Most long term disability insurance policies allow the insurance company to offset the monthly disability payments to an insured if the insured is receiving “other income” from certain sources. Often, these other sources include any Social Security disability or retirement benefits, workers’ compensation benefits, retirement plan benefits from the employer, or even earnings the insured receives from any other occupation or form of employment.
The specific policy language governs exactly what the insurance carrier can consider an “offset” to reduce the claimant’s monthly benefit. Sometimes, however, the insurance policy is not crystal clear on what specifically may be used as an offset. Such a situation occurred in the case of James Riley v. Sun Life Insurance Company. In this case, the issue was whether Sun Life was allowed to reduce Riley’s monthly benefit because of veteran disability benefits he received from Veterans Affairs. The Court ultimately upholds Sun Life’s decision to reduce Riley’s monthly long-term disability benefits. Let’s take a closer look to see why the Court ruled the way it did.
As an employee of Sumaria Systems, Inc., James Riley participated in Sumaria’s employee welfare benefit plan that included Group Long-Term Disability Insurance. This plan was insured through Sun Life who was the fiduciary with respect to the Plan’s insurance policies and had discretionary authority to interpret the meaning of the policies’ terms and language. In 2004, Riley was diagnosed with multiple sclerosis and filed a Sun Life disability claim. Sun Life awarded Riley benefits in January 2005. However, in December 2008, Sun Life recalculated Riley’s benefits and began to offset Riley’s VA benefits from his long-term disability benefits. Sun Life also demanded $20,831.06 for an overpayment.
ERISA Disability Lawsuit
Although he was still receiving long-term disability benefits from Sun Life, Riley was forced to retain a disability attorney and file an ERISA lawsuit in the United States District Court of Nebraska due to the offset reduction and the request for overpayment. With his lawsuit, Riley sough injunctive relief to prevent Sun Life from reducing his monthly benefit and collecting this overpayment.
In the suit, Riley argued that his VA benefits should not offset his disability payments under the Plan because nowhere in the Plan document are VA benefits specifically mentioned. The Plan defined “Other Income” as:
Any amount of disability or retirement benefits under:
- The United States Social Security Act to which; i) you are entitled; and ii) your Dependents may be entitled because of your disability or retirement;
- the Railroad Retirement Act;
- any other similar act or law provided in any jurisdiction.
While Riley noted that VA benefits are nowhere found in the policy’s definition, Sun Life contended that the “sweeping language in subsection (3)” justified its decision to view the VA benefits paid to Rile as “Other Income.”
The Standard of Review
Under the ERISA statute, when a plan reserves discretionary power with the plan administrator to construe uncertain terms or to make eligibility determinations, the administrator’s decision is reviewed by the Court only for an “abuse of discretion.” In other words, “the court must affirm the plan administrator’s interpretation of the plan unless it is arbitrary and capricious.” A court will thus uphold a plan administrator’s decision if it was reasonable. “Any reasonable decision will stand, even if the court would interpret the language differently as an original matter.”
The Nebraska Federal Court’s Analysis
The Court was left to determine whether it was “reasonable for a plan administrator to conclude that retirement or disability benefits received through veterans’ benefits statutes are ‘similar to’ retirement or disability benefits received through the Social Security Act and the Railroad Retirement Act.”
In determining whether the benefits were “similar to”, the Court first noted that the “Plan provides benefits, based on a percentage of past earning, for employees who become disabled and cannot work. In the manner, the Plan insures against a certain risk of loss, i.e., the loss of a stream of earned income due to the participant’s inability to work.” The Court then reasoned that “if Riley receives VA benefits in the form of a retirement pension or annuity, not linked to his disability or loss of income” then it would be unreasonable to consider that benefit “Other Income” because it that income was not compensating him for his inability to work. Similarly, the Court reasoned that if the VA benefits Riley received were due to some service-related disability unrelated to his multiple sclerosis, then it would also be unreasonable to consider that benefit as “Other Income” because it would not be compensating Riley for the stream of income he lost due to his disability of multiple sclerosis. Finally, the Court reasoned that if Riley was receiving VA benefits based on multiple sclerosis, then Sun Life’s determination to offset the benefits may be reasonable, because “such VA benefits serve to compensate Riley for the same risk of loss covered by the Plan, i.e., the loss of a stream of earned income that he enjoyed before his disability.”
The Nebraska Court’s Conclusion
The Court pointed out that although Riley urged the Court to conclude that his VA benefits are for a service-connected disability, there was no such evidence in the Administrative Record. The Court thus concluded that:
Sun-Life’s decision to off-set Riley’s disability benefits by his VA benefits was not an abuse of discretion, arbitrary and capricious, or unreasonable. Riley had an opportunity to demonstrate that such benefits were unrelated to the disability that led to the loss of stream of income from Sumaria and his receipt of disability benefits under the Plan, and he did not provide such evidence to Sun Life for the Administrative Record. Absent such documentation, it was reasonable for Sun Life to infer that Riley’s VA benefits were related to the same disability that caused him to be unable to work at Sumaria and that led to his receipt of disability benefits under the Plan.
The Court accordingly concluded that Sun Life’s decision to conclude that Riley’s VA benefits fell under the Plan’s definition of “Other Income” was reasonable, and as such Sun Life’s decision to offset those benefits from his long-term disability benefit was upheld.
The Court’s ultimate decision was based on the fact that the Administrative Record was absent of any evidence regarding the reasoning behind Riley’s VA benefits. In ERISA cases, the review of the courts is limited to the administrative record that was before the administrator of the plan. The administrative record is closed after all the administrative remedies are exhausted. It is thus important to document thoroughly in the Administrative Record any potential issues during litigation that may arise after the Administrative Record is closed. Attorneys Dell & Schaefer have extensive experience in ERISA disability appeals as well as litigating all long term disability insurance denials.