Employers should be cautious interpreting benefits
Published 03/01/07

If a worker relies on inaccurate representations from his current or potential employer or that employer's insurance broker as to the employee benefits available to him, the worker may have a claim against them for any damages he suffered as a result of his reliance on a benefit that did not exist.

This point was illustrated in the February 7, 2007 decision of the New Hampshire Federal District Court in the case of Hopper v. Standard Insurance Company; William Gallagher Associates; and Cubic Wafer, Inc. In that case, Wayne Hopper brought a claim against his employer's insurance carrier, Standard Insurance Company, its insurance broker, William Gallagher Associates, and the employer itself, Cubic Wafer, Inc., f/k/a Xanoptix, Inc., claiming that he relied to his detriment upon incorrect representations made by them regarding Cubic Wafer's group disability insurance plan. Hopper also alleged that Cubic Wafer violated his rights under the American With Disabilities Act.

Hopper is a resident of Nashua and suffers from multiple sclerosis. He was diagnosed in 1995. On February 13, 2003, Hopper was offered a Materials Manager position at Cubic Wafer's facility in Merrimack , New Hampshire . At the time, William Gallagher Associates served as Cubic Wafer's insurance broker acting as a liaison between Standard Insurance Company and Cubic Wafer's employees.

William Gallagher Associates' primary duties involved assisting and identifying coverage limitations and identifying and recommending new coverage options that might be of interest to Cubic Wafer. Through William Gallagher Associates, Cubic Wafer selected Standard Insurance Company as its insurance carrier to provide underwritten life, health, and disability benefits for Cubic Wafer's employees.

Standard Insurance Company as the insurance carrier and William Gallagher Associates as the insurance broker sought to have dismissed the state law claims filed against them arguing they were preempted by the Employee Retirement Income Security Act (ERISA). Generally, the ERISA preempts all state law and state law claims that relate to employee welfare benefit plans.

In reviewing the Motion to Dismiss on the ERISA claim, the Court limited its focus on whether the plaintiff failed to state a claim in his Complaint upon which relief could be granted. At this juncture, the Court did not focus on whether the plaintiff would ultimately prevail but merely whether Hopper is entitled to offer evidence to support his claims in moving forward with the litigation. Hopper alleged that, given his medical condition, maintaining continuous health and disability insurance coverage was of critical importance. Accordingly, before giving up his in-place coverage and accepting a position as Cubic Wafer's Material Manager, he made a point of discussing insurance coverage issues with the appropriate human resource personnel.

After first speaking with representatives from William Gallagher Associates, Cubic Wafer's staff assured Hopper that if were he to accept the offered position, his health and disability insurance coverage and benefits would continue uninterrupted and that he would not be subject to a waiting period because he had been covered under a current similar disability policy and had held uninterrupted coverage for many years preceding his diagnosis of multiple sclerosis.

Hopper further alleged that relying upon Cubic Wafer's expressed representations, he accepted the Material Manager's position and believing that his health and disability insurance coverage would transition seamlessly allowed his existing disability to lapse in May 2003.

A little more than one year later in August or September 2004, Hopper's multiple sclerosis worsened. He underwent extensive chemotherapy and other treatment that necessitated a leave of absence. When discussing short-term disability leave with Cubic Wafer's Human Resource Department, Hopper was again assured that following short-term disability, he was eligible for long-term disability benefits and that those long-terms benefits would become available automatically if Hopper was still unable to work when his short-term disability benefits were exhausted. Although Hopper initially planned to return to work following disability leave, he was also told by Cubic Wafer's personnel that he would be able to retire on long-term disability and receive a severance payment.

Relying on Cubic Wafer's repeated assurances that his long-term disability coverage would become effective immediately upon exhaustion of short-term disability benefits, Hopper accepted the severance package offered by Cubic Wafer and began short-term disability leave on September 17, 2004. Hopper further alleges that in November 2004, he learned that the Cubic Wafer long-term disability policy had a 24-month waiting period and because he had not yet satisfied that period, he was denied benefits. Hopper stated that he further discussed this issue with Cubic Wafer's human resource personnel and was again assured that the insurance company was wrong in regard to the 24-month waiting period applicable to him. In relying upon that, he elected not to seek re-employment with Cubic Wafer.

The Court pointed out that Hopper's notion of retirement on long-term disability benefits is somewhat off the mark since a typical long-term disability insurance plan provides benefits only until the beneficiary is able to return to work. Hopper suggested that if Cubic Wafer had reasonably accommodated his multiple sclerosis conditions, he could and would have returned to work which would effectively render him ineligible for the long-term benefits he is claiming. Be that as it may, the Court did grant the Motion to Dismiss as to the insurance carrier, Standard Insurance Company, finding that all the claims against it were preempted under ERISA. However, the Court found that immunizing insurance brokers from improper conduct in the sales process would not serve Congress's purpose or ERISA because employees, beneficiaries, and employers choosing among various plans will no longer be able to rely upon the representations of the insurance agent regarding the terms of the plan.

The result of this Order is that Hopper continues to have claims against his employer and the insurance broker related to these inaccurate representations about Hopper being eligible for long-term disability benefits and he also has his disability discrimination claim against Cubic Wafer for their failure to accommodate his multiple sclerosis.

This case illustrates to employers the risk of their making representations as to benefit plans that are not within their control. Furthermore, when employers are dealing with a disabled worker, it is best not to make any representations to that worker as to their continued disability benefits when offering a severance package so that there cannot later be an inference that the employer's representations of disability coverage are motivated by a self-centered desire not reasonably accommodate the worker's disability. When such issues arise, human resource personnel should, in conjunction with the company's employment counsel, determine the best way to proceed forward in resolving the issues with the disabled worker. This case also clarifies that the insurance broker, rather than an insurance carrier, may be liable for misrepresentations as to employee benefits, even ones made in good faith.

J. Daniel Marr is a director and shareholder of Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and business persons on a variety of legal issues, including employment, and advocating on their behalf. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

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