District Court Affirms Plaintiff’s Right to Seek Reformation of Long-Term Disability Plan under ERISA Based on Mistake or Fraud

In Rappaport v. Guardian Life Insurance Company of America, No. 1:22-CV-08100 (JLR), 2024 WL 4872736 (S.D.N.Y. Nov. 22, 2024), on Cross-Motions pursuant to FRCP Rule 56, New York Southern District Judge Jennifer L. Rochon granted partial summary judgment in favor of Plaintiff on the issues of standard of review and Guardian’s counterclaims for recovery of alleged overpayment and, alternately, set off of overpayment on potential future benefits. The Court denied Guardian’s motion for partial summary judgment on Plaintiff’s claim for reformation of the long-term disability (LTD) Plan.

Plaintiff was a 50% owner in Industrial Credit of Canada (“ICC”). In 2005, ICC applied for and obtained a group LTD policy for both the owners and business managers and all other employees funded by Guardian. In its plan application, ICC selected an earnings definition of “standard definition including bonuses and commissions.” Despite Guardian confirming with ICC’s insurance broker that the earnings definition should include bonuses and commissions, the LTD policy issued in March 2005 specifically excluded them. Ten years later, in August 2015, Plaintiff sought LTD benefits under the plan. His claim was approved, and he was paid LTD benefits at a rate that did not include consideration of his bonuses and/or commissions. In August 2020, Guardian discontinued benefits because it determined that Plaintiff was capable of earning more than the maximum allowed while disabled. Plaintiff appealed, and after several extensions, Guardian upheld its decision on appeal. In response to Plaintiff’s request for documents, Guardian produced more than 60 pages related to the 2005 policy negotiations and purchase of the LTD Plan. Plaintiff filed an ERISA action seeking recovery of unpaid LTD benefits and reformation of the plan to include the requested earnings definition.

Guardian moved for partial summary judgment on Plaintiff’s reformation claim arguing (1) the claim was barred by the six-year statute of limitation; (2) that Plaintiff had not pled with sufficient particularity the circumstances constituting mistake or fraud; and (3) had not shown by clear and convincing evidence that the parties agreed to something other than what is reflected in the policy, a prerequisite for reformation. The Court disagreed with all three arguments. First, the Court agreed that a six-year statute of limitations applied to Plaintiff’s reformation claim but disagreed with Guardian’s assertion that the action accrued in 2005 when the policy was issued. The Court noted that the claim for repudiation accrues when there has been a repudiation by the fiduciary which is clear and made known to the beneficiaries. The Court found that there was no “clear repudiation” by Guardian until January 2021, when it determined Plaintiff no longer qualified for disability payments. The Court found that Plaintiff sufficiently pled his claim for reformation by his amended complaint identifying the nature of the mistake and when it occurred. Finally, the Court found that a genuine dispute of material fact exists to prevent it from granting Guardian’s motion based on the documents reflecting negotiation of the LTD Plan, and specifically the earnings definition, in 2005.

On Plaintiff’s motion for partial summary judgment, the Court ruled that a de novo standard of review would apply at trial as a result of Guardian’s violation of ERISA Regulations in that it failed to comply with the 45-day review period as outlined in the Code of Federal Regulations. Contrary to Guardian’s assertion, the Court found that the Supreme Court decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), did not affect the standard of review determination because it did not call into question, or address, deference to agency interpretations of their regulations, instead focusing on Congress’s command that reviewing courts “interpret … statutory provisions.” As such, the 45-day regulation applied, and the Court could address the standard of review accordingly. Finally, regarding Guardian’s counterclaims for overpayment or, alternately, offset of the overpayment on future benefits, the Court found that Guardian improperly sought money damages as opposed to equitable relief.

If Guardian or your insurer has denied or otherwise limited your disability insurance claim, contact us for assistance.