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Refusal of Coverage

To continue with the theme of employer risk of becoming the insurer, let’s consider all the times employees want to waive off the life and disability portion of the plan. A common and misunderstood administration issue is what can and cannot be waived as it applies to coverage on a MANDATORY benefit plan. And note, most benefit plans are mandatory.

So, an employer offers an employee benefits who decides to “waive” coverage. The employer, or plan administrator doesn’t take into account that the life and disability portion of the plan are “mandatory” coverage and cannot be waived by the employee.

Note the employee can only waive the health and dental portion of the plan when they have spousal coverage elsewhere … individual health plan do not count as additional coverage eligible for waiving the group benefit plan.

Consider that same employee who refused the life and disability coverage, typically to save money—they don’t want to pay the premium portion assigned through the cost split between employer and employee AND they don’t have coverage elsewhere, like through an individual policy.

Now that cash strapped employee dies and there is no benefit payable under the benefit plan. There is nothing in writing to legally protect the employer which shows:

  • That the employer ever offered benefit coverage
  • That the employee was not discriminated against and actually offered the option to enroll
  • That the employee indeed refused coverage
  • That employee understood what they were waiving
  • That the beneficiary (or family members) understood there would be no coverage in place

In this case, the spouse sued the employer and won. The ruling indicated that the coverage—as an employee group benefit plan—was intended to provide coverage for ALL employees through mandatory participation.

In a 1999 case, Deraps v Labourer’s Pension Fund of Central and Eastern Canada, Mrs. Deraps signed a waiver giving up all rights to spousal benefits after her husband’s death and she went on to sue her husband’s employer, the labourer’s pension fund, claiming that she wasn’t aware of what she was signing and that no one had explained to her what the waiver contained. The court found that the benefit plan’s administrator had a responsibility to provide “complete and clear information.”

Mrs. Deraps was awarded damages equal to the amount of the pension income she would have received had she not signed the waiver.

To guard against this kind of “risk”, employer should have employees complete their enrolment form on the date of hire when all other forms for employment are being completed. If they terminate before the completion of the waiting period, no money has been spent. Once the waiting period is achieved, the employee is automatically enrolled without hassle.


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