The obligation of insurance companies to those covered by workplace life and medical insurance plans has been significantly expanded by the U.S. Court of Appeals in Washington.
Under the Employee Retirement Income Security Act, an insurer has a duty that goes beyond merely not giving out wrong information, Chief Judge Patricia Wald explained; the company has "an affirmative obligation to inform."
The ruling was made in a case brought by the estate of James Peter Eddy, a travel agent who had died of AIDS, leaving thousands of dollars in medical bills. He had been covered by a group health insurance policy at the agency where he worked, but the company changed hands and the policy was dropped. The last day of coverage was the day before Eddy was scheduled for exploratory surgery.
Before the cutoff date, Eddy called the insurance company to try to arrange a continuation of his coverage. There is some dispute over just what happened in the phone call, but the trial judge believed Eddy's story that he was told that he had no right to continue the coverage.
That was technically true: only the company, which took out the group plan, could continue it. Eddy, however, had the legal right to convert his group coverage to an individual policy.
As the trial judge saw it, because Eddy had asked about continuation and received a correct answer, the insurance company had done nothing wrong.
That's far too narrow a reading of the insurance company's responsibility, the appellate judges ruled. It is unreasonable to expect a layman to know and use the right technical terms, so it is up to the insurance company to comprehend the situation and to give out the information that a customer is likely to want.
Eddy made clear who he worked for and that the group coverage was ending. At that point, Wald wrote, the obligation shifts to the insurance company to give out -- correctly and completely -- all material information.
In other cases, courts ruled that:
There's a legal danger to treating some newer employees differently from those who have been at work for a long time. The U.S. Claims Court ruled that a company has to count as employees -- and therefore pay social security and other payroll taxes for -- health physics consultants it supplies to public utilities.
The company insisted that since it treated the workers as independent contractors in 1979, under the Revenue Act of 1978 it could continue that arrangement. But the company in 1983 agreed to put on its payroll as full employees the consultants it supplied to Consolidated Edison of New York, and that removed the protection the 1978 law gave all the other job slots, since all the consultants were essentially doing the same job in the same way.
(Institute for Resource Management v. U.S., Nov. 30). Investors who discover years later that they have been duped cannot sue under federal securities laws. Congress has not specified how long investors have to bring deception claims against brokers or others under the 1934 Securities Exchange Act, so federal courts traditionally adopted the limitation period prevailing in the state where the suit was filed.
That led to so much variation from one jurisdiction to another that in 1988 the U.S. Court of Appeals in Philadelphia decided to ignore state law and borrow limitations from other parts of the 1934 statute.
Earlier this year the appellate court in Chicago followed that course and recently the appellate court in New York adopted the same rule. That means that a suit must be filed within three years of the violation, or within one year of the time the investor discovers the deception, if that is sooner.
The Securities and Exchange Commission argued that investors should have five years to sue.
(Ceres Partners v. GEL Associates, Nov. 8). Federal workers cannot go straight to court with claims that they were treated unfairly, even if they allege that their constitutional rights were violated. The U.S. Court of Appeals in Washington overturned a district court order that the Soldiers' and Airmen's Home had to go to arbitration over the firing of five employees after they were charged with illegal drug activities.
Courts have no authority to act on federal labor disputes until the cases have been through the Federal Labor Relations Authority, the appellate judges ruled. They reasoned that the FLRA labor law decision might be so sweeping that there would no longer be any grounds for raising constitutional issues.
(Steadman v. Governor, Nov. 16). The press has no special right to keep confidential evidence in a product liability suit. The U.S. District Court in Alexandria said a newspaper would have to comply with a court order to turn over negatives of photographs taken at the site of an accident -- photographs that may show whether stabilizers on a piece of industrial machinery were in place and therefore who is liable for the accident. There's no First Amendment protection against disclosing the information, the judge ruled. (Stickels v. General Rental, Nov. 9) Daniel Moskowitz is a Washington editor for Business Week newsletters.