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.