The DOL recently announced a settlement with Prudential that will have implications for evidence of insurability (EOI) processes for employer-sponsored life insurance.  The settlement followed an investigation by the Employee Benefits Security Administration (EBSA) that found that Prudential had collected premiums for supplemental life coverage, in the absence of approved EOI, going back as far as 2004; and, between 2017 and 2020, denied over 200 death benefit claims based on lack of approved EOI.  The settlement may have significant implications for employer plan sponsors, who may be liable for death benefit claims denied due to lack of EOI if premiums continued to be collected from employees’ pay or the EOI process was mismanaged.

• As part of the settlement, Prudential is required to do the following with respect to claims denied due to lack of EOI:
  • For death benefit claims when the employee paid premiums for fewer than three months: refund paid premium to the beneficiary and provide a written statement of the reason for denial of the claim; reconsider the claim if beneficiaries can demonstrate that EOI would have been met at the time premium payment began
  • For death benefit claims when the employee paid premiums for at least three, but fewer than 12, months: Prudential cannot deny claims solely based on lack of EOI and must reconsider claims if beneficiaries can demonstrate that EOI would have been met at the time premium payment began
  • For death benefit claims when the employee paid premiums for over a year: EOI must be waived, and the claim must be paid
  • Employers may be liable for claims for supplemental life insurance benefits in cases where the insurer denies claims based on lack of EOI, and the employer was aware that EOI was not approved but failed to notify the participant and continued to collect premiums.
  • The settlement does not impact “guaranteed issue” supplemental life insurance policies.
  • EBSA Assistant Secretary Lisa M. Gomez stated that EBSA “will take appropriate action” against insurers that collect regular premium payments from plan participants and later deny benefits based on “technicalities” such as EOI. 
  • Employers should ensure that there is a process in place for confirming that EOI requirements have been met before premiums are deducted from employees’ pay.
  • Employers should pay close attention to the EOI and premium collection changes implied by the settlement, as fiduciary liability insurance policies typically exclude claims for benefits that are governed by ERISA.