ husband died, the insurer (MetLife) paid out only $30,000 because Salyers had not submitted evidence of insurability with her coverage election, as required under the ERISA-governed benefits plan. The court ruled that MetLife waived its right to deny coverage based on the evidence of insurability requirement because it did not ask Salyers for a statement of health, even as it accepted her premiums for $250,000 in coverage.

Importantly, the court held that, under the federal common law of agency, the knowledge and conduct of Salyers’ employer could be attributed to MetLife. The court found Salyers’ employer knew or should have known that Salyers’ coverage election required evidence of insurability, because the employer’s system showed $250,000 in coverage. Despite having not received evidence of insurability from Salyers, her employer deducted premiums from Salyers’ paycheck, in amounts corresponding to $250,000 in coverage, and sent Salyers a letter confirming $250,000 in coverage. These actions were so inconsistent with an intent to enforce the evidence of insurability requirement that they gave Salyers a reasonable relief that Metlife had relinquished its right to deny coverage under that requirement.

The court remanded the case to the trial court with instructions to enter judgment in favor of Salyers for the amount of the $250,000 policy that remained unpaid.

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