Unum Calculation Of Monthly Earnings Results In Loss Of $10,000 Monthly For Quadripeligic Disability Claimant

This is a very sad disability benefit case against Unum Insurance company. Unum does not dispute that the claimant was disabled, rather they dispute how pre-disability monthly earnings should be calculated. The dispute between Unum and the disability claimant amounts to $10,000 on a monthly basis. In this case, the claimant is an attorney that was involved in a California bicycle accident 4 months into his new job as a partner at a very large law firm. He sustained a spinal cord injury and became a quadriplegic as result of the accident.

His base salary was $200,000, but his contract said he was guaranteed a $300,000 bonus if her performed satisfactory after 12 months. The accident was 4 months into his contract, and Unum calculated his pre-disability earnings without taking into consideration the $300,000 bonus. The firm paid him the $300,000k bonus a few months after the accident and told Unum that they were accruing the bonus each month, therefore Unum must consider the bonus and his base salary.

The policy defined “monthly earnings” as follows:

“Monthly Earnings” means your average gross monthly income as figured:

  1. from the income box on your W-2 form which reflects wages, tips and other compensation received from your Employer for the two (2) calendar-years just prior to your date of disability; or
  2. for the period of your employment with your Employer if you have been employed less than two (2) full calendar years prior to your date of disability.

The maximum benefit each month payable by Unum was $20,000. Unum agreed to pay $10,000 monthly which is 60% of the $200,000. If the bonus was included in the pre-disability earnings number, then the claimant would receive $20,000 each month. Unum argues that since the bonus was not paid before his date of disability, then it cannot be included in the calculation of his Monthly Earnings. The California district court agreed and found in favor of Unum. The claimant’s only remaining option was to appeal to the Ninth Circuit Court of Appeals.

The Ninth Circuit Court Of Appeals Disagrees With Unum And Remands The Case Back To Lower Court

The case was appealed to the Ninth Circuit Court of Appeals and the Ninth remanded the case back to the district court with several instructions:

  1. The district court failed to consider the extent of Unum’s Conflict of Interest. The court specifically described Unum’s history of bad faith claim handling by stating:Numerous courts, including ours, have commented on Unum’s history ” ‘of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics,’ ” McCauley v. First Unum Life Ins. Co., 551 F.3d 126, 137 (2d Cir.2008) (quoting Radford Trust v. First Unum Life Ins. Co., 321 F.Supp.2d 226, 247 (D.Mass.2004), rev’d on other grounds, 491 F.3d 21, 25 (1st Cir.2007)). Indeed, in Saffon, we attributed the trend of state prohibitions on discretionary provisions in insurance contracts to “the cupidity of one particular insurer, Unum – Provident Corp., which boosted its profits by repeatedly denying benefits claims it knew to be valid. Unum – Provident’s internal memos revealed that the company’s senior officers relied on ERISA’s deferential standard of review to avoid detection and liability.” 522 F.3d at 867; see also Radford Trust, 321 F.Supp.2d at 247 n. 20 (collecting cases). Moreover, the CSA notes that Unum was subject to “a multistate targeted examination” of its “claims handling practices,” which resulted in a settlement agreement similar to the CSA. And the CSA was the product of investigations by the State of California into Unum’s claims handling practices.
  2. The district court erred by failing to make Unum turn over internal documents which were communications between Unum’s in-house attorneys and the Unum claims handlers. The court stated that while these documents are usually protected by the attorney-client privilege, they are not protected due to the fiduciary exception. The court stated, “As applied in the ERISA context, the fiduciary exception provides that an employer acting in the capacity of ERISA fiduciary is disabled from asserting the attorney-client privilege against plan beneficiaries on matters of plan administration.” United States v. Mett, 178 F.3d 1058, 1063 (9th Cir.1999) The court further explained that refusal to release documents is another aspect which could further expose Unum’s conflict of interest.
  3. The district court must determine if Unum abused its discretion by failing to include the “bonus” in the calculation of the claimant’s pre disability earnings.

A Divided Court Of Appeals Wants To Find In Favor Of Claimant But They Can Only Remand Back To The District Court Judge

This case is a great example of the uphill battle that an ERISA disability claimant can face and the difference of opinions that multiple Judges reviewing the same case can have. In this case, after the district court found in favor of Unum, it was then appealed to the Ninth Circuit Court of Appeals, which is one court below the United States Supreme Court. The Ninth Circuit Court of Appeals assigned a three judge panel to hear and decide the case on appeal. After hearing the case and reviewing extensive Appellate briefs, the three judge panel voted 2 -1 to send the case back to the district court judge. The two judge that voted in favor of the claimant are known as the majority. The one Judge that disagreed is known as the dissent. The majority not only stated several reasons why the case needs to be reconsidered by the lower court, but they also provided their reasons for why Unum should include the bonus in calculation of the pre-disability earnings. Despite the Appellate court’s opinion, the lower court judge still has the discretion to do what he wants. This case is a temporary victory for the claimant and it is hopeful that the lower court will agree with the Appellate courts reasons that the Bonus should be included in the pre-disability earnings. It is rare to see a case where the Appellate court will actually provide their interpretation of a disability contract when there is an abuse of discretion standard that must be applied. The dissenting judge commented on the actions of the majority and his reasons for disagreeing by stating:

“Nevertheless, the majority decides to remand. Having so decided, the majority’s opinion should be at an end. But it is not. While purporting to “express no opinion” on whether Unum’s interpretation of the plan should be found unreasonable, Op. at 11106, the majority expansively opines on the correct outcome of the district court’s inquiry, see op. at 11106-15. In doing so, the majority mischaracterizes the record and traverses well outside the bounds of our deferential review. What is more, the majority’s extensive dicta, see op. at 11106-15 – which, in any event, does not bind the district court – relies on inconclusive evidence and concludes that, because it would have interpreted that evidence differently, Unum’s interpretation is unreasonable. See op. at 11111-14. This is not abuse of discretion review.

To take one example: the majority unfairly criticizes Unum’s reliance on TWP’s statement that it would “morally honor” its employment contract and posits that TWP “most probably meant” that TWP viewed the bonus as a necessary component of Stephan’s salary. Op. at 11112. Based on the record, which consists only of Unum’s own notes of the conversation, the meaning of TWP’s statement is – as the majority itself acknowledges – inconclusive. Likewise, the majority’s reliance on Stephan’s offer letter is misplaced. Though the letter indicated that his bonus was “guaranteed,” it also said that this bonus would be paid to Stephan “provided you perform at the level” TWP anticipated for a twelve-month period. Yet the majority is confident that Unum “misreads” TWP’s offer letter. Op. at 11113. This dictum should have been left on the cutting room floor.

The evidence demonstrates that Unum’s conclusion that Stephan’s bonus was not included in the calculation of monthly benefits under the plan is a reasonable one. Unum consistently explained that it was not including the annual bonus because that bonus was contingent on Stephan completing a year of satisfactory performance, which he did not do; because the bonus was not paid on a monthly basis; because TWP had not paid premiums on the higher amount; and because it did not find TWP’s expert persuasive. Its interpretation of the plan should not be disturbed. See Conkright v. Frommert, 130 S.Ct. 1640, 1647, 1651 (2010); Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 676 (9th Cir.2011).

We may not substitute our views on how the plan should be interpreted for those of the plan administrator. The district court, after considering the evidence Stephan presented, correctly concluded that Unum’s conflict of interest carried little weight in light of other considerations and that Unum had reasonably interpreted the plan. It should not have to revisit that determination.”

We Hope The Claimant Wins The Additional $10,000 A Month

This case will go on for another several months and we can only hope that the lower court judge will decide that the Bonus should be included in the calculation of pre-disability attorneys. Our law firm did not handle this case, but we applaud the disability attorneys that have been battling for this severely injured claimant.


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