In Blackshear v. Reliance Standard Life Insurance Company, the Fourth Circuit Court of Appeals reversed a district court that upheld an insurance carrier’s denial of benefits under a group term life insurance policy because benefits had already vested in the claimant and could not be taken away by retroactive amendment of the policy.

The insurance carrier issued a group life insurance policy to an employer that became effective on January 1, 2003.  The policy and related summary plan description ("SPD") provided that exempt employees were eligible after six months of employment, and non-exempt employees were eligible immediately.  An employee began working for the employer as a non-exempt employee on June 10, 2003 and enrolled in the Plan.  She died on December 14, 2003.  Shortly thereafter, her beneficiary filed a claim with the insurance carrier for the life insurance proceeds. 

When the insurance carrier contacted the employer to verify the employee’s employment status and length of employment, the employer claimed that the policy and SPD were written incorrectly, and should cover all employees only after six months of employment.  Shortly thereafter, the insurance carrier revised the policy retroactively to impose a six-month waiting period on all employees and then denied the beneficiary’s claim.  The district court determined that the retroactive policy language was effective and the employee’s beneficiary was not entitled to payment. 

The Fourth Circuit reversed, noting that ERISA plans are contractual documents and that clear and unambiguous plan language must be enforced as written.  Although welfare plan benefits do not become vested in the same way as retirement benefits, they are vested when a triggering event, such as the employee’s death occurs.  A plan may not be amended retroactively after that time to deny coverage.  The Court stated that neither a clerical error nor equitable reformation argument could permit vested benefits to be retroactively changed.  The goal of ERISA is to ensure that employees’ rights and obligations can be readily understood from the plan documents. Permitting this plan to be retroactively amended after the beneficiary’s benefits vested as a result of the employee’s death would completely undercut the goal of ensuring certainty in these documents.

Employers must be cautious when drafting and approving all ERISA plan language and should verify the accuracy of documents provided by others.  This case illustrates that while some courts have been sympathetic to drafting mistakes in the context of plan documents, the Fourth Circuit, when faced with this issue, will likely favor upholding the plan as written in order to ensure that plan participants receive notice of their rights and obligations.