CIGNA entitled to recover social security disability benefit overpayment

The United States Court of Appeals for the Third Circuit recently reversed a district court’s decision denying CIGNA recoupment of overpaid benefits.

Connecticut General Life Insurance Company (“CIGNA”) denied Robert Funk long-term disability benefits after Funk had received 26 weeks of short term benefits and one year of LTD benefits pursuant to the Plan. Funk was an employee of Alcatel-Lucent USA, Inc. and a participant in Lucent’s Plan with CIGNA.

Pursuant to the plan, a participant could be eligible to receive long-term disability (“LTD”) benefits after he had received short-term disability benefits for 26 weeks. The plan provided LTD benefits in two phases. Phase one began immediately after the 26-week short-term disability period and ran for one year. A plan participant could move on to phase two only if CIGNA, “in its sole opinion as the Plan Administrator,” were persuaded that the participant was incapable of performing the requirements of any job for any employer for which the individual qualified or may reasonably become qualified”¦

The plan also provided that LTD benefits could be reduced by certain offsets, including Social Security disability benefits. Pursuant to the plan, “any retroactive award of Social Security benefits which covers any portion of the period for which Plan benefits have been paid shall be considered as an offset of such Plan benefits and be payable to Cigna by the recipient.”

Funk applied to CIGNA for LTD benefits after receiving short-term disability benefits for 26-weeks.

On December 7, 2004, Funk began a leave of absence due to depression and related disorders. In August 2005, after receiving short-term disability benefits for 26-weeks, Funk applied to CIGNA for LTD benefits. In support of his application, Funk submitted a claim form and treatment records from his mental healthcare providers opining that Funk was unable at that time to return to work in his former position. According to his physicians, Funk was suffering from, among other things, depression, anxiety, and paranoia.

CIGNA forwarded Funk’s treatment records to a doctor for independent review.

After forwarding Funk’s treatment records to Dr. Mohsin Qayyum for independent review, Funk was awarded LTD benefits for a one-year period retroactive to June 28, 2005. CIGNA’s decision was based on Dr. Qayyum’s opinion that Funk’s record’s supported the conclusion that, “due to severe psychiatric symptoms, Funk could not return to work.”

Funk agrees to reimburse CIGNA for overpayment of benefits after being awarded Social Security disability benefits.

In June 2005, Funk executed an agreement providing that his LTD benefits under the plan would be reduced by any Social Security benefits he ultimately received and that he would reimburse CIGNA for any LTD overpayment that may occur as a result of having received Social Security benefits.

CIGNA notified Funk that it would again be reviewing his case to determine if he would remain eligible for benefits beyond the phase one period.

In response to CIGNA’s request, Funk submitted a disability questionnaire provided by CIGNA in addition to current treatment information from his mental healthcare providers. The questionnaire listed bad tremors, lack of concentration, tiredness, short-term memory loss, aggression, depression, and paranoia as reasons why he could not return to work. Notes from his doctors reported that Funk was still suffering from confusion, depression, helplessness, and hopelessness and could not at that time return to work.

CIGNA again enlisted Dr. Qayyum to independently review Funk’s claim

On August, 15, 2006, after reviewing Funk’s supplemental information, Dr. Qayyum issued a report concluding that, while the records showed Funk to be suffering from psychiatric symptoms, they did not show that those symptoms were severe or that he had “severe functional limitations in”¦ psychosocial domains.” As a result, Qayyum opined that the information provided did not support the conviction that Funk’s condition precluded him from working.

On August 22, 2006, CIGNA notified Funk by letter that he was no longer disabled as defined under the Plan and so would not receive further LTD benefits. CIGNA concluded that there was no clinical evidence to support that Funk would be unable to work in a supportive, low stress, low cognitive demand environment.

Funk appealed to CIGNA for further review of his Disability Denial

Funk appealed CIGNA’s adverse determination contending that Dr. Qayyum’s report and notes were at odds with the medical documentation provided by Funk’s own doctors. Funk further argued that CIGNA did not comply with the Plan by failing to perform any sort of vocational assessment to determine whether he could “reasonably become qualified”¦, and earn 60% of his pre-disability pay.” As part of his appeal, Funk submitted additional information from his treatment from the previous three years indicating that his response to treatment had been “fair to poor.”

Funk was awarded Social Security disability benefits while his appeal to CIGNA was pending.

In January 2007, Funk was awarded Social Security disability benefits retroactive to June 1, 2005. The retroactive plan created a period in which Funk received both Social Security and LTD benefits, meaning that, under the Plan, he had been overpaid and was obligated to reimburse CIGNA the overpaid amount, which was $24,817. Becaue Funk had spent $6,317 on ordinary living expenses he was able to pay CIGNA only $18,500.

CIGNA submitted Funk’s medical documentation to Dr. Stuart Shipko for another independent review.

After receiving Funk’s additional submissions in support of his appeal, CIGNA forwarded all of the medical documentation that had previously been submitted with Funk’s claim to Dr. Shipko for an independent review. Shipko concluded that Funk’s medical history did not support any restrictions or limitations on his working. Furthermore, Shipko opined that several assessments by Funk’s own physicians lacked credibility.

CIGNA subsequently denied Funk’s appeal and Funk responded with a second appeal.

In his second appeal, Funk submitted a copy of Dr. Shipko’s report marked up with comments by his own doctors highlighting errors believed to be made by Shipko. On February 6, 2008, CIGNA issued a final decision denying Funk’s LTD claim.

Funk sues CIGNA in district court and CIGNA countersues for overpayment of benefits.

Having exhausted his administrative appeals, Funk sued CIGNA seeking under ERISA to overturn CIGNA’s denial of LTD benefits. CIGNA countersued seeking under ERISA to recover from Funk the remaining $6,317 of overpaid benefits.

District court issues judgment against CIGNA.

With respect to the denial of benefits, the Court held that CIGNA had acted arbitrarily and capriciously because it had failed to assess whether Funk was disabled as defined under the Plan. In other words, the court accepted Funk’s argument that CIGNA was wrong when it failed to assess whether Funk could work in a job that would pay him 60% of his former wage, given the restrictions identified in CIGNA’s initial denial.

As for the overpayment of benefits, the Court held that relief sought by CIGNA was not possible since the funds had been “dissipated prior to suit and could not be traced.”

CIGNA appeals to U.S Court of Appeals.

In reviewing the lower courts determination, the Court of Appeals considered the following two questions: (1) whether CIGNA complied with its own Plan and relied on substantial evidence in denying LTD benefits to Funk; and (2) whether CIGNA may assert an equitable lien on Funk’s Social Security benefits to recoup an overpayment of benefits.

Whether CIGNA complied with the plan.

The Court noted that the District Court’s opinion appeared to focus on CIGNA’s initial decision rather than its final decision. As such, the District Court’s emphasis was misplaced. The District Court should have focused its attention on CIGNA’s final appeal decision.

“A plan administrator’s final, post-appeal decision should be the focus of review.”

Furthermore, the Court concluded that CIGNA had not interpreted any ambiguous Plan terms when making its determination, as Funk argued it had. The appropriate question was therefore whether CIGNA acted “reasonably consistent with” the plan requirements. The Court found that it did.

Whether substantial evidence supported CIGNA’s decision

In the alternative, the District Court concluded that CIGNA’s decision was not supported by substantial evidence because it did not give proper consideration to the evidence and was infected by a conflict of interest.

The Court of Appeals found that there was nothing to suggest that CIGNA was operating under a meaningful conflict of interest. Accordingly, the District Court should not have given the significant weight it appeared to give the largely hypothetical conflict. However, because the Court could not be sure of the extent to which the District Court’s weighing of the factor affected the court’s holding, the case was sent back to that court for reevaluation of that issue in light of the other factors cited by it.

Whether CIGNA was entitled to recoupment of benefits overpaid.

The District Court had found that CIGNA was not entitled to reimbursement saying it was not possible since the funds had been “dissipated prior to suit and could not be traced.”

This determination was found to be in error. The Court of Appeals explained that the Plan provision requiring reimbursement gave rise to a lien on which CIGNA could rightfully recover. Moreover, the Court said, there is no “tracing requirement” for an equitable lien by agreement.

Funk argued that, “because the funds upon which CIGNA sought to impose the lien – the Social Security award – were no longer in his possession, the District Court correctly rejected CIGNA’s claim for an equitable lien.” The Court of Appeals explained however, that “if there was an equitable lien by agreement that attached to the Social Security award as soon as Funk received it, dissipation of the funds was immaterial.”

Considering the Plan and Reimbursement Agreement made between CIGNA and Funk, the court concluded that CIGNA was entitled to such the funds.

Comments (20)

  • Sammy, usually social security requires written permission from you to release your records so in don’t believe they will be able to obtain them without your permission.

    Rachel Alters Nov 14, 2022  #20

  • Can Cigna request my SSDI records without my permission?

    Sammy Nov 12, 2022  #19

  • Why is Cigna entitled to any of my SSDI? I paid for my LTD benefits. Premiums paid to ensure I am paid 50% of my salary -let’s say that’s X amount. If I am awarded SSDI I should continue to receive X as that is what I paid for. The fact that I am now receiving SSDI should be irrelevant. Has anyone refused or sued to keep their full LTD

    Magnolia May 14, 2022  #18

  • Karen, you will need to pay back any overpayment of the LTD claim. If the back pay you received form SSDI was for the same period as you were paid for LTD you will likely have to pay it all back.

    Rachel Alters Oct 27, 2020  #17

  • I have been receiving long term disability insurance for 7 months. I was just approved for ssdi and received back pay. I let the insurance company know I was approved. I was told I would have to give most of the back pay to the insurance. The person taking care of my case was not available. So I’m stewing over this, but normally I would get more from LTD but my ssdi payment is more than the insurance payment. The person that has helped me with my disability claim wasn’t sure how that worked. Usually you get less. My question is will they want all of that even though they didn’t pay me as much. I’ve spent some so they will have to get it back in payments. I wasn’t aware of this catch with LTD.

    Karen Oct 27, 2020  #16

  • Cigna is a nightmare from beginning to end. They only care about their quota and the mighty dollar !!

    Joe B. Jan 13, 2016  #15

  • Sandra,

    The only available remedies under the law are for unpaid benefits. Unfortunately, you would not have rights to recovery due to extra contractual damages under an ERISA governed policy.

    Stephen Jessup Dec 22, 2015  #14

  • Can CIGNA be sued for unfair business practices? Can they be sued for mental anguish, incompetent doctors ,lying, unreasonable claim denials , etc…

    What happens if ordered to pay back money and a person refuses. He had STD which they stopped shortly after two payments they denied it . I appealed and won appeal, by this time it was time for his LTD to kick in.
    CIGNA paid then denied I appealed and won . This has been going on since September of 2013.

    Sandra Dec 20, 2015  #13

  • KC,

    Unfortunately if the policies state that the SSDI is an offset under the policy then yes, Cigna would be entitled to seek recovery of the overpayment. You are correct in the sense that the STD and LTD payments act as an advance on SSDI, and if you weren’t to have received SSDI there would be no overpayment to speak of. We agree and sympathize 100% with your feelings and your plight during the time it took Cigna to make a decision- hopefully there will be a change in the law one day that will take this into account.

    Stephen Jessup Oct 5, 2015  #12

  • My employer paid for STD/LTD; however, I paid for an increase in percentage of my income for STD as offered. I received 26 weeks of STD after many, many delays and appeals. I had to pay extra co-pays and many $ toward deductibles to prove my conditions. I was approved for LTD while awaiting SS disability approval from April through September. SS approved on first application and I’ve received the lump sum check 12 days ago. Cigna provided a third party to assist with the application and they have contacted me regarding the LTD overpayment. I understand this and signed an agreement to repay this amount, but have not done so yet. Yesterday, I received another letter from the third party regarding an overpayment for STD. The 2 overpayment amounts literally consume the entire lump sum from SS. Is it legal for Cigna to require the $ back for the STD amount I received as I paid for the increased coverage myself? Were these STD and LTD payments in actuality a loan by Cigna until SS approved and made payment? Cigna’s refusal to pay the initial STD claim caused me to use my entire life savings to pay living expenses while I was completely unable to work, not including the extra expenses for physician documentation and studies I paid for to prove my condition for the STD to be approved. I lost my home due to Cigna’s refusal to initially pay the STD claim. This all seems completely unfair when I was the one impacted but had “insurance” in case I needed to be out of work due to medical circumstances. There must be some kind of justice where I can at least regain the $ spent for proving my claim to Cigna and using my own funds to support my life while waiting for their determination.

    KC Oct 4, 2015  #11

  • Edwin,

    Yes. It is almost certain that your policy contains a provision allowing for the offset of your benefit by SSDI. As such, you will be responsible for any applicable overpayment.

    Stephen Jessup Aug 15, 2015  #10

  • I’ve been receiving long term disability sense april of 2014 and was award social security in february of 2015. i receive back pay from social security and now cigna says i owe them. they reduce my long term disability twice after i receive social security and now have been cut completely cut off by cigna. they’re stating they will take my remaining payment toward this so call over payment. i never sign a agreement stating i would pay them back if i receive social security. there are stating long term disability was a loan, but i paid for long term disability for 18 yrs thru my company. so my question is, i’m i require to repay them if i never agree to repay them?

    Edwin Barber Aug 14, 2015  #9

  • Joanne,

    Yes, you can draw both Cigna and Social Security. However, under your Cigna policy, Social Security will be deemed an offset so Cigna will reduce the monthly amount it pays to you by the amount you receive from Social Security.

    Stephen Jessup Jul 22, 2015  #8

  • I receive Cigna’s Short Term checks.
    Each month my doctor has to prove to them I still have collapsed lung and unable to work . It has been a nightmare.
    In September I can draw my Social Security, but I go on long term disability. Can I draw both, or does Cigna allow that ?

    Joanne Anderson Jul 21, 2015  #7

  • Joe,

    Cigna would be entitled to repayment of any overpayment that overlaps with a time they were paying you benefits.

    Stephen Jessup Jul 2, 2015  #6

  • I just received a lump sum payment from social security for disability. If I have Cigna Group DI insurance, am I required to pay this back to them since they covered my benefits before I was approved? They called me a couple days before I received it and told me I had to send them a check.

    Joe Jun 30, 2015  #5

  • O,

    What is the basis of the payment from your wife’s social security? Is it a widow benefit? If so, then Cigna would most likely not be entitled to offset your benefit. I have yet to see an instance where they can, but without knowledge of the language of the policy I would have to defer you to same. Additionally, if you do need assistance at any point in the transition of STD to LTD or with your claim, please do not hesitate to contact our office for a free consultation.

    Stephen Jessup Mar 9, 2015  #4

  • Sir, I am a Lockheed Martin employee on STD through April 12 and then hope to go on LTD because of Pulmonary Fibrosis as I wait for a double lung transplant. In May I will be eligible to receive 1/2 of my wife’s social security monthly payment but will delay taking my benefits until age 70.

    Can Cigna offset the SS benefits I get from her SS plan?

    Also, I am planning on filing for unemployment benefits. Can Cigna offset these payments also?

    Thank you very much.

    O. Young Mar 8, 2015  #3

  • TC,

    Typically, Cigna’s policies allow them to offset the DSSDI award. Additionally, their policies contain discretionary clauses (if applicable) that allows them to interpret the provisions of the policy as they see fit. Please feel free to contact us with a copy of your policy for review.

    Stephen Jessup Feb 25, 2015  #2

  • What about when Cigna comes after your dependent child’s award, as well as your own? Can they do that? Policy states they can be reimbursed by Social Security Disability Income or Dependent Social Security Income. It does not say “and”!

    TC Feb 24, 2015  #1

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