Ninth Circuit Upholds Hartford’s Decision to Reduce Claimant’s Long Term Disability Benefits by a Third-Party Settlement Payment

In Haddad, M.D. v. SMG Long Term Disability Plan; Hartford Life and Accident Insurance Company, No. 21-16175, 2023 WL 1879464 (9th Cir. Feb. 10, 2023) (Before: McKeown, Bybee, and Bumatay, Circuit Judges), Plaintiff-Appellant Dr. Fadi Haddad appealed the district court’s judgment in favor of Hartford Life and Accident Insurance Company on his ERISA Section 502(a)(1)(B) claim for the underpayment of long-term disability insurance benefits. Dr. Haddad received a settlement payment from Hilton Hotels for an injury in the amount of $799,117.42 (excluding costs). Hartford attributed the entire non-cost portion of the settlement as lost wages. The LTD policy provides that disability benefits will be offset (reduced) by “any payments that are made to You … pursuant to any … portion of a settlement or judgment, minus associated costs, of a lawsuit that represents or compensates for Your loss of earnings.”

Dr. Haddad argued that the offset provision was a limitation or exclusion from coverage which must be clear, plain and conspicuous, which this provision was not. The court disagreed and explained that his argument confused “exclusions” and “limitations” with “offsets”. There is no legal authority for the proposition that offsets are subject to the same requirements as exclusions of limitations or that offsets must be placed in the policy’s table of contents. The court also found that the LTD policy language is unambiguous when it comes to offsets and permitted Hartford to offset any settlement Dr. Haddad received attributable to lost earnings. Dr. Haddad argued that the settlement should not be offset from his disability payments because it was unrelated to his current disability. The court rejected this argument, explaining that the LTD plan does not limit offsets to settlements for “related” injuries.

Dr. Haddad also argued that Hartford could not offset the entire non-cost portion of the settlement as lost wages because it was for various forms of relief. However, the LTD policy provides that if you are paid other income benefits in a lump sum settlement, the claimant must provide proof of the amount attributed to loss of income and the period of time covered by the lump sum settlement. Absent this information, Hartford will attribute the entire sum as loss of income. Dr. Haddad did not offer a meaningful explanation of the amount of the settlement attributable to lost wages so Hartford could offset the full amount of the settlement.

Lastly, Dr. Haddad argued that Hartford cannot prove the terms of the LTD plan because it did not provide the full policy. The court disagreed and found that Hartford’s affidavit explaining the provisions of the 1994 and 2008 versions of the LTD certificate of insurance issued to Dr. Haddad’s employer was sufficient enough to show the terms of the LTD plan. Judgment affirmed.