Many clients are shocked to learn that in a personal injury settlement, a medical benefit paid by the insurance company which relates to the injuries suffered now must be paid back to the insurance company out of the personal injury settlement.  That is due to the language in the medical insurance plan which specifically allows that. Unfortunately, this clawing back of benefits paid can also occur with a long-term disability plan and a short-term disability plan in addition to the medical benefit plan.  After settling a personal injury claim and paying the medical insurer a portion out of the recovery, it is quite a jolt for the claimant to learn that now the long-term disability insurer contends it too has overpaid the benefit.  It wants part of the recovery.  If the personal injury settlement related to the same disability for which long-term disability benefits were being paid, it may be correct.

ERISA permits the equitable recovery of benefits erroneously paid. However, claims administrators and plan administrators do not have the right to sue claimants for benefits. However, they do have the right to seek "appropriate equitable relief" to enforce the terms of a plan.  That appropriate equitable relief can result in litigation against the claimant. The time frame for seeking that relief is not set out in the statute. Thus, that is often governed by plan terms, equitable considerations, and judicial interpretation.  In every case, there is one common issue and that is that the plan document impacts the outcome. Courts are required to interpret the plan document and if the terms are unambiguous the court's ruling will control.  This issue was explored in a recent case, Aisenberg v. Reliance Standard Life Ins. Co., 734 F. Supp. 3d 489 (E.D. Va. 2024). 

That case, which involved a long-term disability claim, specifically involved an interpretation of the plan definition of "other income benefits". The plan defined other income benefits as benefits “resulting from” the same total disability for which a monthly benefit was paid.  Reliance Standard Life Insurance Company had claimed that a Social Security retirement benefit could be offset.  However, the retirement benefit did not arise out of disability.  In fact, the claimant asserted a right to the Social Security retirement benefits because Reliance Standard had declined to pay the disability benefit, making it difficult for the claimant to survive. 

Ignoring that argument, Reliance Standard argued that the plan was written intending to claim that offset because there is an exception that Social Security retirement benefits would not be offset if they began after age 70. Thus, the claimant's interpretation would read that exclusion right out of the plan. The court countered that the same is true of Reliance Standard's interpretation, however, since the offset provision clearly restricts itself to those same disabilities for which the monthly benefit is paid. Reliance Standard in the end lost this case, but that was the right result.  Social Security retirement does not “result from” disability. 

The case provides incentive for every lawyer dealing with a client's recovery that has the potential for a "claw back" of medical benefits or long-term disability benefits, to first obtain all plan documents before settling the case.   A review of the documents will provide the specifics regarding the plan terms.  For example, while an auto accident with resulting injuries may be the basis of both personal injury claim and the long-term disability claim, the long-term disability insurer may contend that the entire recovery is offset.  That may be true if the language specifically states that.  However, the offset typically pertains to disability which has to do with the inability to perform work for a wage.   Thus, what is relevant is that portion of the recovery relating to loss of wages.

However, if the loss of wages recovery is not specified, the insurer may contend that the entire recovery is subject to the offset. All plan documents should be reviewed ahead of time, and the demand and release crafted accordingly. It is in the claimant's interest to have a settlement specifying an amount for each component of damages. That could be set out in the demand and specified in the release.  It makes sense to compartmentalize past medical benefits, future medical benefits, pain-and-suffering, permanent disability, and loss of wages. If the damages are not sufficient to satisfy a fair amount for each component of the total damages, then a pro rata share should be specified.

Furthermore, long-term disability benefits are only paid monthly, so the offset occurs a month at a time. If the personal injury recovery does not specify the time frame for which it applies, then typically, plans state that a lump-sum will be offset over 3 years or 5 years, for example. That unfairly collapses future damages applicable to perhaps 20 or 30 years into 3 or 5 years.  It behooves counsel then to specify the time frame over which the recovery applies in the demand and in the release.  If it is recovery that applies to the remaining life of the claimant, then a mortality table should be utilized to fairly note the life expectancy and the fact that the recovery applies to those remaining years as well as past damages. For example, a $60,000 recovery may create an offset of $1000 a month if applied to 60 months. If spread out over 240 months the offset is only $250. That can make a big difference to a claimant.

The insurer or claims administrator must seek "appropriate equitable relief". Thus, if it is expanding its interpretation of the plan document beyond what is fair and reasonable, that likewise may run afoul of the insurer acting equitably. Happy hunting!