One of the most common reasons group life insurance claims are denied is also one of the least understood. The employer changes payroll systems, switches HR vendors, or updates its benefits platform. During the transition, premiums stop flowing to the insurer even though the employee’s paycheck still shows deductions. Months or years later, the employee dies and the insurer denies the claim because coverage supposedly lapsed. Families are blindsided. They believe the policy was active because the employer kept taking money. The insurer points to its records and claims no premiums were received. The employer blames the system. The result is a denial that never should have happened.
This is not a minor administrative error. It is a failure that directly causes wrongful denials. When employers change payroll systems or vendors, they have a legal duty to ensure that premiums continue to be remitted correctly. When they fail, the employee loses coverage without notice and the family loses the benefit.
How Payroll and Vendor Changes Cause Premium Remittance Failures
Premium remittance failures happen during transitions. The most common causes include:
The employer switches payroll vendors and the deduction code is not mapped correctly
The employer changes HRIS platforms and the benefits file is not synced with the insurer
The employer updates its internal systems and the premium file is never transmitted
The employer uses a third party administrator that fails to forward payments
The employer deducts premiums but holds them in an internal account instead of remitting them
The employer assumes the insurer will reconcile the error automatically
These failures are entirely preventable. They occur because employers do not test their systems, do not verify remittance files, and do not audit their benefits data.
Why Insurers Deny Claims When Premiums Are Not Remitted
Insurers rely on their own records. If they do not receive premiums, they treat the policy as lapsed. They do not check payroll records. They do not ask whether the employer deducted premiums. They do not investigate whether the employer made a mistake. Instead, they deny the claim and point to the absence of payment.
Insurers often take the following positions:
The employee was not covered because premiums were not received
The employer is responsible for the error, not the insurer
The policy lapsed before death
The insurer cannot reinstate coverage after death
The insurer has no obligation to honor coverage that was not paid for
These positions ignore the reality that the employee did everything required. The employee paid for coverage. The employer failed to transmit the money.
Why Employers Are Liable for Premium Remittance Failures
Under ERISA and state law, employers have a duty to administer benefits correctly. When they deduct premiums, they must remit them. When they change payroll systems, they must ensure continuity. When they switch vendors, they must verify that the insurer receives payment.
Courts consistently hold employers liable when:
Premiums were deducted but not remitted
The employee was never notified of a lapse
The employer failed to follow its own procedures
The employer failed to audit its systems
The employer created the error during a system transition
Employers cannot shift responsibility to the insurer. They cannot claim ignorance of their own systems. They cannot blame a vendor for their failure to supervise.
How These Cases Turn Into Interpleaders or Multi Party Disputes
When premiums are not remitted, insurers sometimes file interpleader lawsuits to avoid liability. They claim they cannot determine whether coverage existed. They deposit the money with the court and force the employer and beneficiaries to fight it out. In other cases, the insurer denies the claim outright and the employer becomes the primary defendant.
These cases often involve:
Conflicting records between the employer and insurer
Missing remittance files
Payroll logs that show deductions
Vendor contracts that define responsibility
Emails showing the employer knew of the error but did nothing
The dispute becomes a battle over who caused the lapse and who must pay.
What Beneficiaries Should Do When Premium Remittance Errors Are Suspected
Beneficiaries should gather evidence immediately. This includes:
Pay stubs showing deductions
Payroll records from the employer
Benefits enrollment confirmations
Emails or notices from HR
Any communication about system changes or vendor transitions
The full claim file from the insurer
The goal is to prove that the employee paid for coverage and that the employer failed to remit the premiums.
Why These Cases Require Immediate Legal Action
Premium remittance failures are among the strongest employer liability cases in life insurance litigation. The employee paid. The employer failed. The insurer denied the claim. Without legal intervention, families risk losing the benefit entirely or being pushed into unnecessary litigation.
A lawyer can force the employer to produce payroll records, uncover system errors, and hold both the employer and insurer accountable. The focus is always on proving that coverage existed because the employee fulfilled every requirement and the employer’s mistake should not defeat the claim.