Does a disability insurance claimant have to repay an insurance company back for the money received from Social Security? Unfortunately, this answer is overwhelmingly answered by a simple affirmative “yes.” The vast majority of ERISA governed group long term disability policies contain provisions allowing the insurance company to offset your monthly disability benefit by the amount you and/or your dependents receive from Social Security benefits as a result of your disability. This also includes a right to recover any award of back benefits made by the Social Security Administration, which is usually in the form of a lump sum check. As indicated, this is the most common answer to the question posed. However, a recent Federal Court ruling from Ohio sheds an additional light on the subject. As a disclaimer, the Court’s ruling is highly fact specific and does not necessarily reflect the vast majority of overpayment repayment issues.
The Issue of Overpayment and the Maybe Not
In the case of Kapp v. Sedgwick CMS, Mr. Kapp had been on long term disability for some 8 years through his employer, AT&T’s, long term disability policy, which is administered by Sedgwick. During that time frame Mr. Kapp was paid the wrong monthly benefit amount despite the fact that he repeatedly notified Sedgwick that there was an error in the computation of his monthly benefit. All totaled, he was overpaid $162,308.21. The overpayment stemmed from his receipt of SSDI benefits. The Court notes that Mr. Kapp advised Sedgwick the day he received notice from Social Security that his claim had been approved and benefits were being awarded. When Sedgwick did nothing in response, he continued to notify Sedgwick of the error in his monthly benefit. Despite his attempts to honor his duties and obligations under the policy, Sedgwick and AT&T never claimed an overpayment and actually responded to his notifications and inquiry that the amount he was receiving under the AT&T plan was correct.
From 2002 to 2010 Mr. Kapp received his full monthly disability benefit in addition to his monthly SSDI benefit. Finally, in 2010, Sedgwick and AT&T notified Mr. Kapp of the overpayment and demanded that the benefits be paid. Mr. Kapp appealed Sedgwick and AT&T’s decision to enforce the overpayment. To no one’s surprise, Sedgwick and AT&T deemed the overpayment repayment appropriate.
The Court Steps In
Mr. Kapp filed a lawsuit in Ohio Federal Court, challenging the claimed overpayment on equitable grounds, or in layman’s terms, it isn’t fair. The Court noted that Mr. Kapp had made numerous financial decisions based on the amount of his monthly benefit; had made charitable contributions based on the benefit amount; and helped to pay for the care of his parents, amongst other things, all on the assertions made by Sedgwick as to the amount of his monthly benefit.
In rendering its decision the Court noted that applicable case law stated that even when a benefits plan unambiguously provides the plan a legal right to recoup an overpayment, “equitable principles” may limit a Plan’s right to do so. In making a determination as to whether such equitable principles bar recovery of a mistake resulting in overpayment under an ERISA plan, the Court considered 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.
After reviewing all of the information before it, the Court did note that under the Plan, an overpayment had occurred, but given the facts and circumstances surrounding the case that Sedgwick and AT&T were barred from recovering the overpayment on equitable grounds.
What It All Means
The ruling in Kapp was a culmination of circumstances that came together in a “perfect storm” of facts. The Court’s opinion should not be read to mean that an insured does not have to repay an insurance company money received from Social Security or other deductible sources of income, but it does establish that on a case by case, deeper analysis should be performed as to the company’s right to enforce repayment. Attorneys Dell & Schaefer had no involvement in representing Mr. Kapp or in his case.