The following excerpt from a recent District Court decision provides a nice summary of the equitable arguments that can be made against a long term disability insurer trying to collect an overpayment:
The issue whether a Plan may recover an overpayment is governed by the terms of the Plan, and reviewed under the arbitrary and capricious standard. In other words, is the recovery of overpayments reasonable. Davis v. Kentucky Fin. Cos. Ret. Plan, 887 F.2d 689, 696 (6th Cir. 1989). Generally, if the Plan allows for recovery of the overpayment, an Administrator’s decision to reduce future long term disability benefits will be upheld as reasonable.
The United States Court of Appeals for the Sixth Circuit has stated that, even where a benefits plan unambiguously provides the plan fiduciary a legal right to recoup an overpayment, “equitable principles may limit an ERISA fiduciary’s legal right” to do so. Butler v. Aetna U.S. Healthcare, Inc., 109 F.Supp.2d 856, 862 (S.D. Ohio 2000). ERISA is governed by trust law, not contract law. Wells v. U.S. Steel & Carnegie Pension Fund, Inc., 950 F.2d 1244, 1250 (6th Cir. 1991) (Citing Firestone, 489 U.S. at 110-12). Under trust principles, a trustee or administrator may recoup overpayments to a beneficiary [*10] ”even if the excess payment was the product of a unilateral mistake on the part of the trustee.” Id. at 1255 (Feikens, J., concurring) (Citing Hoffa v. Fitzsimmons, 673 F.2d 1345, 1354, 218 U.S. App. D.C. 163 (D.C. Cir. 1982)). However, such recovery is precluded if the beneficiary relies on the correctness of the amounts to his detriment. Id. (Internal citations omitted).
In determining whether equitable principles bar recovery of a mistaken overpayments to an ERISA plan beneficiary, courts consider six factors: (1) the amount of time which has passed since the overpayment was made; (2) the effect that recoupment would have on that income; (3) the nature of the mistake by the administrator; (4) the amount of the overpayment; (5) the beneficiary’s total income; and (6) the beneficiary’s use of the money at issue. Butler at 862 (citing Wells v. U.S. Steel & Carnegie Pension Fund, Inc., 950 F.2d 1244, 1251 (6th Cir. 1991)).
Defendants seek to recover payments mistakenly made over the course of more than eight years. See supra at 2-4. Moreover, they do so after Plaintiff repeatedly notified the Administrator of his SSDI award, starting the day of the award. Id. These facts alone weigh heavily against Defendants in the equitable analysis.
What is more, Plaintiff relied on the correctness of the amount of his LTD payments, having made innumerable financial decisions based on thereon since February 2002. See supra pp. 3-4; Pl.’s Mot. J. on Administrative R. 7, ECF No. 35. Thus, to require repayment after eight years of what Plaintiff—and Defendants–believed to be correct LTD payments would likely have a severe impact Plaintiff and his family. This impact would likely be far more severe than that on the Trust.
Furthermore, the Court finds that the $162,308.21 figure likewise weighs against Defendants in the equitable analysis, especially in light of the Administrator’s repeated mistakes. The Court finds that large, single-payment lump sums weigh in favor allowing recovery of a mistaken overpayment, whereas a large accumulation of payments over time weighs against such recovery. The record shows that requiring repayment of $162,308.21, accumulated over eight years, would rest a nearly unbearable financial burden on Plaintiff. For the foregoing reasons, the Court concludes that equity bars Defendants’ recovery of its mistaken overpayments from until the date hereof.1
1 The Court’s holding does not [*12] preclude Defendants from offsetting the amount of Plaintiff’s monthly SSDI benefits beginning the date hereof.
Plaintiff has not carried his burden to establish a claim to continue to receive overpayments into the future. A party may establish equitable estoppel by showing that he or she reasonably relied on a material misrepresentation or omission and thereby suffered damages. Restatement of Contracts 2d § 90 comment a). Plaintiff’s reliance on such misrepresentation must have required him to change his position for the worse. Heckler v. Community Health Services Inc., 467 U.S. 51, 104 S. Ct. 2218, 81 L. Ed. 2d 42 (1984). Plaintiff has not established that he has changed his position for the worse in the future in a manner meriting continued payments at the same rate. C.f. DiTommaso v. Union Cent. Life Ins. Co., 1991 U.S. Dist. LEXIS 9159, 1991 WL 124601, *5 (E.D. Pa. 1991).
Plaintiff claimed that equity barred Defendants’ recovery of its mistaken overpayments of long-term disability benefits, which totaled $162,308.21 over a period of eight years. Defendants asserted a counterclaim for the repayment of the full $162,380.21. Because the record supported the Administrator’s decision to require Plaintiff the overpayments, the Court has held that the decision was not arbitrary or capricious. However, the Court has further held that, in light of the eight-year period over which the mistaken overpayments accumulated and other factors, laches bars Defendants’ recovery of the mistaken overpayments. Equitable estoppel does not entitle Plaintiff to continue to receive payments without a Social Security Disability Insurance offset. Each side is to bear its own attorney fees. Plaintiff’s Motion, ECF [*15] No. 35, is GRANTED with regard to the Laches claim, but DENIED with regard to the claims for estoppel and attorney fees. Defendants’ Motion, ECF No. 34, is DENIED with regard to Plaintiff’s claim for laches and on Defendants’ claim for attorney fees, but granted with regard to Plaintiff’s claim for estoppel. All claims having been resolved, the captioned cause is hereby TERMINATED upon the docket records of the United States District Court for the Southern District of Ohio, Western Division, at Dayton.