Offsets Are a Great Way to Save Money (for an Insurance Company)

In the world of long term disability insurance carriers, managers of claims departments are constantly looking for a way to make the company more profitable. One way is to push the boundaries regarding offsets written in the plan.

What is an offset?

An offset is the reduction of the long-term disability benefit due to be paid by the receipt (or the right to receive) monies from another source.

A very common offset in nearly all group long term disability plans is the Social Security disability benefit. So, if the long-term disability benefit is $3,000 and Social Security pays $2,000, then the long-term disability benefit is reduced to $1,000. If there is another offset, it can be reduced even further. Many plans often contain ambiguous language that includes an offset for Social Security, “or any other similar act or law provided in any jurisdiction.”

Sun Life decided it would claim a veteran’s benefit offset under this “similar act or law” language and reduce Mr. Hannington’s long-term disability benefit. It contended that the veteran’s benefit was similar to the Social Security benefit and, given that it had discretion to interpret and construe the plan’s language, it had the right to further reduce the disability benefit by the amount of the veteran’s benefit. After all, perish the thought that a veteran might actually receive the amount of the Sun Life disability benefit for which he paid! Company objectives to meet certain profit margins are far superior to protecting the rights of veterans, right?

The court in Hannington v. Sun Life & Health Ins. Co.,711 F.3d 226, 230 (1st Cir. 2013), did not think so. It agreed with the district court that there were not very many similarities between the Social Security disability benefits and the veteran’s disability benefit – just a “few common threads”. The court further noted that, while Sun Life did have discretion to interpret its plan terms and thus would be shown deference for such an interpretation, that did not extend to documents outside of the plan. The court specifically held:

“However, when the plan fiduciary is required, in the course of determining the meaning of the plan language, to interpret material outside the plan, our review of the extra-plan material is de novo.”

Thus, after a long battle with Sun Life (which lost at the district court level and then again at the appeal level), Mr. Hannington finally received his proper long-term disability benefit. Given that ERISA does not provide any penalty for a bad decision, Sun Life was only required to pay past-due benefits, and it might have had to pay for Mr. Hannington’s attorney’s fees and case costs.

This case exemplifies why we do what we do. We fight for the rights of the disabled, attempting to rebuild justice one case at a time. If you have had your claim denied, don’t hesitate to call our ERISA attorneys in Alabama right away.

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