Employees in Chicago and elsewhere in Illinois often ask a common question when claiming or receiving long term disability insurance benefits under an employer sponsored plan. They ask what other income the insurer can offset from the disability insurance benefits. Most commonly, this includes Social Security Disability benefits. However, it could also include early retirement benefits under most insurance policies. More troubling to employees than what the offsets are, though, is what happens if the employee is essentially forced to take early retirement benefits due to the insurer’s denial of the claim, or termination of benefits while the employee is receiving the long term disability benefits.
A court in Tennessee recently addressed this issue, holding Hartford Life and Accident Insurance Company could not offset the early retirement pension benefits the employee elected, despite the insurance policy clearly stating such benefits could be offset. Neaton v. Hartford Life & Accident Ins. Co., No. 09-cv-213 (E.D. Tenn.). After Hartford terminated Neaton’s long term disability benefits, he appealed, to no avail. Hartford ignored evidence that Neaton’s skin cancer required such frequent surgery, the frequent recoveries from which would make him miss work so much that he was essentially precluded from working full-time. Neaton had to sue Hartford under ERISA § 502 to get his LTD benefits back, and after losing at the district court, he had to appeal to the Sixth Circuit Court of Appeals. The Court of Appeals reversed and ordered Neaton’s benefits reinstated.
It took nearly five years from when Neaton’s benefits were terminated until when they were reinstated after the litigation. In the meantime, Neaton could not go five years without any income, and elected his early retirement pension to give himself some income. After Hartford reinstated the benefits, it asserted it only had to pay the policy’s LTD benefit offset by Neaton’s early retirement pension, because the pension is an offset in the policy. Neaton moved the district court to force Hartford to pay the disability benefit at the offset rate, because Neaton only elected the early retirement pension due to Hartford’s arbitrary and capricious termination of his disability benefits. The district court agreed, and determined that under ERISA § 502(a)(3), Neaton could obtain equitable relief taking the form of the amount of LTD benefits he lost because of the pension offset, triggered by Hartford’s original arbitrary and capricious termination of his benefits.
While this area of ERISA law involving equitable remedies intertwined with claims for benefits is constantly in flux, complicated, and it varies from judicial circuit to circuit, the holding in Neaton is a significant win for claimants, because an insurer could not profit from its own original arbitrary benefit termination. If you have questions about your long term disability insurance policy’s offsets, contact an experienced ERISA lawyer.
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