Does that title sound a little strange? A recent case tackled two issues that point to the strangeness of ERISA: jurisdictional law and a policy interpretation on earnings. It highlights a failed strategy to obtain some fairness. Messer v. The Lincoln National Life Insurance Co., 1:20-CV-00125-LY (W.D. Tex. July 16, 2021) (Mag. J. Susan Hightower).

Facts of the Case:

• Ms. Messer was a citizen of Georgia, who worked for a nationwide energy management company with headquarters in Indiana.
• She was seriously injured in a fall and was forced to file a claim for long-term disability benefits which were paid, but which she claimed were not paid at the correct rate.
• The long-term disability policy used the prior year's earnings as the basis for calculating the disability benefit. Those earnings could include bonuses which were an important part of Ms. Messer's income. Ms. Messer wanted her disability benefit calculated on a bonus that was paid in 2014, but which she earned entirely in 2013. There was no dispute as to when that bonus was earned.
• Lincoln, however, insisted on paying on the 2013 W-2, which did not include the bonus.
• Messer filed her ERISA action for long-term disability benefits in the state of Texas, most likely because Texas bans discretionary clauses. Some states, including Texas, have enacted laws that ban the issuance of insurance policies that contain discretionary clauses –provisions that require a court to give deference to the decision of the insurance company.
• Indiana had not banned discretionary clauses, nor had the state of Georgia.
• Ms. Messer filed a lawsuit in Texas hoping to apply Texas law, but the policy stated that it was delivered in Indiana where the headquarters of the company was located, and thus that Indiana law would apply (at least to the extent that ERISA does not provide the standards).
• Thus, the court applied Indiana law, which had no ban.

ERISA has very broad venue provisions allowing a civil action to be filed in any location where the defendant may be found.

Insurance plans, however, can direct what jurisdictional law applies with a choice of law provision, and some even go so far as to provide a venue provision. (My own opinion is that altering the venue set by the ERISA statute should not be permitted – the Department of Labor shares that opinion but many courts do not. A discussion for a later day). The Texas federal magistrate judge applied Indiana law and used the abuse of discretion standard of review in interpreting the policy.

The reason for that strategy is related to the calculation of long-term disability benefits. The policy or plan provided that disability benefits were to be calculated based on the prior year's earnings before disability commenced.

Ms. Messer had earned a bonus in 2013, but the bonus was not paid until 2014. Even though she could show that all of the work for that bonus was performed in 2013, Lincoln refused to consider the bonus and contended that it only had to pay its benefit based on the 2013 W-2. Because the court was applying the deferential standard of review, the court only had to look at whether Lincoln's decision– which clearly benefited the company financially– was nonetheless a reasonable interpretation of the policy. The court agreed with Lincoln regarding its calculation, which had the net effect of allowing Lincoln to save about $159,000 on her claim. Accordingly, the magistrate recommended that the district court grant Lincoln's motion for summary judgment and enter judgment for Lincoln.

This is one of those instances in which the unfairness of ERISA provides a harsh result for claimants. That is why our mantra is “Rebuilding Justice One Case at a Time” and why it is crucial to hire an experienced long term disability lawyer. The law is unfair, and so we vigilantly look for ways to require more fairness for our clients. In 2013, Ms. Messer had no idea that she would become disabled in 2014. Perhaps there was nothing that could be done anyway – but nonetheless, it resulted in lower earnings being considered. Her actual earnings for work in 2013 were higher, and so the result here defeats the purpose of the policy– income protection. Lincoln National Life Insurance Company will remain a little bit richer.