Contact: BY: MARK S. THOMAS & ROBERT W. SHAW; Williams Mullen (North Carolina and Virigina, USA)
In a case that highlights several potential problems in employee benefit plan design, the Sixth Circuit Court of Appeals in Clarcor, Inc. v. Madison National Life
Insurance Company, Inc., No. 11-6177 (6th Cir. Jul. 31, 2012) (unpublished), held that an insurance policy covering certain health care costs for employees did not cover an employee once she was placed on short-term disability leave.
Clarcor involved a dispute between an employer and its insurer regarding health insurance. Clarcor, Inc. (“Clarcor”) provided medical benefits to its employees through Clarcor’s self-funded benefits plan (the “Plan”). Clarcor also purchased excess loss insurance (the “Policy”) from Madison National Life Insurance Company (“Madison”), to cover major employee health care expenses incurred under the Plan.
The major issue in the case concerned two definitions and an exclusion. The Policy defined a “covered person” as “an individual eligible for coverage, and covered under the Plan”. The Policy defined “eligible expenses” generally as losses incurred under the Plan, but excluded coverage for “any payment [by Clarcor] which does not strictly comply with the provisions of the Plan” and also has been “received and accepted” byMadison. In essence,Madisonagreed to insure Clarcor’s excess Plan self-insured benefit losses but only if those losses were covered under the Plan andMadisonhad also reviewed and approved the coverage of the specific losses.
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