Plan Ambiguity Costs Employer $4 Million

The pension plans and benefits packages of private-sector employees in the District of Columbia and around the country are protected by the Employee Retirement Income Security Act. ERISA claims are often filed over alleged breaches of fiduciary duties connected to complex stock transactions, but they may also arise when plan documents contain language that could be subject to more than one interpretation. Such a dispute was recently argued in a federal court in Connecticut over how the word ‘maximum” in a life insurance policy should be interpreted.

The claim was filed by an employee’s widow who was seeking an additional $4 million in life insurance benefits. The policy documents stated that beneficiaries were entitled to a sum equal to five times the salary of the deceased worker with a minimum and maximum payout of $100,000 and $1 million respectively. The employer felt that the word ‘maximum” applied to the payout while the widow believed the language placed a cap on the deceased worker’s salary. The widow received $1 million in benefits according to the employer’s interpretation.

The court ruled that the language of the plan document was ambiguous because it was subject to more than one reasonable interpretation. In situations such as this one, ERISA regulations require courts to interpret language in favor of the plaintiff. As a result, the widow was granted summary judgment in the amount of $4 million.

Attorneys with experience in ERISA benefits cases may seek to hold employers responsible when workers are denied benefits they are entitled to. If private negotiations do not produce an adequate settlement, filing a federal lawsuit might be the next step.

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