Court Finds LINA Abused Its Discretion by Calculating “Overtime” Hours at Base Pay Rate Rather Than Actual Regular Rate Used by Employer

In Rushing v. Life Insurance Company of North America, No. CV 24-10088-JFW(RAOx), 2026 WL 1162757 (C.D. Cal. Apr. 28, 2026), United States District Judge John F. Walter issued findings of fact and conclusions of law in an ERISA action challenging LINA’s calculation of long-term disability benefits under a group policy issued to Peet’s Coffee & Tea. The case turned principally on the proper calculation of Plaintiff’s “Covered Earnings,” with the Court ultimately concluding that LINA abused its discretion in one discrete respect: its treatment of Plaintiff’s five weekly hours of work above forty.

Is LINA’s Appointment of Claim Fiduciary Document a Plan Document That Confers Discretionary Authority?

The threshold dispute concerned whether LINA’s decisions warranted de novo or abuse of discretion review. Neither the Policy nor its Amendatory Rider conferred discretion on LINA, but a separate, undated document titled “Employee Welfare Benefit Plan: Appointment of Claim Fiduciary” (ACF) purported to grant LINA discretionary authority to interpret Plan terms and decide eligibility questions. Plaintiff had never received a copy of the ACF until this litigation. Recognizing the well-known split of authority over whether LINA’s ACF qualifies as an enforceable Plan document, the Court sided with the line of cases led by Raybourne v. Cigna Life Ins. Co. of New York, 576 F.3d 444 (7th Cir. 2009), holding that the ACF was a Plan document. The Court reasoned that an ERISA plan may consist of multiple documents, that the Policy’s Amendatory Rider expressly contemplated other Plan documents, and that CIGNA Corp. v. Amara, 563 U.S. 421 (2011), did not undermine Raybourne because Amara addressed only statutorily required summary plan descriptions. The Court rejected Plaintiff’s reliance on the Policy’s integration clause, distinguishing between the insurance Policy as one component of the Plan and the broader Plan itself. The Court also declined to expand the administrative record or apply heightened skepticism, finding that LINA had engaged in an ongoing, good-faith exchange of information with Plaintiff and that its admitted recalculations reflected an interactive process triggered by new information rather than wholesale procedural violations.

Did LINA Abuse Its Discretion by Averaging Commissions Over Months With Partial or Zero Earnings?

Plaintiff’s first substantive challenge concerned LINA’s averaging of her commissions. Although the Policy’s default rule is that commissions are averaged over the 24 months prior to disability, Plaintiff began earning commissions only ten months before her disability date. LINA averaged the commissions over those ten months, including months in which she earned partial or no commissions, and treated all amounts paid to her and reflected as “commission” in her paychecks as her own, even though Plaintiff alleged some belonged to a coworker who covered for her. The Court found no abuse of discretion. The Policy does not exclude months of zero or partial commissions, nor does it permit selective averaging of higher-earning months. And because the disputed amounts were paid to Plaintiff, reflected as commissions on her paychecks, and never disputed with her employer at the time, LINA reasonably treated them as her commissions for benefit calculation purposes.

Can an Insurer Calculate Above-Forty-Hour Work at the Employee’s Base Rate Rather Than the Regular Rate the Employer Actually Used?

The Court reached a different conclusion as to LINA’s treatment of Plaintiff’s five hours of weekly work above forty hours. Although the Policy excludes “overtime pay” from Covered Earnings, LINA determined that because Plaintiff “consistently worked 45 hours per week,” all 45 hours should be included in her Covered Earnings, but at her base hourly rate of $8.10. The Court agreed that excluding the time-and-a-half premium pay was a reasonable interpretation of the overtime exclusion. But the Court found it unreasonable for LINA to value those five additional hours at $8.10 per hour when the paychecks and Plaintiff’s appeal submissions made clear that Peet’s actually calculated her regular hourly rate by combining base pay and commission and dividing by 40, producing a regular rate that varied weekly and typically ranged from approximately $17 to $33 per hour. The Court emphasized that the Policy defines Covered Earnings as wages “as reported by the Employer,” and that LINA’s reliance on the $8.10 base rate, rather than the regular rate Peet’s actually used (excluding the premium component), constituted reliance on clearly erroneous facts. The Court was careful to note that LINA’s interpretation need not match the Court’s preferred approach so long as it had rational justification, but here the disconnect between LINA’s calculation and the employer’s actual pay practice rendered the determination unreasonable.

What Happens When a Claimant Fails to Brief Date-of-Disability and Offset Challenges in Trial Briefing?

The Court found Plaintiff abandoned her challenges to LINA’s June 29, 2010 date of disability and to the offsets for California SDI, workers’ compensation, and SSDI benefits by failing to brief them. In any event, LINA reasonably relied on the June 29, 2010 last-worked date confirmed by both Plaintiff and Peet’s, and properly declined to extend coverage to a disability allegedly pre-dating the Policy’s May 1, 2010 effective date. Plaintiff had also confirmed during the administrative process that all offset issues were resolved in April 2022.

When Will a Court Award Prejudgment Interest at Ten Percent Rather Than the Default Federal Rate in an ERISA Case?

As to the $63,307.25 in simple interest LINA had already paid on previously underpaid benefits, the Court concluded that LINA’s payment-by-payment calculation grounded in the administrative record was sufficient, observing that ERISA does not require administrators to adopt a claimant’s preferred interest formula. However, because Plaintiff prevailed on the overtime issue, the Court awarded prejudgment interest on the additional underpaid benefits at the ten percent rate Plaintiff requested, departing from the default 28 U.S.C. § 1961 rate. The Court found the equities supported the higher rate based on the substantial hardship Plaintiff documented during the administrative process, including credit damage, reliance on food banks, borrowing for basic necessities, a 2021 bankruptcy filing, and adverse tax consequences from LINA’s lump-sum payments.

What Is the Remedy When an ERISA Administrator Misconstrues the Plan in Calculating Benefits?

The Court ordered the parties to meet and confer and file a joint statement on or before May 11, 2026, setting forth the agreed amount of benefits and interest owed consistent with the Plan and the Court’s Order. The Court indicated that if the parties cannot agree, it will remand to LINA for the limited purpose of recalculating benefits and interest consistent with its rulings.