Hall v. Life Ins. Co. of North America, 02-1704.
| Decision Date | 30 January 2003 |
| Docket Number | No. 02-1704.,02-1704. |
| Citation | 317 F.3d 773 |
| Parties | Tory A. HALL, Plaintiff-Appellant, v. LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Joseph W. Phebus, Gary D. Forrester (argued), Phebus & Winkelmann, Urbana, IL, for Plaintiff-Appellant.
Stephen C. Debboli (argued), Serpico, Novelle & Navigato, Chicago, IL, for Defendant-Appellee.
Before EASTERBROOK, MANION, and KANNE, Circuit Judges.
As part of her employment with Diagnostek, Inc., Tory Hall was covered by a disability-benefits policy underwritten by Life Insurance Co. of North America (LINA). This perquisite of employment is part of a welfare-benefit plan covered by the Employee Retirement Income Security Act. Hall purchased additional insurance through a professional society to which she belongs; that coverage was furnished under a group certificate issued by New York Life Insurance Co. to the Texas Society of Certified Public Accountants Insurance Trust, on behalf of those accountants who opted in and paid a premium.
Hall became unable to work; both disability carriers commenced paying benefits. LINA, however, reduced Hall's monthly stipend by the amount she received under the New York Life policy. She contends in this suit — properly in federal court under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B) — that the reduction is improper. Presiding by agreement of the parties, see 28 U.S.C. § 636(c), a magistrate judge entered summary judgment for LINA. Appellate jurisdiction is secure: the judgment was entered on February 25, 2002, and the notice of appeal was filed on March 22. Although Hall also filed in the district court what she styled a motion for reconsideration, and although a timely motion may suspend the finality of the judgment until the district court has acted, see Fed. R.App. P. 4(a)(4)(A)(iv), this motion was filed after the period allowed by Fed.R.Civ.P. 59. It therefore did not affect the judgment's finality, and the notice of appeal took effect immediately on its filing.
The LINA policy sets the monthly benefit at 60% of the employee's former earnings "minus Other Benefits for that month." Other Benefits is a defined term, including not only Social Security and similar governmental income-replacement programs but also "any amounts which the Employee or his dependents receive on account of disability under ... any group or franchise insurance or similar plan for persons in a group". Clauses of this kind not only reduce the employer's outlay for disability coverage (and thus enable the employer to provide additional fringe benefits from a given budget) but also control the moral hazard of insurance — that is, the chance that the existence of insurance will increase the likelihood of the insured event. People who know that their full income will continue after they stop working may take more risks in their daily lives and will not try as hard to return to work after injury or illness; some insureds will fake the existence of a disability or exaggerate its severity. The closer the disability benefit to 100% of earned income, the greater the moral hazard. As a practical matter even 80% may fully replace lost wages, for persons who no longer work do not incur commuting and related costs, and they enjoy certain tax advantages. The provision in LINA's policy deducting other sources of disability income, so that no more than 60% of earned income is replaced, gives employees an incentive to work if they can. The New York Life policy equates to about 31% of Hall's income with Diagnostek, so if the two benefits cumulate she will receive more than 90% of her former earnings, a dangerously high level from the perspective of moral hazard. But the deduction in LINA's policy is not universal, so we must inquire whether the New York Life policy is a "group or franchise insurance or similar plan for persons in a group".
LINA contends that "group insurance" has a plain meaning: any insurance obtained through a group. New York Life issued its certificate to the Texas Society of Certified Public Accountants Insurance Trust; Hall purchased coverage through that group (and by virtue of her membership in it); the New York Life policy has the word "group" on its cover; and that, LINA insists, is that. Things are not quite...
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