ERISA Employer Deducted Life Insurance Premiums but Coverage Was Not in Force

One of the most troubling employer-sponsored life insurance disputes occurs when an employee pays premiums for months or even years, dies, and the beneficiary is then told that the life insurance was never actually in force.

The employer may have deducted money from every paycheck. The employee may have received benefit summaries showing supplemental life insurance. Human Resources may have told the employee that coverage had been elected. Yet after death, the insurance company may say that the employee never satisfied a condition such as Evidence of Insurability, commonly called EOI, and therefore the additional insurance never became effective.

For a beneficiary, the obvious reaction is: How could the employer take premiums for insurance that did not exist?

That is often exactly the right question.

In an ERISA case, however, the answer can be more complicated than simply saying that premium deductions automatically create coverage. The governing policy, the employer’s role, the insurer’s role, the employee’s reasonable understanding, the handling of EOI, and the history of the premiums must all be examined. In some cases, courts have required payment of the disputed insurance. In others, an employer or insurer may face fiduciary claims because the administrative system allowed premiums to be collected for coverage that was never properly placed in force.

Payroll Deductions Are Important Evidence for Your Life Insurance Lawyer to Start

A paycheck showing a deduction for “Voluntary Life,” “Supplemental Life,” “Spouse Life,” or a similar benefit can be extremely important evidence.

It may establish that the employee elected additional insurance, that the employer believed the employee was enrolled, and that the employee had reason to believe the coverage existed. Repeated deductions over a long period can be particularly significant because they make it harder to explain the situation as a brief clerical mistake.

But ERISA group policies often contain conditions that must be satisfied before additional coverage becomes effective. The most common is Evidence of Insurability.

For example, an employer might provide $50,000 in basic life insurance automatically while allowing the employee to purchase an additional $300,000. The first $100,000 of supplemental coverage may be guaranteed, while amounts above that level require medical underwriting.

If the employee elects $300,000 but never completes the required EOI process, the insurer may later contend that only the guaranteed amount became effective, even though payroll deductions were calculated using the larger election.

That creates a serious dispute, but it means the premium deductions need to be analyzed together with the policy and the enrollment history rather than in isolation.

The Ninth Circuit’s Salyers Case Is Especially Important

For California employees and beneficiaries, the Ninth Circuit’s decision in Salyers v. Metropolitan Life Insurance Co. is one of the most important cases involving premiums collected for life insurance that the insurer later claimed was not effective.

Susan Salyers obtained dependent life insurance for her husband through an ERISA plan sponsored by her employer, Providence Health & Services. Because of an administrative error, Providence initially entered $500,000 of coverage into its system and deducted premiums based on that amount even though Evidence of Insurability would have been required.

During the next enrollment period, Salyers elected $250,000 in coverage for her husband. Again, the employer deducted premiums reflecting the larger coverage amount. Neither the employer nor MetLife requested the required statement of health. When Salyers’s husband died, the employer initially told her that she had $250,000 in coverage. Only after the claim was submitted did the employer discover the EOI problem and revise the coverage downward. MetLife paid only $30,000.

The Ninth Circuit reversed and held that MetLife had waived the Evidence of Insurability requirement under the circumstances. The court emphasized that premiums corresponding to the higher coverage were accepted while no statement of health was requested. It also held that, for purposes of enforcing the EOI requirement in that case, the employer’s knowledge and conduct could be attributed to MetLife under federal common-law agency principles.

Salyers does not mean that every premium deduction automatically creates insurance. The Ninth Circuit expressly declined to adopt a rule that an employer is always the insurer’s agent for every aspect of plan administration. The relationship and conduct must be examined case by case. But the decision demonstrates that an insurer cannot necessarily accept premiums and allow an employee to proceed as though coverage exists, then invoke an unmet underwriting requirement only after death.

Reliance Standard Has Also Faced This Exact ERISA Problem

Another particularly significant case is Skelton v. Reliance Standard Life Insurance Co.

There, an employee sought supplemental life insurance and paid premiums, but after her death Reliance Standard asserted that she had never become eligible for the supplemental benefit. The litigation addressed whether Reliance Standard had fiduciary obligations concerning the administration of eligibility and the collection of premiums.

The Eighth Circuit affirmed a determination that Reliance Standard had breached its ERISA fiduciary duty. The court concluded that Reliance had a fiduciary role concerning eligibility and enrollment and had an obligation to administer its system so that premiums were not being collected from employees who were not actually enrolled for the supplemental coverage.

That is a powerful principle.  An insurer or administrator should not necessarily be permitted to operate a benefits system in which an employee’s money is accepted month after month while the company simultaneously maintains internally that the employee has no insurance.

The precise result still depends on the policy, the fiduciary functions of each entity, and the governing circuit law. But Skelton illustrates that premium collection can implicate more than ordinary contract principles. It can become an ERISA fiduciary-administration issue.

The Department of Labor Has Focused on the Same Practice

This is not merely an issue raised in isolated lawsuits.

In 2023, the U.S. Department of Labor announced a settlement with Prudential after an investigation found that Prudential had accepted premiums for supplemental group life insurance for extended periods and then denied claims after participants died because Evidence of Insurability had not been provided.

The Department described the problem directly: participants were permitted to make payroll deductions for additional insurance, but claims were later denied because underwriting requirements had allegedly not been completed. The settlement required Prudential to revise its practices.

The significance for beneficiaries is substantial. Federal regulators have recognized that collecting life insurance premiums while leaving the employee uninsured can create serious ERISA concerns.

Evidence of Insurability Is Often the Missing Piece

When an insurer says that coverage was never effective, the first question should often be whether Evidence of Insurability was required and, if so, what actually happened to the EOI process.

The beneficiary should determine whether the employee submitted an EOI form, whether the employer was supposed to trigger the process, whether the insurer requested additional medical information, whether the employee was notified of any deficiency, and whether an approval or denial was ever issued.

It is not unusual for the employer and insurer to blame one another.

The employer may say that the insurer was responsible for underwriting. The insurer may say that the employer was responsible for identifying employees who needed EOI. The employee may have received no communication from either one.

That is why the electronic history can be so important. Enrollment systems may show when the employee elected the coverage, when the EOI requirement was generated, whether an application was transmitted, what status was assigned, and whether any decision was returned to the employer.

If premiums were being deducted during that period, the timing can be particularly important.

The Employer’s Representations Matter

The employee’s reasonable understanding of the coverage may be supported by much more than payroll deductions.

An annual benefits statement may list “Employee Supplemental Life: $400,000.” An enrollment confirmation may state that coverage has been elected. An HR representative may tell the employee that enrollment is complete. A beneficiary portal may display an active coverage amount.

Those facts do not necessarily override unambiguous policy terms in every ERISA case, but they can be highly significant when evaluating waiver, agency, fiduciary breach, equitable remedies, and whether the benefits system was administered fairly.

The stronger the employer’s representations that coverage existed, the more difficult it may be to characterize the premium deductions as an obvious mistake that the employee should have recognized.

A Beneficiary Should Obtain the Complete Enrollment History

When the insurer says life insurance was never in force, the beneficiary should not accept a one-page HR summary as the complete record.

The investigation should reconstruct the employee’s enrollment from the beginning.

That usually means obtaining the original election, later open-enrollment elections, benefit confirmations, payroll records, EOI forms, underwriting correspondence, coverage status reports, employer transmissions to the insurer, premium invoices, eligibility files, and any communications showing whether the employee was told that coverage was pending or incomplete.

The employee’s W-2 can sometimes provide useful information about employer-provided group term life, but it ordinarily will not by itself establish the amount of voluntary life insurance elected or whether a particular supplemental benefit was approved. More specific enrollment and payroll records are often necessary.

ERISA Document Requests Can Help

Where the plan is governed by ERISA, the beneficiary may have statutory rights to important plan documents.

ERISA §104(b)(4), 29 U.S.C. §1024(b)(4), requires the plan administrator, upon written request, to provide specified documents including the Summary Plan Description and certain contracts or instruments under which the plan is established or operated.

A targeted written request should ordinarily seek the governing policy, SPD, amendments, and documents that establish eligibility, EOI requirements, and effective dates.

The beneficiary may also need to request or obtain additional claim and administrative records through the insurer’s ERISA claims process or, if litigation becomes necessary, through discovery where permitted.

The key is to identify who had responsibility for each step.

Who collected the premium? Who determined eligibility? Who was supposed to notify the employee that EOI was incomplete? Who had the authority to approve coverage? Who transmitted the employee’s enrollment status to the carrier?

Those questions can determine which ERISA claims may exist.

The Employer May Face Fiduciary Liability

Sometimes the insurer’s position may be correct under the literal policy language: the additional coverage never became effective because a required condition was never completed.

That does not necessarily mean the beneficiary has no claim.

If the employer represented that the insurance was active, repeatedly deducted premiums, and failed to complete or communicate required enrollment steps, the employer’s conduct may raise an ERISA fiduciary-duty issue.

The Department of Labor has highlighted Gimeno v. NCHMD, Inc., an Eleventh Circuit case involving an employer-sponsored group life plan in which the employer allegedly failed to ensure that the employee completed required EOI, told him he was enrolled, and nevertheless deducted premiums. After the employee died, the insurer denied $350,000 in supplemental benefits. The beneficiary pursued equitable relief against the employer under ERISA §502(a)(3).

Depending on the facts, a beneficiary may therefore need to evaluate both a claim for benefits against the insurer and a fiduciary or equitable-remedy claim relating to the employer’s administration of the plan.

Refunding the Premiums After Death Is Not What We Seek For Our Clients

A common response after discovering an enrollment problem is for the employer or insurer to refund the premiums.

A refund may correct the accounting problem, but it does not necessarily answer the legal question.

If an employee believed for years that $500,000 of insurance existed, the family’s loss is not equivalent to several hundred dollars in refunded premiums. The employee may have relied on the supposed coverage and chosen not to obtain insurance elsewhere.

In Salyers, the employer ultimately refunded excess premiums, but the Ninth Circuit nevertheless ordered judgment for the unpaid portion of the $250,000 benefit because it held that the EOI requirement had been waived.

A beneficiary should therefore be cautious about accepting a premium refund as though it automatically resolves the claim.  This acceptance of the premium refund check can become a significant defense.  Even when it is tempting, we strongly discourage accepting the refund, because the real question, about whether the coverage must be paid, is far more important.  As experienced life insurance lawyers, we can argue the complexities of these cases on your behalf, and get justice for you.

Build the Timeline Before Appealing

A strong ERISA claim often becomes much clearer when the events are placed in chronological order.

The chronology might show that the employee elected $300,000 in January, received an enrollment confirmation in February, began paying premiums in March, received annual benefit statements listing $300,000 for the next two years, and was never told that EOI was missing. Only after death does the insurer first assert that no supplemental coverage existed.

That is a very different case from one in which the employee received multiple written notices explaining that coverage was pending until EOI approval and never responded.

The timeline matters.

So do the records.

## Do Not Treat the ERISA Appeal as a Simple Customer-Service Complaint

If the insurer denies benefits, the administrative appeal may be critical.

The appeal should address the exact reason for denial, identify inconsistencies in the employer’s and insurer’s records, submit payroll deductions and enrollment confirmations, develop the EOI history, and raise applicable waiver, agency, fiduciary, and equitable issues.

The Ninth Circuit’s Salyers decision demonstrates that sophisticated legal arguments concerning waiver and agency can determine whether hundreds of thousands of dollars in benefits are payable.

A beneficiary who simply writes, “This is unfair because premiums were deducted,” may leave important arguments undeveloped.

When Should a Beneficiary Contact an ERISA Life Insurance Lawyer?

Legal review is especially important when the amount of missing coverage is substantial, premiums were deducted for a significant period, benefit statements showed coverage, the employee was never told EOI was incomplete, the insurer and employer blame each other, the insurer refunds premiums only after death, or an ERISA appeal deadline is running.

Those facts can indicate that the dispute involves much more than a clerical error.

The central question is not merely whether the employer took money from the employee.

It is:

Why was the employee allowed to pay for life insurance while the plan later claims the insurance did not exist?  This is highly inequitable, to deduct earnings, to pay for a policy, to later take the position that no policy is available to make a payment of benefits after a claim has been presented.

That question may lead to a claim for benefits, a waiver argument, an agency issue, an ERISA fiduciary claim, or another equitable remedy depending on the facts.

Employer Deducted Life Insurance Premiums but the Insurer Says There Was No Coverage?

Do not assume that a refund of the premiums is the end of the claim.  Administrators would like that to be the end, but it is too unfair for us to accept for our clients.  Fortunately, just a refund is not what ERISA law requires.

LifeInsuranceLawyerNOW.com represents beneficiaries in disputed employer-sponsored life insurance matters involving Evidence of Insurability, premium deductions, enrollment mistakes, ERISA fiduciary duties, supplemental life coverage, insurer-employer disputes, and denied death benefits.

We can review the policy, benefit elections, payroll deductions, EOI records, employer communications, eligibility files, insurer records, and ERISA appeal materials to determine whether the missing life insurance benefits can be challenged.

Contact LifeInsuranceLawyerNOW.com for a no cost consultation, where all of your information is kept confidential.

Written and reviewed by Joseph S. Fogel, Esq.
Updated August 2026