After 5 years of receiving long term disability benefits, Robin Dolan suddenly receives a letter in 2006 from Disability Reinsurance Management Services stating that her disability benefits had been wrongfully calculated and she must repay $163,661.57. Approximately 5 years after receiving this dreadful letter and extensive litigation, Ms. Dolan has finally received an Appellate Court ruling stating that Liberty Mutual was wrong in their interpretation of the disability policy. Unfortunately Ms. Dolan has had to suffer through the unreasonable actions of Liberty Mutual and their third party administrator DRMS.
The Disability Lawsuit
The case of D & H Therapy Associates, LLC; Robin Dolan vs. Boston Mutual Life Insurance Company (Liberty Mutual) deals with a claimant who participated in a group long term disability benefit insurance plan that was governed by the Employee Retirement Income Security Act (ERISA). The plaintiff in this case was also a partner in several physical therapy clinics which sponsored and administered the plan. The lawsuit was brought by the plaintiff against the Boston Mutual Life Insurance Company (Liberty Mutual) seeking a review of the termination of benefits and asserting a claim for fraudulent inducement. Boston Mutual counterclaimed that under the plan it is entitled to reimbursement of the $163,661.57 in disability benefits paid to the plaintiff.
The District Court for the District of Rhode Island held that Boston Mutual’s construction of the plan’s language was within its discretion as the plan administrator and that the plaintiff’s fraudulent inducement claim was preempted by ERISA. As to Boston Mutual’s counterclaim, it held that the reimbursement sought did not qualify as appropriate equitable relief under ERISA. Both parties appealed to the Court of Appeal with regard to this decision by the District Court.
The Facts of the Long Term Disability Claim
The plaintiff’s employer D&H Therapy Associates (D&H) obtained an ERISA plan from Boston Mutual in 2000. Under the plan, employees who suffered specified reductions in monthly earnings due to long term disability are eligible for benefits. In 2001, the plaintiff became partly disabled rendering her unable to continue some of her tasks as an employee. This resulted in a reduction in her monthly W – 2 earnings. The plaintiff applied and hence received benefits from Boston Mutual under the above mentioned plan.
In 2006, Boston Mutual’s third-party claims administrator, Disability Reinsurance Management Services (DRMS), conducted an audit and concluded that the plaintiff’s benefit payments had not properly taken account of business profits she received as a principal of D & H and another entity, Associated Professional Management, Inc. With those profits included, DRMS calculated that the plaintiff’s pre-disability monthly earnings was $5,833.33 and her post disability monthly earnings in 2002 was $7,670.67. Thus, in an August 2006 letter, Boston Mutual informed the plaintiff of the audit and asserted its right under the policy to recover overpayments due to “fraud or error.”
After several unsuccessful administrative appeals with Boston Mutual’s third-party claims administrator, the plaintiff initiated this lawsuit against Boston Mutual. The plaintiff challenged her benefit termination on two grounds:
The plaintiff argued that the plan defined “earnings” as W – 2 income such that non-salary income is not relevant to eligibility determinations.
The plaintiff argued that Boston Mutual should be stopped from construing the plan otherwise because it represented to D & H at the time of purchase that the plan defined “earnings” as W – 2 income.
The Plaintiff also claimed that Boston Mutual’s representations fraudulently induced D & H to forego renewing its preexisting insurance policy. Boston Mutual counterclaimed that under the plan it was entitled to reimbursement of the $163,661.57 it paid to the plaintiff.
The Court of Appeal Ruling
The Court of Appeal held that the Plan Administrator construed the plan in manner that was unreasonable, and thus abused its discretion. The claimant was not responsible for an overpayment and Liberty Mutual must continue paying disability benefits.
Discretionary Authority under an ERISA Plan
Normally when an ERISA plan gives an administrator discretionary authority to determine eligibility for benefits or construe the plan’s terms, the District court must uphold the administrator’s decision unless it is arbitrary, capricious, or an abuse of discretion.
The Court of Appeal held that Boston mutual had acted unreasonable by construing the term “earnings” in manner that could not be applied consistently within its own account of the plan’s meaning and by rendering the only provision in the plan meaningless that appeared to define “earnings” in a substantive way. The Court rendered its opinion that it has been Boston Mutual’s position that the term “earnings” refers to W – 2 income when it is used in conjunction with the terms “pre-disability” or “basic annual.” It has also been Boston Mutual’s position that the term “earnings” refers to all income deriving from employment when it is used alone or with the term “current.”
However, the plan’s express definitions of “pre-disability earnings” and “basic annual earnings” cannot support both of the above positions at once.
The Court concluded that if Boston Mutual’s definition of the unaccompanied term “earnings” were applied unaccompanied as used within the plan’s stated definitions of “pre-disability earnings” and “basic annual earnings,” the term “earnings” would have to refer to both W-2 income and non-salary income when used in conjunction with the terms “pre-disability” and “basic annual.”
However, if one accepted Boston Mutual’s definition of “earnings” as used in conjunction with “pre-disability” and “basic annual,” then the definition of the unaccompanied term “earnings” as used within the plan’s definitions of “pre-disability earnings” and “basic annual earnings” would have to refer only to salary income.
The Court of Appeal resolved this inconsistency by determining that if Boston Mutual wanted to offer a plan that determined benefit eligibility by comparing pre-disability W-2 income with post-disability income deriving from employment; it would have drafted a plan that made this clear. Hence, the Court of appeal ruled that Boston Mutual may not transform an existing plan to achieve this end by construing it in a fashion contrary to its terms. As such, the Court of Appeal concluded that Boston Mutual’s construction of the plan was unreasonable and, therefore, that its determination that the plaintiff has never been eligible for benefits constituted an abuse of discretion.