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.

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Attorney Fees for Long Term Disability ERISA cases

“In an action by [an ERISA] plan participant, the district court, in its discretion, ‘may allow a reasonable attorney’s fee and costs of action to either party.’ ” Moon v. Unum Provident Corp., 461 F.3d 639, 642 (6th Cir. 2006)

“[O]ur circuit recognizes no presumption as to whether  attorney fees will be awarded.” Foltice v. Guardsman Prods., Inc., 98 F.3d 933, 936 (6th Cir. 1996)

The Sixth Circuit applies a five-factor test to determine awarding fees:

(1) the degree of the opposing party’s culpability or bad faith; (2) the opposing party’s ability to satisfy an award of attorney’s fees; (3) the deterrent effect of an award on other persons under similar circumstances; (4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and (5) the relative merits of the parties’ positions.

“No single factor is determinative, and thus, the district court must consider each factor before exercising its discretion.” Id. at 642, 643.

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.

Lost Life Insurance Policies

The following website of the National Association of Unclaimed Property Administrators allows you to search the records of 38 states to determine if life insurance benefits have been turned over the unclaimed property office of the state where the policy was purchased:  missingmoney.com

Wilcox v. Liberty Life Assurance Company of Boston

In Wilcox v. Liberty Life Assurance Company of Boston, 552 F.3d 693 (8th Cir. 2009), the plaintiff brought suit against Liberty Life Assurance for long term disability benefits.  Liberty Life denied Mrs. Wilcox’s claim for long term disability benefits based upon a so-called “independent peer review” performed by a doctor they hired to review the plaintiff’s medical records. 

According to Dr. McIntire, the physician hired by Liberty, Mrs. Wilcox was able to perform sedentary work.  Mrs. Wilcox submitted evidence from her treating physicians as well as a witness demonstrating that she was unable to work.  Liberty denied her claim twice. In federal court, the District Court ruled in favor of the plaintiff because,

Liberty Life had abused its discretion by failing to ‘evaluate Plaintiff’s medical records in their totality’ and by ‘blindly’ relying on Dr. McIntire’s ‘cursory’ medical opinion . . . .”  Id. 

The matter was appealed to the 8th Circuit. One interesting issue before the Court was the admissibility of material submitted by the plaintiff to the district court, but not submitted to the insurance company prior to litigation.  The material, according to the plaintiff, was “simply meant to provide context to assist the district court in interpreting complex medical evidence.”  The 8th Circuit noted that other courts have “held that generic materials may be introduced in the district court in ERISA cases to provide context and guidance.”  Id., citing Vega v. Nat’l Life Ins. Servs., Inc., 188 F.3d 287, 299 (5th Cir. 1999).  The 8th Circuit declined to adopt general rule permitting consideration of generic medical exhibits because the district court had not reviewed the material; but rather, had remanded the case to the insurance company to consider the material.  In essence, the Court seemed to imply that such materials may in some cases be appropriate, but the issue was not germane to the ultimate issue on appeal.  

As to the ultimate issue, the Court held that Liberty Life “abused its discretion.”  The Court noted that although Liberty Life was entitled to obtain a professional peer review opinion, “it was not free to accept this report without considering whether its conclusions follow logically from the underlying medical evidence.”  citing Abram v. Cargill, Inc., 395 F.3d 882, 887 (8th Cir. 2005).  The reviewing court noted multiple factual errors in Liberty Life’s peer review opinion. On the other hand, the plaintiff’s treating physicians “accepted that her symptoms were real.”  “While an ERISA plan administrator need not accord special deference to a treating physician’s opinion, an administrator may not ‘arbitrarily refuse to credit a claimant’s reliable evidence, including the opinions of a treating physician.'”  citing Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003). 

The Court further noted: “A plan administrator abuses its discretion when it ignores relevant evidence.”  The Court also cited 6th Circuit jurisprudence for the proposition that it is improper for a plan administrator to focus only on evidence that supports a denial, while ignoring evidence supporting a finding of disability.  Metropolitan Life Ins. Co. v. Conger, 474 F.3d 258 (6th Cir. 2007); Moon v. Unum Provident Corp., 405 F.3d 373 (6th Cir. 2005).  See also: Govindarajan v. FMC Corp., 932 F.2d 634, 637 (7th Cir. 1991)(“The plan administrator’s selective review of the medical evidence and its completely erroneous assertion that there was no physical cause for the subjective symptoms of pain renders its decision not only unreasonable but arbitrary and capricious.”)    

The Court concluded:

Liberty Life’s obligation as an ERISA fiduciary required more than combing the record for evidence in its favor. . . . Liberty Life was required to evaluate the available evidence in its entirety before reaching a determination. . . . The record does not show that the company met this duty, and we therefore conclude Liberty Life abused its discretion in denying Wilcox’s claim.

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