Sun Life deducts veteran disability benefits from claimant’s monthly long term disability check

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.

Background Facts

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:

  1. 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;
  2. the Railroad Retirement Act;
  3. 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.

Comments (15)

  • Edward,

    Please contact our office with a copy of the Hartford letter as well as a copy of any applicable policy language so we can determine the viability of Hartford’s recent change in position.

    Stephen Jessup Apr 14, 2015  #15

  • In 1974, I was rated at 0% for a service connected disability associated with my heart. I was diagnosed in 1998 with an unrelated cardiac disease, different from my service connected disability. In March of 2001 I was re-rated for my service connected disability at 100%. In July of 2001, I was awarded LTD from The Hartford for my heart condition unrelated to my service connected disability.

    In 2001, when awarded my VA disability I contacted The Hartford, disclosed my VA disability increase to 100% and I was informed there is not offset. Accordingly, for the past 13 years I declared my VA disability income on the annual Hartford declaration forms.

    In April of 2015, I received a letter from The Hartford stating they have the right under other income to offset my LTD benefits. They are requesting my VA disability documentation. Since this is a service connected disability unrelated to war due they have a right to offset this benefit? Also, since they have paid the claim for the past 13 years with my disclosure is there a presumption of payments?

    Edward Joyner Apr 13, 2015  #14

  • John,

    Is the lost limb the basis of your claim for disability? If not, the policy language may be such that they are not entitled to the offset as the benefit was in place prior to disability. If you do not have a copy of your policy I would highly suggest you get one immediately to review the section for sources of “Other Income.”

    Stephen Jessup Apr 8, 2015  #13

  • Why doesn’t ERISA enact a rule prohibiting veterans disability benefits from being considered “other income?”

    You lose a leg in combat, work 20 years and then the LTD company denies or reduces your benefits? That’s just not right. Heck, all these premiums get paid, the insurance company dumps you on social security reducing their liability and then looks for any other reason to further reduce their liability. It seems they are fine accepting the premiums, but then want others to pay for their distributions.

    John Anson Apr 7, 2015  #12

  • Ray,

    Offsets for VA benefits are policy specific in that some allow for it, while others do not. Another issue under many policies is the exclusion for disabilities resulting from an “act of war- declared or undeclared.” In my personal experience I have only seen a handful of situations where an insurance carrier attempted to deny benefits under this provision for conditions related to service in Vietnam. The majority of claims denied under these provisions relate to recent military service.

    Stephen Jessup Sep 20, 2014  #11

  • What about a presumptive disease caused by agent orange effecting ERISA benefits? The nexus of a defoliate as considered a result of war? Seems like a fine line to walk.

    However, I still have to get through an appeal process in consideration which the VA’s total failure to recognize their presumptive diseases as immune mediated which is so wrong and constraining. The NSA and all cases fail to mention this point in which I will present hopefully I can if favorable keep you updated should a favorable decision be forthcoming and ERISA benes are to be off set. Thank you.

    Ray Riccio Sep 19, 2014  #10

  • Sam,

    Depending on the specific facts of an individual case and the language contained in the policy it is possible that a disability that is attributed to “an act of war” or military service can be excluded from coverage under an employer provided LTD plan.

    Stephen Jessup Jun 24, 2014  #9

  • Are you suggesting that any VA service-connected disability may disqualify you for receiving LTD benefits for the same problem?

    Sam Johnson Jun 23, 2014  #8

  • Thanks for your update. I have filed a class action in the 9th District Court.


    James L. Bush Jun 20, 2014  #7

  • Greg,

    The sources of other income that offset your benefit listed above are very common in all employer provided policies.

    Stephen Jessup Jun 20, 2014  #6

  • My STD and LTD coverage from Sedgwick has a number of exclusions, two of which concern me as a 100% disabled veteran. Those two items are”… but are not limited to” and “Other federal or state disability plans”.

    I have not yet applied for either STD or LTD partially due to uncertainty about this question.

    The entire list of exclusions is as follows:

    Your LTD benefits are reduced by income benefits you receive (or may be eligible to receive, even if you do not apply) from certain other sources. These sources include, but are not limited to:

    – Workers’ Compensation;
    – Federal Social Security (including benefits for family members);
    – Other federal or state disability plans;
    – A governmental retirement system;
    – No-fault auto insurance;
    – Awards or settlements received from a third party if your disability may have been caused by the acts or omissions of the third party;
    – Other group disability plans or policies of HP or any other employer; or
    – Retirement benefits under the [company pension plans] if you are age 65 or older.

    Greg K. Jun 19, 2014  #5

  • TwoDuxx,

    If the carrier isn’t mentioning it, then it would appear that it is not “other income.” However, it seems as if you have a fight on your hands for the benefit itself. In the event your appeal is denied, please feel free to contact us to discuss how we may assist you.

    Stephen Jessup Sep 3, 2013  #4

  • Thanks for your reply. I’m a Vietnam Veteran. I provided proof of my disabilities to the insurance company. I have numerous service connected disabilities totaling 210%. I’m rated 100% total and permanent, unemployable and homebound. I have sent a letter of appeal. The VA Compensation was not specifically listed as other income, defined or even mentioned in the certificate or policy.

    TwoDuxx Sep 2, 2013  #3

  • TwoDuxx,

    Some policy expressly carve out an offset for VA benefits, but for those that don’t this is highly cited case law to make the argument the insurance carrier has no right to offset the VA benefit. One word of caution: as the VA will consider a condition “service-related” you must be careful that the insurance carrier does not deny coverage under the provisions that indicate benefits will not be paid for any disability that was a result of war, declared or undeclared. This happens most often in mental health claims for recent military vets.

    Stephen Jessup Aug 30, 2013  #2

  • Is this the most current? I’m currently in this situation.

    8th Circuit: Court Reverses Long-Term Disability Offset
    By Chris W. McCarty

    In a case brought under the Employee Retirement Income Security Act (ERISA), the 8th U.S. Circuit Court of Appeals reversed a lower court’s decision to offset an employee’s veterans’ disability benefits from a long-term disability award provided by the employer.

    James Riley worked for Sumaria Systems until multiple sclerosis no longer allowed him to do so. Riley soon made a claim for ERISA-qualified long-term disability benefits through Sumaria’s provider, Sun Life and Health Insurance. The provider approved Riley’s application and started paying benefits in January 2005.

    Pursuant to the Veterans’ Benefits Act, Riley also received disability benefits from the U.S. Department of Veterans Affairs (VA). The military considered Riley’s multiple sclerosis a “service-related disability.” After learning of the VA benefits, Sun Life took the position that it could offset those benefits from Riley’s long-term disability payments. Sun Life believed the VA benefits were “other income” under the long-term disability plan, defined as “any amount of disability or retirement benefits under: a) the United States Social Security Act; b) the Railroad Retirement Act; c) any other similar act or law provided in any jurisdiction.”

    Riley appealed Sun Life’s position internally to no avail, then brought the matter to federal court. The district court agreed with Sun Life, holding that the company could claim an offset because both the long-term disability and VA benefits stemmed from multiple sclerosis.

    But the 8th Circuit disagreed, reversing the district court and refusing to recognize Sun Life’s offset. The court felt that the Veterans’ Benefits Act was not a “similar act or law” when compared to the U.S. Social Security Act or the Railroad Retirement Act. It viewed those laws as insurance programs, while considering the Veterans’ Benefits Act obligatory compensation for injuries to servicemen and servicewomen.

    Riley v. Sun Life and Health Insurance Co., 8th Cir., No. 10-2850 (Oct. 7, 2011).


    TwoDuxx Aug 29, 2013  #1

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