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Tyll V. Stanley Black & Decker: When Plan Ambiguity Cost An Employer $4 Million

An employer learned the full cost of ambiguity when a Connecticut federal district court agreed with an employee’s widow that the word “maximum” was ambiguous in the company’s life insurance plan, thus making the widow entitled to an additional $4 million in benefits. This decision serves as a warning for employers sponsoring insured benefits.

IN DEPTH


On July 12, 2019, a Connecticut federal district court agreed with an employee’s widow that the meaning of the word “maximum” in the company’s ERISA life insurance plan was ambiguous. As a result, the widow is now entitled to an additional $4 million in benefits.

The employee, who died in September 2014, was considered a Class 1 Insured Person under the company’s plan. This meant that his beneficiary, the plaintiff, was entitled to benefits equal to 100% of a principal sum in the amount of “Five (5) times Salary subject to a Minimum of $100,000 and a Maximum of $1,000,000.” While the plaintiff widow argued that the phrase “subject to a Minimum of $100,000 and a Maximum of $1,000,000″ placed a floor and cap on the Salary, the defendants argued that the phrase placed a floor and a cap on the total benefit. After the defendants—the Plan and the life insurance company—refused to pay the plaintiff more than $1 million, she filed suit for $4 million in additional benefits.

Ultimately, the court held that the language defining the principal sum for Class 1 Insured Persons was ambiguous. The court found that the defendants’ interpretation—that the $100,000 and $1,000,000 amounts respectively referred to a floor and cap on benefits due—was not the only reasonable interpretation. Because the language was susceptible to more than one reasonable meaning, the court was required to construe it in favor of the plaintiff’s interpretation. As a result, the court granted the plaintiff summary judgment in her favor as to her claim for $4 million in additional benefits under the Plan, as well as equitable interest.

This decision provides a cautionary tale for employers sponsoring insured benefits. Insurance policies should clearly define maximums, and explicitly specify that such maximums apply to the overall benefit due rather than another sum used to calculate that benefit. Employers should review these certificates and require insurers to revise if the insurer’s language is unclear.

Furthermore, with open enrollment approaching, employers would be well served to confirm their election materials are unambiguous and consistent with the terms of the underlying life insurance policy. Any ambiguities should be addressed with the insurer and updated in the group policy. For employers that maintain a separate summary plan description or other materials describing their life insurance or other benefits, these materials should be reviewed for consistency with the insurance policy. Any inconsistency between the life insurance policy and the benefits communicated by the employer could potentially make the employer responsible for additional benefits that were promised.

© 2019 McDermott Will & Emery

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About this Author

Associate

Jacob Mattinson is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  He focuses his practice on matters related to employee benefits and executive compensation.

312-984-3263
J. Christian Nemeth, McDermott Will, business torts lawyer, aviation matters attorney
Partner

J. Christian (Chris) Nemeth provides legal counsel on complex commercial litigation, including contract disputes, shareholder derivative actions, financial and banking matters, business torts, aviation matters, insurance cases, white-collar criminal matters and health care litigation.

Chris represents clients in courts at the state and federal levels across the country, and has successfully tried cases involving a wide range of matters. He also arbitrates cases in domestic and international forums.

Chris has extensive appellate experience as well. He has successfully appealed cases to the Seventh, Ninth and Tenth Circuits and to the Illinois Court of Appeals.

312-984-3292
Judith Wethall, McDermott Law Firm, Chicago, Labor and Employment Law Attorney
Partner

Judith Wethall focuses her practice on employee benefits, specifically health and welfare programs. She counsels employers, plan administrators, insurers and consultants on a wide range of ERISA compliance issues. Judith's clients include sole proprietors to Fortune 100 companies and cover a variety of industries including health care, technology, manufacturing, insurance and financial.

Judith has extensive experience advising clients on health care law reform; wellness programs; Medicare secondary payor rules; fiduciary compliance; disability...

312-984-7577
Elizabeth Rowe, IP Attorney, Litigation, McDermott Law Firm
Associate

Elizabeth M. Rowe focuses her practice on complex civil litigation. She has experience with contract interpretation, negligence and assumption of risk, breaches of fiduciary duty, and burden of proof.

While in law school, Elizabeth was a member of the University of Notre Dame Law School’s The Journal of Legislation. She also served as an intern in the Office of Congressman Mike McIntyre and as a law clerk in the Cook County Office of the Public Defender.

Elizabeth Rowe attended Marquette University for her BA...

312-984-2046