Open Question: Refusing to pay life insurance claim, who should the family sue?

My employer has a third party administrator for our life insurance plan-basically they collect our premium and pay it to the carrier. In October, 2009 our life insurance changed to another carrier-not by our request. We had an employee on long-term disability before the change. We have a waiver of premium clause; however for reasons undetermined it was never applied for. My employer paid the premiums for this individual for the life of this employee-first to company #1 and then to company # 2 when it changed over. The third party administrator collected these premiums and disbursed them. The employee died in January. On behalf of the employer, I initiated the life insurance claim and sent it to company #2. I assumed that since he appeared on our bill and we had been paying the premium, company #2 assumed his policy. The claim was denied by both companies. Company #1 stated that a waiver of premium was not applied for so his policy expired. Company #2 stated that his policy should have remained with company #1 because he was disabled prior to the change over. Who should the family sue? Keep in mind that both insurance companies accepted premiums on the employees behalf. The third party administrator states that they sent the "reminder" to apply for the waiver to the employer-no proof of that this was received and no later follow up. The third party administrator continued to bill and accept payments for this employee. This is a true scenario. Of course, my employer has consulted our attorney. This just bugs the crap out of me and I am wondering if anyone out there has any experience with something like this.