Be Careful What You Tell Employees About Their Benefits

This content was originally published  by Theodore P. Stein, Esq.

On March 13, 2018, the U.S. District Court in Greenbelt, Maryland, issued a Memorandum Opinion in one of my cases granting summary judgment to my client, a defendant, and dismissing a claim that my client had breached its fiduciary duty under ERISA, the federal statute governing employee benefit plans.  The case is Damiano v. Institute for In Vitro Sciences, et al.  Although the Court ruled in favor of the defendant, the decision should be a wake-up call to employers about the danger of misrepresenting the benefits under a welfare or pension plan—even if the misrepresentation is accidental.

Here’s The Story...

On September 9, 2015, the employer, IIVS, terminated an employee as part of a restructuring of the organization.  To show its appreciation for the employee’s past service, IIVS told the employee on her termination date that it would provide severance and other benefits, including post-termination coverage under its disability benefits plan.  It had discussed the matter with its COBRA administrator and gotten a thumbs up.

On October 3, the former employee was hospitalized and underwent emergency brain surgery.  Thereafter, the employee received a COBRA notification letter that her insurance coverage under the employer’s health and welfare plan would end on October 31, 2015.  The former employee contacted IIVS and was advised that in fact she was not eligible for disability benefits.

The former employee, Damiano, filed suit on March 28, 2016, alleging claims against IIVS and the COBRA administrator, including a claim under ERISA for breach of fiduciary duty based on an alleged misrepresentation of coverage.  By July 26, 2017, as the result of a Court Order and an agreement among the parties, the only claim that remained was Damiano’s ERISA breach of fiduciary duty claim against IIVS.

The End Result

In granting summary judgment in IIVS’ favor, and dismissing the case, the Court held that although the misrepresentation as to disability insurance coverage was “material,” it had not caused Damiano actual harm.

The Court’s decision in this case is of dramatic importance to employers.  Employers need to exercise extreme care whenever they make a statement to an employee, written or oral, about his or her group benefits.  In particular, an employer must be careful when making promises of continued group health coverage to departing employees.  Any such statement should be vetted by an experienced ERISA and employment law attorney (not just your TPA or consultant).   In such a situation, you never want to hear this bromide: “No good deed goes unpunished.”

Article reposted with permission from Theodore P. Stein, Esq. 

Theodore P. Stein is an attorney based in Bethesda with more than 30 years of experience who counsels employers, their plans and plan trustees on how to comply with ERISA and the ACA and employment law and how to minimize the risk of ERISA and employment law claims.  He also represents them when litigation is threatened or filed.  He is the Chair of the ERISA/Employee Benefits Practice and a Principal in the firm’s Labor and Employment Practice Group.