Court: ‘Employed’ is Standard for Lincoln National Life Coverage

The phrase “actively at work” in a supplemental life insurance policy refers to the employment status of an employee not the employment activities of a covered worker on any given day, a state appeals court in California has ruled.

Lincoln National Life Insurance Co. denied a supplemental life insurance claim of $275,000 to the spouse of Donald Sequeira because he was not at work the day the policy took effect. Sequeira was off work for the Jan. 1, 2010 holiday.

An employee of the City of Vacaville, Calif., Sequeira was admitted to the hospital Jan. 2 and died of an infection Jan. 6, without ever returning to work, according to court documents.

Lincoln argued that Sequeira was eligible for coverage under the supplemental policy but argued that the policy never became effective in Sequeira’s particular case. As he was never actively at work on the effective date of this policy, the coverage never became effective.

But the Court of Appeal First Appellate District, Division Two, disagreed and in the process reversed a lower court’s ruling.

“The policy is ambiguous regarding whether Sequeira needed to perform his work responsibilities on New Years’ Day or anytime after that in order for his wife to receive benefits,” the state appeals court ruled last week in Sequeira v. Lincoln National Life Ins. Co.

“We therefore interpret the policy in favor of Sequeira’s reasonable expectations, which are that he should not have to work on New Year’s Day or when he is sick in order to receive coverage that he has paid for,” the court said.

In explaining its reasoning, the court pointed other policy language, which under the insurance carrier’s interpretation of the phrase “active work” or “actively at work,” would have made a mockery of the entire policy—and of common sense.

The waiting period provision in the supplemental life policy, for example, requires 30 days of continuous active work before an employee is eligible for benefits.

But applying the carrier’s interpretation would mean that an employee must be actually working full-time “for 30 days continuously” in order to be eligible for coverage.

Under Lincoln’s line of argument, that would mean employees who called in sick or didn’t work on weekends would jeopardize their supplemental coverage.

Such a reading amounts to “a strained interpretation of the Waiting Period provision,” the court ruled.

“Interpreting ‘Active Work’ to mean full-time status provides a far more sensible result; it would allow an employee to obtain coverage despite taking a weekend off or calling in sick,” the court ruled.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.