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Court Considers Whether “Substantial Compliance” Applies in ERISA Life Insurance Beneficiary Designation

A U.S. District Judge in Massachusetts decided that he could not decide who the beneficiary was in a dispute over life insurance benefits based on the facts presented to his court.  Using a process called remand, the Judge sent the case back to Prudential (the insurer and plan administrator of the group life insurance plan) to consider all of the evidence end re-decide who the life insurance beneficiary was.  The problem began when the insured employee, Kin Fai, Ng, failed to file a properly completed beneficiary designation form under his employer’s group life insurance plan.

The people who claimed to be the beneficiaries argued that a partially completed, unsigned beneficiary form which the deceased employee had sent to Prudential complied with the life insurance plan provisions for designating a beneficiary.  Specifically, Prudential never received all of the parts of its beneficiary designation form when Kin Fai Ng tried to change his beneficiaries.  The court summarized the situation as follows:

On February 5, 1992, Kin designated his wife, Cynthia, as his beneficiary under the Plan. He made this designation by submitting a signed and completed beneficiary designation form to Prudential. The beneficiary designation form is three pages, with the last page being a signature page. On the front of the form, it states: “***IMPORTANT*** COMPLETE BOTH SIDES OF THIS FORM AND THEN SIGN THE BACK. … Incomplete information will delay the acceptance of your beneficiary designation.” On December 24, 2009, the Insured submitted to Prudential page 1 (of 3) of a Life Insurance Beneficiary Designation Form for Salaried Employees. This page bore Kin’s initials and listed his minor children, Kent and Sophia, as his beneficiaries. Prudential never received the other two pages of the form, including the signature page.

For obvious reasons – not the least of which were not receiving the 2 of the 3 pages and the lack of a signature – Prudential disputed that the beneficiary was changed, because the form was not fully completed.

As an alternative argument, the survivors argued that the deceased had substantially complied with the plan’s requirements.  The federal law doctrine of “substantial compliance” is essentially a “close enough” type of argument.    Prudential argued against substantial compliance too, but this time based upon Supreme Court law.  Prudential relied upon a case called Kennedy v. Plan Administrator for DuPont Savings and Investmen Plan, 555 US. 285, 129 S.Ct. 865 (2009), for its argument that the Supreme Court ruled out substantial compliance in ERISA beneficiary designation cases.  Prudential also argued as a fallback position that, even if substantial compliance may be considered, sending in an incomplete, unsigned form does not equate to substantially complying.

Only one federal appellate court has even opened the possibility to the substantial compliance in beneficiary designation determinations.   The Eighth Circuit Court of Appeals’ post Kennedy decision, Hall v. Metropolitan Life Ins. Co., 750 F.3d 995 (8th Cir.2014), included a note by the court that it may be appropriate for the court to apply the substantial compliance doctrine, in the limited number of ERISA cases that are subject to de novo review, a court standard that applies when the plan administrator does not have discretion to interpret plan provisions.  A law review article, “Beneficiary Designations” Life For the Substantial Compliance Doctrine Post-Kennedy, John L. Utz, 22 No. 3 ERISA Litig. (2014), addressed this too.  However, the Eighth Circuit did not use the doctrine in that case, because it applied the more stringent abuse of discretion (arbitrary and capricious) standard of review since the administrator did have discretion to interpret plan terms.

In Ng, the survivors submitted new evidence to the court which Prudential had not previously considered, something which is not common in ERISA cases.  The court also had concerns about how Prudential handled the claim.  As a result, the judge never decided the case, and instead, stayed the lawsuit and sent the case back to Prudential to do another evaluation.

Ng v. Prudential Insurance Company of America, No. CV-13-11317-TSH, 2016 WL 1170968 (D. Mass. 3/24/2016).

Form more information about the Supreme Court’s decision in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, see my article titled Who is the Life Insurance Beneficiary In an ERISA Life Insurance Claim?

Takeaway:  To avoid problems after you die, make sure you have followed the beneficiary designation procedures in your employer’s plan or your insurance policy.

Do you want to speak to an attorney about a life insurance beneficiary designation dispute?  Contact Life Insurance Attorney John V. Tucker online or by calling (866) 282-5260.

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