Consideration of Social Security determination in LTD claims

Quite often, a claimant who is receiving long term disability benefits will be required by the insurance company to file for Social Security Disability.  In fact, often the Plan will provide a representative to assist the claimant in obtaining Social Security disability benefits. If SSA awards benefits, the LTD carrier then claims an overpayment of benefits.   More often than not, the claimant is found disabled by SSA around two years after he/she became disabled, which is right around the time period when the LTD definition of disability changes.  I have represented a number of individuals who are approved by SSA for disability, and then denied by the LTD carrier a month or two later.  In the 6th Circuit, the LTD carrier is not permitted to ignore the SSA disability finding.  In situations where the LTD carrier has required the claimant to apply for disability, and receives a financial benefit from an award of SSA disability, a reviewing court will generally take those facts in to serious consideration in determinating when the decision to deny LTD benefits was arbitrary and capricious. Calvert v. Firstar Finance, Inc., 409 F.3d 286 (6th Cir. 2005); Glenn v. Metlife, 461 F.3d 660 (6th Cir. 2006).  As a practical and legal matter, if the LTD carrier requiring the claimant to apply for disability, is assisting the claimant in applying for disability, and receives a financial benefit from the claimant obtaining disability through SSA, the carrier should be estopped from arguing that the claimant is not disabled.

For example, in Raybourne v. Cigna Life Ins. Co. of New York, 2012 U.S.App. Lexis 24018 (7th Cir. Nov. 21, 2012), Raybourne applied for long term disability benefits with Cigna.  He also filed for Social Security disability benefits.  Cigna hired a company to assist Raybourne with his Social Security disability claim. Raybourne’s disability claim was approved by the Social Security Administration; however, just a few months prior to the disability award, Cigna hired a physician to review the file.  Said physician opined that Raybourne was not disabled.  The report from Cigna was never provided to the Judge deciding Raybourne’s Social Security disability claim.  Instead, after Raybourne was awarded social security disability benefits, Cigna “recouped from the back benefits the money the insurer had paid to Raybourne during the first twenty-four months of his disability.”  Even more disturbing is the fact that just three weeks before Raybournes social security disability hearing, Cigna denied Raybourne claim for long term disability.  In other words, Cigna hired someone to argue that Raybourne was disabled, despite the fact that Cigna had denied his claim for private disability benefits just three weeks prior to the hearing.  Cigna denied Raybourne’s administrative appeals, and did not even mention the social security disability finding.  The case went to federal court, at which time the federal judge remanded the claim back to Cigna for consideration of the SSA disability determination.  Cigna then supplied a list of “reasons” for not accepting the disability finding of the social security administrative law judge.  The Court noted the “seemingly inconsistent positions taken by the insurer” that were “financially advantageous to the insurer.”  The Court further noted that Cigna did not produce the report from their doctor to the Social Security Administration, and instead, only used his report “when it was financially advantageous to the insurer.”  Ultimately, the Court concluded: “Cigna’s denial of benefits was not supported by substantial medical evidence but instead was the result of a structural conflict of interest.” The Court also affirmed the award of attorney fees to Raybourne’s attorney.

If you would like to discuss your Social Security and/or Long Term Disability claim, please click here to obtain the author’s contact information.

Defeating a Long Term Disability Overpayment Claim

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:

Kapp v. Sedgwick CMS, 2013 U.S. Dist. Lexis 219 (S.D. Ohio Jan. 2, 2013):

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

FOOTNOTES

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).

IV. Conclusion

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.

Long Term Disability Overpayment – Federal Review

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 the overpayment is 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.

Long Term Disability and Social Security Disability

In Raybourne v. Cigna Life Ins. Co. of New York, 2012 U.S.App. Lexis 24018 (7th Cir. Nov. 21, 2012), Raybourne applied for long term disability benefits with Cigna.  He also filed for Social Security disability benefits.  Cigna hired a company to assist Raybourne with his Social Security disability claim. Raybourne’s disability claim was approved by the Social Security Administration; however, just a few months prior to the disability award, Cigna hired a physician to review the file.  Said physician opined that Raybourne was not disabled.  The report from Cigna was never provided to the Judge deciding Raybourne’s Social Security disability claim.  Instead, after Raybourne was awarded social security disability benefits, Cigna “recouped from the back benefits the money the insurer had paid to Raybourne during the first twenty-four months of his disability.”  Even more disturbing is the fact that just three weeks before Raybournes social security disability hearing, Cigna denied Raybourne claim for long term disability.  In other words, Cigna hired someone to argue that Raybourne was disabled, despite the fact that Cigna had denied his claim for private disability benefits just three weeks prior to the hearing.  Cigna denied Raybourne’s administrative appeals, and did not even mention the social security disability finding.  The case went to federal court, at which time the federal judge remanded the claim back to Cigna for consideration of the SSA disability determination.  Cigna then supplied a list of “reasons” for not accepting the disability finding of the social security administrative law judge.  The Court noted the “seemingly inconsistent positions taken by the insurer” that were “financially advantageous to the insurer.”  The Court further noted that Cigna did not produce the report from their doctor to the Social Security Administration, and instead, only used his report “when it was financially advantageous to the insurer.”  Ultimately, the Court concluded: “Cigna’s denial of benefits was not supported by substantial medical evidence but instead was the result of a structural conflict of interest.” The Court also affirmed the award of attorney fees to Raybourne’s attorney.

If you need assistance with your long term disability claim, feel free to contact The Hamilton Firm.

Long Term Disability Overpayments

The normal fact pattern that brings about this situation is as follows:  The claimant applies for and receives long term disability benefits.  Thereafter, the claimant receives Social Security disability benefits.  Most, if not all, long term disability (LTD) plans have a provision for offsetting the LTD benefits by the amount of Social Security disability benefits the claimant receives.  In other words, once that claimant receives Social Security disability benefits in a lump sum amount for past due benefits, the LTD carrier has an overpayment claim.  The issue is how the LTD carrier can collect the overpayment.  Obviously, the LTD carrier will ask the claimant to pay back the overpayment.  Often, the claimant will comply. If the claimant does not comply and the carrier is still paying LTD benefits, the carrier will normally stop paying monthly LTD benefits until such time as the overpayment is recovered. Basically, the carrier credits the amount owed against the overpayment balance.  Some carriers have tried other approaches, such as bringing suit under ERISA or bringing a counterclaim for reimbursement under ERISA if the claimant brings suit to challenge a decision of the carrier.  In one relatively recent case, the Court held that because the carrier could not specifically identify whether or not the claimant still had the overpayment proceeds in her possession, the LTD carrier could not recover the overpayment directly from the claimant, but instead, could withhold benefits to collect to the overpayment.  Epolito v. Prudential Ins. Co. of Am., 737 F. Supp. 2d 1364, 2010 U.S. Dist. LEXIS 91010 (M.D. Fla. 2010).

UPDATE (10/17/2012) – I have reviewed some additional favorable cases regarding this topic:

* Herman v. Metlife (M.D. Fla. 2010); Ross v. Pennsylvania Manufacturing Association Ins. Co., (S.D.W.Va. 5/22/2006) (Recovery of overpayment prohibited by 42 U.S.C. 407); See also: Mote v. Aetna (N.D. Ill. 2006); Reichert v. Liberty.

 

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