District Court Affirms Insurer’s Right to Recover Overpaid Long-Term Disability Benefits Based on Award of Social Security Disability Benefits

In Cutway v. Hartford Life & Accident Co., No. 2:22-CV-00113-LEW, 2024 WL 231453 (D. Me. Jan. 22, 2024), Maine District Judge Lance E. Walker awarded judgment for Hartford on Plaintiff’s ERISA Complaint seeking equitable relief, finding that Hartford was entitled to recoup an overpayment resulting from Plaintiff’s receipt of Social Security Disability Insurance (SSDI) benefits.

Plaintiff was a participant in an ERISA governed long-term disability (“LTD”) plan insured and administered by Hartford. In 2016, when he applied for LTD benefits, Plaintiff elected to have Hartford pay him his LTD benefits without any preliminary, estimated deduction for social security payments, understanding that he would need to reimburse Hartford for overpayment in the likely event that he received a retroactive SSDI award. In April 2019, Plaintiff received a notice of award of SSDI. Plaintiff was informed that he would receive payments of $1,587.00 for January, February, and March of 2019, but also, confusingly, that his monthly benefit would be $49.00 going forward. The Social Security Administration’s report of the $49.00 figure was the product of some kind of workers’ compensation adjustment and was an erroneous accounting. Hartford treated the $49.00 figure as the appropriate amount by which to offset Plaintiff’s LTD benefits going forward, at least pending receipt of a new notice of award from the Social Security Administration stating the proper amount. Based on the circumstances, the parties understood that Hartford’s utilization of the $49.00 offset would produce an overpayment that Plaintiff would eventually need to reimburse.

In December 2021, Hartford determined that the $49.00 representation was inaccurate, and that Plaintiff was in fact receiving monthly checks in the amount of $1,587.00. Hartford then wrote Plaintiff seeking recovery of a $52,292.00 overpayment. Plaintiff, through counsel, filed an administrative appeal. Hartford upheld its determination over appeal, citing the Policy terms permitting the offset and Hartford’s entitlement to recoup the overpayment.

Plaintiff filed suit, contending that the Court should enjoin Hartford’s recovery of the overpayment on equitable grounds. Plaintiff alleged entitlement to equitable relief in the form of an order declaring the “purported overpayment null and void” and directing Hartford to repay any amounts withheld on the basis of the overpayment and to forego any future adjustment to his LTD benefits to recover the overpayment. The Court found that because the Policy contained a clear grant to Hartford of full discretionary authority to make benefit determinations, the Court’s judicial review role was somewhat circumscribed by a standard of review that asks whether Hartford’s decision to recover the overpayment is “arbitrary, capricious, or an abuse of discretion.”

Based on the Court’s review of the record, it found that Hartford had not forfeited its right under the policy to offset against future payments the “overpayment” associated with the receipt of SSDI. Facts supporting the Court’s conclusion were: the terms of the policy, which Hartford properly applied and which were uncontested by Plaintiff; a record that supports the finding that Plaintiff was informed of and understood or should have understood that he was being overpaid LTD benefits due to his ongoing receipt of both unreduced LTD payments and monthly social security benefits; and Hartford’s repeated effort to get accurate information and documentation from Plaintiff about his SSDI payments.

If Hartford or your insurance company has denied or terminated your disability claim, contact us for assistance.