Eleventh Circuit Affirms Doctor Entitled to Group Disability Benefits, Rejecting Insurer’s Interpretation of Covered Monthly Earnings

In Rosenberg, M.D. v. Reliance Standard Life Insurance Company, No. 23-13761, 2024 WL 3385678 (11th Cir. July 12, 2024), Defendant Reliance Standard appealed the district court’s grant of Plaintiff’s motion for summary judgment on the issue as to whether she was entitled to long-term disability benefits under a policy insuring eligible members of Plaintiff’s medical practice group. Reliance Standard’s policy defined “Covered Monthly Earnings” as “compensation from the partnership averaged over … 36 months … as reported on the partnership federal income tax return as ‘self-employment earnings (loss)’ per Schedule K1, Federal Form 1065 (box 14).” Reliance Standard argued that the fact that Plaintiff’s practice group paid her via her Chapter S corporation and her tax returns showed no income in Box 14 as self-employment earnings, there were no eligible earnings upon which to base a benefit under the policy. The district court stated Reliance Standard’s decision was “nonsensical and thus arbitrary and capricious.” The Eleventh Circuit affirmed.

In coming to its decision, the court noted that the district court rejected Reliance Standard’s benefit determination under the first step ERISA analysis set forth in Blankenship v. Metro Life Insurance Co., 644 F.3d 1350 (11th Cir. 2011). The district court found Reliance Standard’s benefits-denial wrong because it was based on a reading of the disability policy that “was entirely devoid of context and borders on the absurd.” Plaintiff was an employee of her practice group, which paid her compensation under their Employment and Partnership Agreements. There was no evidence the practice group paid Plaintiff for any reason other than for the work she performed as an employee. Reliance Standard had even attempted to retroactively accommodate Plaintiff’s claim by amending the definition of Covered Monthly Earnings, which the court found as indication that Reliance Standard knew its interpretation was untenable. Under step two of the analysis, there was no question that Reliance Standard was vested with discretion in reviewing claims, but under step three, which measures whether the benefit decision was arbitrary and capricious, the district court found that it was.

On de novo review of the district court’s decision and considering ERISA’s central goals of protecting the interests of employees and the uniformity in the administration of employee benefit plans, the court explained that reading the contract in the context of the entire contract would further ERISA’s goals and protect employees from absurd results. Reliance Standard construed certain language in the definition of Covered Monthly Earnings in isolation, inconsistent with the language of the policy as a whole and its intent to provide income replacement benefits for Total Disability. There are several definitions of Covered Monthly Earnings. For a partner of the practice group, such as Plaintiff, Covered Monthly Earnings means the Plaintiff’s compensation from the partnership averaged over 36 months. By limiting this figure to an amount reported in box 14 of Form 1065, it is inconsistent with the common sense meaning of “Compensation from the partnership.” All partners in the practice group were paid through their closely held pass-through corporations, thus, under Reliance Standard’s interpretation premiums were paid for 8 years with no eligible beneficiaries. The only reasonable interpretation of the policy is to consider the payments through Plaintiff’s pass-through corporation as her “Covered Monthly Earnings.” For this reason, the court affirmed the decision of the district court.