Wednesday, May 24, 2023
Paperwork Screw-Ups by Employers Deny Families Life-Insurance Payouts
Last month, the U.S. Labor Department reached a settlement with Prudential Financial over the wrongful denial of nearly 200 claims for benefits totaling as much as $7 million. As part of the settlement, Prudential agreed to voluntarily pay claims denied since June 2019 and tighten procedures with employers to avoid future employer errors.
Many employers offer supplemental life insurance policies, in which employees pay extra for the coverage. In some of these programs, the employer rather than the insurer is in charge of administrative tasks, which has been the norm for decades. However, in some instances, employers who still need to get their employees to complete the forms deduct the premiums from their paychecks and send the funds to the insurance company. The result left some grieving families without life insurance their loved ones had paid for.
As part of the settlement with the Labor Department, new policies will require employers to confirm that supplemental coverage forms have been completed before deducting premiums from paychecks. Without doing so, the employer will be liable to beneficiaries rather than the insurer.
For more information see Lesley Scism “Paperwork Screw-Ups by Employers Deny Families Life-Insurance Payouts” The Wall Street Journal, May 17, 2023.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.