A District Court ruling issued in Scranton, Pennsylvania highlights the importance of understanding the terms of a long-term disability insurance policy. It is common for these disability insurance policies to reduce monthly disability benefits by other benefits or income a claimant receives. This case is a good example of the complex language in disability insurance policies which can be subject to multiple interpretations.
In this case, claimant Joseph George was injured in a non-work related automobile accident in January of 2006. He worked for PPL Services Corporation, which provided him with a group long-term disability policy managed by CIGNA’s subsidiary Life Insurance Company of America (LINA). The policy stipulated that the maximum benefit he could receive each month was $5,000. The policy also stated that this amount could be reduced by “other income benefits.”
CIGNA Policy Reduces Benefits by “Other Income”
The CIGNA disability insurance policy defined what some of these “other income benefits” were. Social Security disability benefits were considered eligible benefits for reducing LINA’s payout. Proceeds from any group insurance or similar plan, were also considered “other benefits.” Disbursements from unemployment or workmen’s comp were listed. The policy also listed specifically “any benefits received from coverage subject to the mandatory part of the vehicle financial responsibility law;” and “any amounts paid on account of loss of earnings or earning capacity through settlement, judgment, arbitration or otherwise, where a third party may be liable, regardless of whether liability is determined.
The disability policy paid 60% of his monthly covered earnings of $4,705.65. This meant that CIGNA’s first benefit check in August 2006 was $2,823. When the disability insurance plan found out two months later that he was receiving monthly wage loss benefits from his automobile insurance policy with Liberty Mutual for $1,500.00, it reduced his CIGNA disability monthly benefit to $1,323 per month and asserted that George owed them $3,000 in overpaid disability benefits.
ERISA Disability Attorney Files Suit For Underpayment of Benefits
George’s disability insurance attorney filed an ERISA disability lawsuit against CIGNA for failing to pay him his full benefits. The disability insurance lawyer argued that Cigna violated ERISA by not paying his client all the benefits he was entitled to. He contended that the wage loss payments were not “other income benefits” and that LINA only had to reduce the $5,000 maximum monthly benefit before it could reduce the $2,823 payment which reflected less than 60% of the earnings George had brought in before his accident.
Court Considers Disability Benefit Plan Language
The Court’s first concern was to identify whether there was any ambiguity in the policy language. It would consider the “(1) the words of the contract; (2) the alternative meaning suggested by counsel; and (3) the nature of the objective evidence to be offered in support of that meaning.” The Court would have to look at the entire policy and construe its meaning as a whole.
What did the Court find? The CIGNA/Lina disability benefit policy clearly stated that it intended to reduce the disability benefits it had to pay out if other income sources arose. The policy covered just about every possible source of potential income:
- Local, state, provincial, or federal government disability or retirement plans that George might qualify for
- Any sick leave he qualified for
- Social Security disability benefits he might be awarded
- Retirement plan benefits
- Unemployment benefits he might claim
- Compensation payments
- “Any wage or salary for work performed”
- Any benefits received due to mandatory vehicle insurance requirements
- “Any amounts paid on account of loss of earnings or earning capacity through settlement, judgment, arbitration or otherwise”
LINA pointed to this list. The Liberty Mutual payment of $1,500 fit both the mandatory insurance requirement definition and the settlement definition. LINA pointed to the fact that Pennsylvania law required automobile insurance policies to provide wage loss coverage of up to $50,000. George’s policy covered him up to $25,000. Thus the $1,500 disbursement fell squarely under LINA’s definition of “other income sources.”
George’s disability insurance lawyer argued that when his client read the long-term disability policy, he understood that only benefits which he had to purchase insurance to receive would offset his disability benefit payments. He also understood that he would receive more benefits, up to $5,000 a month. His attorney argued that this was a reasonable interpretation of the plan language, and thus the Court should enter judgment in his favor.
The Court found otherwise. In context of the entire policy document, it was clear that LINA’s policy was designed to reduce its obligation to pay out long-term disability benefits. One clause was especially applicable. CIGNA/LINA included “any amounts paid on account of loss of earnings.” The Liberty Mutual payments were specifically wage loss payment compensation.
Disability Attorney Argues Basis of Calculation of Benefit Reduction
George’s disability attorney’s final argument was that the policy did not state that the offset would be applied against the 60% calculation. What the policy actually stated was that the amount payable in the event of a claim would be the “lesser of 60% of an Employee’s Monthly Covered Earnings rounded to the nearest dollar or the Maximum Disability Benefit, reduced by any Other Income Benefits.” The disability lawyer argued that the phrase “reduced by any other income benefits” applied only to the maximum disability benefit. This would mean that George should expect that any other income benefits would be subtracted from $5,000 and only impact his benefit from LINA when the other income benefits exceeded $2177. For LINA to subtract the $1500 from the 60% figure breached the policy.
The comma before “reduced by any other income benefits” would prove George’s enemy. The Court failed to recognize that it would be possible for an ordinary individual to be confused by the wording of the phrase, and thus failed to construe the phrase in a manner that was favorable to George as the policy holder. The Court upheld the reasonableness of LINA’s interpretation that first it would calculate the disability benefit using the formula “lesser of 60% of an Employee’s Monthly Covered Earnings rounded to the nearest dollar or the Maximum Disability Benefit.” Then it would offset any benefits by any income listed in the policy.
The Court’s final ruling was in favor of CIGNA. George would have to pay the disability insurance plan $3000 for excess benefits.
This case highlights how important it is to understand what a disability benefit plan provides. Disability Insurance Plans with benefit offsets like CIGNA/LINA’s are common. Most policies require claimants to apply for Social Security benefits so the disability plan’s insurance payments are reduced. Insurance settlements are usually covered in the plan language as it was in this case.