Tester v. Reliance Standard Life Insurance Company, 228 F.3d 372 (4th Cir. 2000) – decided September 25, 2000 – United States Court of Appeals for the Fourth Circuit – Robert E. Hoskins

I represented Tester.  Tester was a good case.  It presented one of those rare situations where, as an attorney, the outcome seemed obvious.  Frankly, I am surprised the other side appealed the district court’s decision.  Tester’s decedent, Mrs. Tester, worked for the Bibb Company in Greenville, South Carolina.  As an employee, she was a participant in an ERISA governed accidental death plan.  In January 1995, Ms. Tester ceased actively working at the Bibb Company due to illness.  However, she remained an employee and intended to return to active employment after her illness.  Unfortunately, while she was out on sick leave, she was tragically killed in an automobile accident.  Her family made a claim for accidental death benefits under the ERISA governed plan which was insured by Reliance Standard Life Insurance Company.  Reliance Standard denied the claim asserting that Tester was not eligible for coverage at the time of her death because she was not “actively working”. 

I argued that the policy must be read reasonably.  According to Reliance Standard’s interpretation of the policy, any time a person was not “actively working” that person would not have coverage.  In other words, unless a person was “on the clock” they would not be covered under the policy according to Reliance Standard.  I argued that clearly coverage was intended if a person could be considered to be “actively working” within reason.  I argued that if a person was away from work due to sickness that they should not lose coverage under the terms of the plan.  The policy did not address the issue.  I argued that the policy should be interpreted against the insurance company pursuant to the doctrine of contra proferentum.  The district court agreed and ruled with me.  (Click here to view the district court decision.)  The Defendant appealed.  The reason it is surprising to me that Reliance Standard took the issue to the United States Court of Appeals for the Fourth Circuit is because the standard of review was de novo, as opposed to abuse of discretion.  I do not think Reliance Standard could have won even under an abuse of discretion standard in the Fourth Circuit.  However, the outcome seemed preordained, to me, under a de novo standard.  The district court had found that Tester was entitled to benefits on two separate bases.  The district court held that Tester was entitled to coverage under the terms of the plan and based upon a breach of fiduciary duty theory (i.e., failing to advise Ms. Tester she was no longer covered).

Sure enough, the Fourth Circuit affirmed the district court on the coverage issue.  The court held:

“Reliance’s policy does not define “active” in the employee eligibility provision nor does it contain any clear standard by which this court may determine that an employee is not “active”.  The policy does not specify under what circumstances the employee must work, how frequently the employee must work, and how long the employee must be out of work before he is no longer considered “active”.  As is the case here, where a term is ambiguous, we must construe it against the drafter, and in accordance with the reasonable expectations of the insured.  See Bailey, 67 F.3d at 57.  A reasonable employee would not expect his insurance coverage to terminate if he takes a sick day or if he dies on account of an accident before working 20 hours in a particular week.  An employee would reasonably expect that his coverage continues while he regularly works for the company, even if he is home with the flue or injured in a car accident.  Therefore, the proper inquiry for considering whether Mrs. Tester was an “active, Full-time employee” under the policy at the time of her death depends on whether or not she worked at Bibb on a regular basis despite her sick leave. 

At the time of Mrs. Tester’s death, there is no indication that Bibb terminated her employment or temporarily laid her off, indeed the inference is to the contrary, for the claim form completed by Bibb shows that Mrs. Tester on January 8, 1995 was an “Active” employee on “Approved Leave of Absence” . . . “Medical”.  The evidence also does not suggest that Mrs. Tester considered herself terminated.  Rather, she continued to receive checks from Bibb after she left work on January 8, 1995, even though ti was apparently for sick pay. Furthermore, Bibb withheld an insurance premium from Mrs. Tester’s paycheck for the week ending January 14, 1995.  Bibb then submitted this premium, which was accepted by Reliance, to Reliance on February 16, 1995, the day after Mrs. Tester’s death.  These facts indicate that Mrs. Tester was working for Bibb on a regular basis and that she was simply out sick when she died.

Finally, we note that in the case of Canada Life Assurance Co. v. Estate of Lebowitz, 185 F.3d 231 (4th Cir. 1999), a case in which the employer was the administrator, as here, the court properly took account of the fact that the premiums on the insurance in question had been paid through the time when the insurance company defaulted on giving notice of conversion.  Canada Life Assurance Co. v. Estate of Lebowitz, 185 F.3d at 236.  Indeed, Lebowitz held that the payment of the premiums on behalf of the employee was conclusive evidence that the employer considered the employee covered under the policy.  While we need not go so far as to decide that the payment of premiums in the case at hand is conclusive, because there may be some difference in the status of the administrators of which we are not aware, we are of opinion that this is evidence of some considerable weight in the case and is not sufficiently disputed by the claim now made that the premiums were paid by mistake, which contention indeed is supported by little or nothing more than argument.

Accordingly, we are of opinion and decide that Mrs. Tester was an active employee of Bibb at the time of her death within the meaning of the policy and that the plaintiff, her husband, is entitled to the benefits therefrom.” (Click here to view the whole Fourth Circuit opinion)

Because the court ruled with Tester on the coverage issue, it never reached the other ground for the decision in Tester’s favor in the district court.  Tester has been cited at least 10 times by other courts including by the United States Courts of Appeals for the Seventh and Tenth Circuit.