(Article from Insurance Law Alert, July/August 2025)
For more information, please visit the Insurance Law Alert Resource Center.
Holding
The Fifth Circuit ruled that ERISA applied to a life insurance policy and that the insurer waived the right to cancel the policy by accepting premium payments for more than two years after its right to cancel vested. Edwards v. Guardian Life Ins. of Am., 140 F.4th 729 (5th Cir. 2025).
Background
When a salon owner died, her husband sought payment on a life insurance policy she obtained in 2007. Guardian denied the claim, arguing that the policy had been cancelled in January 2022, before her death. The policy was a group policy that covered multiple salon employees, but by November 2019, coverage had dropped to a single individual (the salon owner), triggering Guardian’s contractual right to cancel it. Nevertheless, Guardian accepted the salon owner’s premiums for these twenty-six months, including throughout September 2020 to October 2021, when (due to Covid-19) Guardian suspended its standard policy of canceling one-member plans. The salon owner’s husband sued Guardian, alleging common law claims and alternatively, that he was entitled to benefits under ERISA.
In the Mississippi district court, the salon owner’s husband submitted an affidavit from the salon owner’s insurance agent, claiming that the agent never received the customary cancellation notice and therefore, neither did the salon owner. The district court found, however, that the cancellation notice was sent to the salon owner—both on October 28, 2021 and January 5, 2022—despite her husband’s assertions that notice was never received. The district court found the agent’s affidavit alone did not create a genuine dispute of material fact as to whether notice was sent.
The district court granted Guardian’s partial summary judgment motion. The Fifth Circuit reversed.
Decision
As a preliminary matter, the Fifth Circuit ruled that ERISA applied to the life insurance policy, finding that it constituted an “employee benefit plan” “established or maintained by any employer engaged in commerce.” The parties disputed whether the salon owner had “employees,” a requirement under ERISA. Concluding that the other salon workers were employees, rather than independent contractors, the court emphasized that the owner controlled their hours, owned the building and equipment they used, and paid their premiums out of the salon’s business account.
Having deemed ERISA applicable, the court turned to the question of benefits under the policy. The policy allowed Guardian to cancel coverage when less than two employees are insured. That right vested in November 2019, when the owner became the sole participating employee. The Fifth Circuit ruled that Guardian waived its discretionary right to cancel under ERISA by accepting premiums for twenty-six months after its right to cancel vested. The court did not address the dispute over whether notice was sent or received but instead rested its ruling on the ten-month period between when Guardian’s cancellation right vested (November 2019) and when it instituted its policy against canceling one-member plans (September 2020) and the fact that Guardian accepted premiums from November 2019 to January 2022. The court found that the delay in cancellation prejudiced the salon owner because by the time of the purported January 2022 cancellation, the owner was mentally and physically deteriorated such that she could not conduct business.
Comments
Guardian argued that any delay in cancelling the plan was at least partially due to a temporary change in its cancellation policies in September 2020, due to the pandemic. During the pandemic, Guardian temporarily suspended its practice of terminating plans that had dropped to one participant, but later reinstated its normal cancellation policies and terminated the salon owner’s coverage in January 2022, a few months before her death. The court deemed this temporary suspension of Guardian’s standard cancellation policy irrelevant to the finding of waiver.
The Fifth Circuit’s waiver ruling focused largely on Guardian’s acceptance of premiums for more than two years after its right to cancel vested, rather than the agent’s alleged failure to receive notice.