This case is a classic example of how an insurance company can offset its long-term disability payments because the insured is receiving benefits from other sources. In this case, the Court upheld ReliaStar’s decision to reduce the monthly disability payment it sent to a veteran due to additional benefits the veteran was receiving from Veteran Affairs for the same disability. Let’s take a closer look to see why the court ruled the way it did.
Thomas Jones was employed as a trust officer at Hibernia Corporation until 2001. As an employee of Hibernia, Jones was enrolled in a long-term disability benefits plan, which was administered by ReliaStar. In 2000 ING Group acquired ReliaStar. On August 1, 2001, Jones applied for long-term disability benefits due to his disability of gastroparesis. Jones’s doctor submitted a letter to ReliaStar that explained that Jones’s disability was caused by numerous conditions, including type II diabetes mellitus, peripheral neuropathy, and diabetic gastroparesis. ReliaStar approved Jones’s disability claim effective May 9, 2001.
Prior to the award of benefits from ReliaStar, Jones had been receiving benefits from the VA since 1971 for a disability caused by a shrapnel wound to his left shoulder. In 1999, Jones applied for additional benefits from the VA based on diabetes. The VA awarded Jones the additional benefits in December 2001, with an effective date of November 18, 1999.
On April 19, 2005, ReliaStar informed Jones that it had discovered that he was receiving disability benefits from the VA because of his diabetes, and explained that his benefits under the ReliaStar plan would be reduced by the amount of his diabetes based VA benefits pursuant to a provision in the plan. Under the ReliaStar plan, “Other Income is subtracted from the benefit a participant would otherwise receive.” “Other Income” is defined as income that a plan participant is eligible to receive based on the same or related disability for which he is eligible to receive benefits under the Group Policy. ReliaStar concluded that because both the VA and ReliaStar both included diabetes as causes of Jones’s disability, the VA benefits could be subtracted from the benefits ReliaStar paid to Jones.
After Jones’s administrative appeal was denied by ReliaStar, Jones filed suit in federal district court. The district court denied Jones’s request for discovery and dismissed the case, concluding that ReliaStar’s decision to offset Jones’s benefits was not an abuse of discretion. Jones then appealed that decision.
Jones believed the lower court’s decision was wrong for three reasons:
- that the Court used an incorrect standard of review when it reviewed the plan administrator’s decision under an abuse of discretion standard;
- that the Court erred when it denied his motion to conduct discovery; and
- that the Court was incorrect when it ruled that ReliaStar’s decision to offset Jones’s disability benefits was not an abuse of discretion.
The Court’s Analysis
The United States Court of Appeals for the Eighth Circuit agreed with the lower court’s ruling in favor of ReliaStar.
With regards to the first argument that Jones raised on appeal, that the court should not have used the abuse of discretion standard, the Appeals Court noted that it has long been determined that when an ERISA plan provides a plan administrator with discretion to construe the terms of the plan, the court should review the administrator’s interpretation under an abuse of discretion standard. Firestone Tire & Rubber Co. v. Bruch. The Court stated that this standard applies even if the evaluator of the claim is operating under a conflict of interest, such as here where ReliaStar is both the insurer and the administrator of the plan. Metropolitan Life Insurance Co. v. Glenn.
As to Jones’s second argument, that the court made an error in denying his request for discovery, the Appeals Court noted that there is a general rule that in ERISA cases the review of the courts is limited to the evidence (the administrative record) that was before the administrator of the plan. LaSalle v. Mercantile Bancorporation, Inc. The Court continued that Jones’s argument that he should be allowed discovery to explore ReliaStar’s conflict of interest is moot because ReliaStar has conceded that it was both insurer and administrator of the plan.
Finally, with regards to Jones’s last argument that ReliaStar’s decision to offset Jones’s disability benefits was an abuse of discretion, the Court noted that the administrator’s interpretation of the plan’s language must not be inconsistent with the plan’s goals, must not render the language of the plan meaningless, superfluous, or internally inconsistent, must not conflict with the substantive or procedural requirements of ERISA, must not be inconsistent with prior interpretation of the same words, and it must not be contrary to the plan’s clear language. Erven v. Blandin Paper Co. Finally, the Court declared, the administrator’s interpretation must be reasonable. King v. Hartford Life & Accident Ins. Co. The Appeals Court concluded that ReliaStar’s decision to offset Jones’s benefits was consistent with all of these requirements.
The plan directed ReliaStar to offset the payment of disability benefits by the amount of benefits that a participant receives from other sources because of the same or related disability. ReliaStar reasoned that the 1999 award of VA benefits based on Jones’s diabetes was “separate and distinct” from the 1971 award of VA benefits based on the shoulder injury. However, ReliaStar determined that the VA’s award of benefits in November 1999 for diabetes is related to the plan’s May 2001 award based on numerous conditions including type II diabetes mellitus, peripheral neuropathy, and diabetic gastroparesis.
The Plan did, however, provide an exception that benefits will not be reduced by disability benefits that the participant receives from a past employer, if these benefits have been paid continuously to him for more than 2 years before he becomes eligible to receive benefits under the Group Policy. The administrator determined that the exception did not apply to Jones and that the offset was appropriate because he did not begin to receive benefits from the VA for the diabetes-related disability more than two years before he was eligible to receive disability benefits under the plan (November 1999 from VA, May 2001 from the plan).
The Appeals court therefore concluded that ReliaStar did not abuse its discretion in deciding to offset Jones’s disability benefits based on his receipt of diabetes-related disability benefits from the VA.