ERISA Recovery of Overpayment

A reader of this blog brought to my attention an important case today on the subject of overpayment.  In Kapp v. Sedgwick CMS, 2013 U.S.Dist.Lexis 219 (S.D. Ohio Jan. 2, 2013), one of the issues was the claim of the LTD insurer for recovery of an overpayment. Apparently, the LTD carrier/insurer failed to offset the LTD benefits to account for the plaintiff’s receipt of SSDI benefits.  The overpayment took place over a period of more than 8 years.  The Court noted that “equitable principles may limit an ERISA fiduciary’s legal right” to recovery an overpayment.  The Court analyzed the issue under trust principles.  Generally, overpayments may be recouped; however, “such recovery is precluded if the beneficiary relies on the correctness of the amounts to his detriment.”  The Court employed a six factor analysis of the situation:

(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.

In applying the above factors, the Court noted that the overpayments were made over a course of more than 8 years, and the Plaintiff had “repeatedly notified” the defendant of the SSDI award.  Moreover, the plaintiff had relied on the correctness of the amount of his LTD benefits and made financial decisions based on the amount of his LTD payments.  Considering all of the factors, the Court denied the Administrator’s claim for repayment of the $162,308.21