September 1, 2011
Authored by: benefitsbclp
In Clarcor, Inc. v. Madison Nat’l Life Ins Co. (M.D. Tenn. 2011), the District court for the Middle District of Tennessee upheld a denial of stop-loss coverage by Madison National Life for expenses incurred by an employee who was put on short term disability following FMLA leave. The employee went on FMLA leave and when that leave expired, she did not return to employment. Instead, the employer put her on short-term disability. Following the expiration of short-term disability, her employment was terminated and she was offered COBRA.
However, under the eligibility provisions of the self-funded health plan, she was required to be either actively working, on FMLA or on COBRA. Because she was not in any of those classes, she was ineligible. The employer had a policy providing for continued coverage while employees were on short-term disability, but the policy was not part of the formal plan document. Therefore, the court said, the policy was not sufficient to establish her eligibility and the stop-loss carrier was correct in denying coverage for her medical expenses.