Tuesday, October 25, 2011

Clawback Provisions and the Value of Money

When a person becomes disabled and becomes eligible for benefits under their long term disability plan, that person may also at the same time qualify for benefits from other insurers or public benefits plans, like Social Security Disability. Some long term disability plans include “clawback” provisions, meaning that the plan is entitled to recover the additional money granted from outside sources to the applicant

However, calculations in clawback provision are not always cut and dry, and can amount to differences in the thousands of dollars, as exemplified in Elliot v. ELS Long Term Disability Plan.

Mr. Elliot became permanently disabled and became eligible to receive the maximum $10,000 per month under the plan, exclusive of cost of living adjustments (“COLA”). Mr. Elliot then applied for Social Security Disability (“SSD”) benefits on Marhc 12, 2004. In June 2006, he received an award retroactive to February of 2003, $72,954.50.

As a result, the long term disability plan permanently reduced Mr. Elliot’s benefits and recalculated his amount to $8,775 a month, down from $10,716. The plan also claimed a clawback of $79,384.15, an amount larger than his retroactive SSD award.

The standard of how courts review a plan – with little or significant deference – depends on whether a plan unambiguously gives discretionary authority to the plan administrator to determine plan benefits. Where it does, as here, the courts review the decision under an “abuse of discretion” standard, meaning the plan’s decision is overturned only where it can be shown that the plan administrator abused its discretion.

Here, the plaintiff was able to do just that. Court reversed the plan’s decision, as it found it arbitrary and capricious. Specifically, the plan incorrectly mixed past and present dollar amounts, by decreasing Mr. Elliots original $10,000 award, awarded in 1999 dollars, by his SSD award, awarded in 2003 dollars.

 ERISA long term disability is a complicated area of law. For attorney who can help, contact Delfino Green & Green.

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