Steven Ray Tiffany had life insurance through his work at Genmar Transportation. He paid for the insurance out of his wages. When he died, the beneficiary of the policy, Teri Tiffany, filed a claim. UNUM, the insurer, denied Teri’s claim because it determined that Steven had never provided evidence of insurability when he initially took out the life insurance. Teri argued that regardless of Steven’s failure to provide evidence of insurability at the time he applied for coverage, the policy was in place for three years before his death and UNUM had happily accepted premiums for the coverage that entire time. She argued that this constituted a waiver of any need to present the evidence of insurability.

Unfortunately for Teri, the U.S. District Court for the Western District of Michigan was bound by precedent of the U.S. Court of Appeals for the Sixth Circuit which had squarely rejected the same argument made in an earlier case. Teri’s claim was dismissed. But Judge Richard Alan Enslen, was troubled by the injustice of seeing UNUM receive premiums from Tiffany for three years and walk away without any obligation to pay out insurance benefits upon his death. He brackets his dismissal order with strong words for UNUM.

After noting that the insurer has wrongly withheld premiums from Tiffany, he begins the opinion by stating: "UNUM should voluntarily repay those premiums lest it trade its role in legitimate commercial insurance for the ways of the thief and confidence man" (emphasis in original).  Again, at the end of the decision, Judge Enslen states:

". . . the Court is . . . concerned about one grave injustice . . . [n]amely, by both resisting the claim for benefits because the decedent was uninsurable and receiving benefits on the supplemental policy for a three-year period . . . UNUM has put itself into the position of receiving premium payments for a risk it was unwilling to insure while keeping the premiums. While this is a nice piece of business for UNUM’s stockholders, at the bottom it is a kind of commercial theft which just courts cannot countenance."

Based on the posture of the case, Judge Enslen was not in a position to order UNUM to reimburse Tiffany’s estate the premiums. But the Judge does urge UNUM in this direction and concludes by saying, "if it fails to do so, the premiums will be a small price for its reputation as a commercial insurer that actually undertakes risks on premiums it accepts."

You can find a copy of the decision, Tiffany v. UNUM, in the website library here.  Thanks to Jonathan Feigenbaum for bringing this case to my attention.

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Don Levit 11/17/2008 01:47 PM
Brian: Very interesting case. A couple of comments. If Tiffany had submitted an application with his money (and he was not declined), how might the court had of ruled? In other words, would the 2-year state statute of limitations still not be applicable? Second, may it have been possible that the supplemental policy would not have been considered an ERISA plan, being that it was voluntary, the employee, apparently, paid all the premiums, and (not stated), if Tiffany could have continued the policy under the same terms upon leaving his employer? Don Levit
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Brian S. King 11/17/2008 01:47 PM
Hi Don-- If Tiffany had been told of the need to submit evidence of insurability, he did so and they approved him, I can't see how UNUM could rescind regardless of whether the incontestability period passed. On your second point, good thought! Teri should investigate whether she has the ability to bring a non-ERISA claim at this point. The law is muddy in this area but based on what scant facts I have, you may very well be on to something.
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