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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

April 6, 2020

COVID-19: Life and Disability Insurance Coverage

Under virtually all employer-sponsored group life, AD&D, and disability insurance plans, an employee’s insurance coverage terminates when the employee ceases to be eligible for coverage because the employee ceases to be “actively at work” or experiences another type of adverse employment action that causes a loss of eligibility.

Neither federal law in effect prior to the CARES Act nor the recently enacted CARES Act require employers to continue life and disability insurance benefits when employees cease to be eligible for coverage. When coverage is lost, insurance coverage will continue—if at all—under the terms of the group insurance policy and the rules of the life and disability insurance carrier. Fortunately, most policies do continue coverage for inactive employees for specified reasons and for a specified period of time, and, in response to COVID-19, many (if not all) of the major carriers have agreed to allow coverage to continue for employees impacted by the crisis.

Employer Action Steps

Employers need to review their policies and contact their insurance carriers and brokers for detailed information about their rights and obligations and the rights and obligations of impacted employees under the policies. Employers that maintain self-insured plans have control over the terms of their plans, but still need to coordinate coverage continuation provisions with third-party claims administrators and stop-loss carriers (if any) to ensure proper administration.

Employers that continue life and disability insurance coverage for employees who aren’t eligible under policy terms face potentially significant litigation and liability risks if they do so without obtaining the insurer’s written consent.

This alert outlines the questions employers should ask their group insurance carriers and brokers as well as the steps they should take with respect to these benefits when they furlough or layoff employees or take other employment actions that may impact employee benefits.

1. Will an employee’s coverage end or be reduced for adverse employment events resulting from COVID-19?

This depends on the terms of the insurance policy and the nature of the adverse impact. Under the terms of the vast majority of the policies we’ve reviewed for our clients, life and disability insurance coverage can end for one or more of the following reasons:

  • An employee is furloughed or laid off
  • An employee goes on an approved leave of absence, whether or not that leave is mandated under state or federal law 
  • An employee’s work hours or compensation (or both) is reduced
  • An employee is transferred from an eligible to an ineligible employment classification (e.g., from permanent to variable, regularly scheduled to “per diem,” or salaried to hourly.)

Most policies allow a temporary continuation of coverage when coverage is lost but only if the circumstances that result in the loss of coverage fit squarely within the terms of the insurance policy. Most policies we’ve reviewed allow the continuation of coverage for leaves or other absences that are mandated by state or federal law or that are approved under circumstances that mirror those mandates; however, no policy that we’ve reviewed to date would, by its express terms, extend coverage for employees who are furloughed, laid off, or otherwise adversely impacted as a result of COIVID-19. 

2.    If an employee’s coverage may be continued, under what circumstances may it be continued?

As noted, when coverage is lost, it will continue—if at all—under the terms of the insurance policy and the rules of the insurance carrier. We’ve learned that some of the major carriers have agreed to waive life and disability insurance policy terms that would normally cause a loss of coverage and continue coverage for employees adversely impacted by COVID-19 for a specified period of time if premiums continue to be paid.

Employers should be sure to address the following questions:

  • If coverage will continue outside of the terms of a policy, what are the employer’s and employee’s rights and obligations vis a vis the carriers?
  • If coverage will continue outside of the terms of the policy, has an authorized representative waived policy terms, and have the terms of the continuation of coverage been confirmed by the carrier in writing?
  • Have employees been notified, in writing, of their continuation of coverage rights and responsibilities?
  • If an employee for whom coverage was extended doesn’t return to active employment, will the employee have the right to exercise, at that time, any portability and continuation rights set forth in the policy?
  • If an adversely impacted employee chooses to discontinue voluntary life or disability insurance coverage, does the employee have the right to be reinstated in the coverage upon resumption of employment (or active employment) without evidence of insurability (EOI)? 

3.    If an employee’s or dependent’s coverage ends because the employee or dependent ceases to be eligible for coverage under the terms of a plan, does the policy contain portability or conversion features that would enable the employee or their dependent to choose to continue coverage?

When an employee, spouse, or dependent loses group life, AD&D, or disability insurance benefits, they may be able to continue the same coverage (or substantially similar coverage) under a COBRA-like portability feature or convert the group coverage to an individual policy of insurance. Employees and their dependents don’t have these rights unless they’re set forth in the policy.

To be eligible for continuation and conversion of group benefits, individuals must apply for coverage within a specified number of days following the event that causes the loss of coverage (e.g., within 30 days). Employers are responsible for taking steps to ensure that employees know how to exercise their right to continue or convert coverage when a qualifying loss of coverage event occurs.

Importantly, in the many policies we’ve reviewed, an individual’s right to continue or convert coverage is available without EOI. For this reason, it’s critically important for employees to know about these rights; employees who fail to exercise their portability or conversion rights and who have or develop a medical condition may not be able to get life or disability insurance in the future because of a “proof of good health” or EOI requirement.

Takeaway

Employers that opt to continue group life, AD&D, and disability insurance for employees need to take the following steps:

  • Review their policies and contact their insurance carriers and brokers for detailed information about their rights and obligations and the rights and obligations of impacted employees under the policies
  • Ensure the insurance carrier’s commitment is made by an authorized representative of the carrier and is in writing
  • Ensure that employees are notified about their rights and obligations in writing and, perhaps most importantly, the insurability risks posed by an employee’s election to terminate voluntary coverage pending their return to eligible employment

It bears repeating that employers that continue life and disability insurance coverage for employees who aren’t eligible under policy terms face potentially significant litigation and liability risks if they do so without obtaining the insurer’s written consent.

If you have any questions regarding the content of this alert, please contact Art Marrapese, Employee Benefits Practice Area chair, at amarrapese@barclaydamon.com or another member of the firm’s Employee Benefits Practice Area.

We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates on non-trademark-related COVID-19 matters and who are prepared to assist clients. You can reach our COVID-19 Response Team at COVID-19ResponseTeam@barclaydamon.com

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