Ninth Circuit Finds Long Term Disability Policy Required Insurer to Pro-rate Bonus Payment Over Period It Was Earned

Neumiller v. Hartford Life and Accident Insurance Company, No. 22-35688, 2023 WL 4173022 (9th Cir. June 26, 2023) involves a dispute over the proper interpretation of a term in Hartford’s long-term disability policy which resulted in the termination of Plaintiff’s benefits. Plaintiff brought suit against Hartford under ERISA § 502(a)(1)(B) after Hartford stopped paying disability benefits on account of Plaintiff’s Current Monthly Earnings exceeding 60% of her Pre-Disability Earnings. The district court granted judgment in favor of Hartford and the Ninth Circuit vacated and remanded the matter for further proceedings.

The Hartford policy defines “Current Monthly Earnings” as “monthly earnings You receive from: 1) Your Employer; and 2) Other employment; while You are Disabled.” Plaintiff advanced three arguments for why Hartford wrongly determined her “Current Monthly Earnings:” (1) pre-tax contributions and Trimester Bonuses are not “earnings,” (2) pre-tax contributions are not “receive[d],” and (3) Trimester Bonuses are not “monthly” earnings. The Ninth Circuit disagreed with the first two arguments and agreed with the third.

First, the court cited to Black’s Law Dictionary and explained that the pre-tax contributions and Trimester Bonuses unambiguously qualify as “earnings” under the policy. Second, the court found that Plaintiff “received” her pre-tax contributions even though she chose to place some of her salary into a retirement account. Third, the court found that the district court by treating the entire Trimester Bonus as “monthly” earnings. The court found the term “monthly” to be ambiguous because it could refer to all earnings that Plaintiff accrues within the course of a month or it could refer to all earnings distributed within the course of the month. The court found that the former interpretation is the stronger one, that is, treating “monthly” bonuses as amounts that an employee accrues in a given month, even when some portion of her monthly wages is not distributed until the next month’s paycheck. This is consistent with the policy’s definition of “Pre-Disability Earnings,” which averages bonuses across 24 months instead of counting all bonuses toward the month in which they are distributed. The court also reasoned that Hartford’s interpretation would penalize a claimant for the employer’s decision to pay a bonus in a lump sum rather than spread it out over the months it is earned.

In conclusion, the court held that “‘Current Monthly Earnings’ more probably includes [Plaintiff]’s pre-tax contributions and those bonuses that [Plaintiff] accrued over the course of the month.” A Trimester Bonus suggests a bonus based on four months of work and it is not apparent from the record what Plaintiff’s Current Monthly Earnings would be if Hartford pro-rated the Trimester Bonuses over the period in which they were accrued. For these reasons, the court remanded the case to the district court.