Duckworth v. Allianz Life Ins. Co. of N. Am.

• Decision Date: 30 January 2013
• Docket Number: No. 11–15778.,11–15778.
• Citation: 706 F.3d 1338
• Parties: Terry Wayne DUCKWORTH, Plaintiff–Appellee, v. ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants–Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

706 F.3d 1338

Terry Wayne DUCKWORTH, Plaintiff–Appellee,

v.ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants–Appellants.

No. 11–15778.

United States Court of Appeals,Eleventh Circuit.

Jan. 30, 2013.

Bradley G. Pyles, Westmoreland, Patterson, Moseley & Hinson, LLP, Macon, GA, for Plaintiff–Appellee.

Michael A. Coval, Miller & Martin, PLLC, Atlanta, GA, for Defendants–Appellants.

Appeal from the United States District Court for the Middle District of Georgia.

Before BARKETT and JORDAN, Circuit Judges, and SCHLESINGER,^* District Judge.

SCHLESINGER, District Judge:

Allianz Life Insurance Company of North America (“Allianz”) appeals from a final order of the U.S. District Court for the Middle District of Georgia granting judgment in favor of Terry Duckworth (“Duckworth”) on his claim that Allianz miscalculated the monthly benefit to which he was entitled under a long-term disability insurance policy (“the policy”). Allianz contends that the District Court erred in its interpretation of the policy's offset provision and that it was entitled to offset all of Duckworth's Railroad Retirement Act disability benefits—not merely a portion, as the District Court found. Allianz therefore asks this Court to reverse the judgment of the District Court and hold that all of Duckworth's Railroad Retirement Act disability benefits fall within the policy's offset provision. We find that the District Court erred and reverse.

I. BACKGROUND

This case centers on the interpretation of a non-ERISA group long-term disability (“LTD”) insurance policy issued by Allianz to the Southeastern Pennsylvania Transportation Authority (“SEPTA”) as group policyholder. The policy provides that those entitled to LTD benefits will receive a monthly payment equal to sixty percent of their pre-disability monthly earnings, minus an offset for “other income benefits” that they receive. The policy's offset provision defines “other income benefits” to include “disability or retirement benefits under the United States Social Security Act, The Canada Pension Plan, The Quebec Pension Plan, or any similar plan or act.” This appeal presents the issue of whether all of the disability benefits Duckworth receives under the Railroad Retirement Act fall within the operation of this offset provision.

As an eligible employee of SEPTA, Duckworth was insured under the policy. He became disabled on September 11, 1996, after which date he received salary continuance and sick leave pay from SEPTA. The salary continuance and sick leave ended on April 10, 1997, and Duckworth therefore became eligible for LTD benefits under the policy. He submitted a claim for LTD benefits on March 27, 1997, and his claim was approved. There is not now, nor has there ever been during the course of this litigation, any dispute as to the fact and onset date of Duckworth's disability.

Duckworth's LTD monthly benefit was initially calculated as sixty percent of his pre-disability monthly salary from SEPTA—$2,285.40. However, on March 30, 2001, the Railroad Retirement Board (“RRB”) retroactively awarded Duckworth an annuity pursuant to the Railroad Retirement Act of 1974, 45 U.S.C. § 231 et seq. (“RRA”). This annuity had an effective date of September 1, 1998, and consisted of two tiers. Duckworth's initial monthly Tier I benefits were $1,432.00, and his monthly Tier II benefits were $481.75. On February 2, 2007, the RRB retroactively increased Duckworth's monthly Tier I benefits to $1,477.00.

From September 1, 1998 through July 11, 2005, Allianz paid Duckworth a total of $97,762.35 in LTD benefits, but it suspended the payment of benefits on July 11, 2005, when it became aware that Duckworth was receiving RRA disability benefits. Allianz believed that all Duckworth's RRA disability benefits constituted “other income benefits” that could be offset under the policy. Alliance therefore believed that it had overpaid benefits to Duckworth and stated that it would withhold future payments of LTD benefits until the overpayment was extinguished. Allianz applied a retroactive offset effective as of the date that Duckworth began receiving RRA benefits—September 1, 1998. Duckworth administratively appealed, and when Allianz refused to change its position, he filed a breach of contract action under Georgia law in the United States District Court for the Middle District of Georgia based on diversity jurisdiction.¹ After the District Court denied cross motions for summary judgment, the case proceeded to a bench trial.

At trial, Allianz contended that Duckworth's railroad disability benefits had to be offset in their entirety or not at all because the policy's offset provision applies categorically to all disability benefits paid under an act that is “similar” to the Social Security Act (“SSA”), 42 U.S.C. § 301 et seq., and Duckworth's railroad disability benefits are paid under only one act—the RRA. Allianz thus argued that the offset provision asks merely whether the RRA and SSA themselves are similar, not whether distinct tiers of disability benefits paid under those Acts are similar. The District Court rejected this “all or nothing” argument and instead proceeded along a very different mode of analysis that ultimately led it to separately analyze Duckworth's Tier I and Tier II benefits.

The District Court began by placing on Allianz the burden to prove the applicability of the offset provision. The District Court then cited a bankruptcy case, In re Scholz, 447 B.R. 887 (9th Cir. BAP 2011), rev'd on other grounds699 F.3d 1167 (9th Cir.2012), for the proposition that “although the Railroad Retirement Act was indeed similar to the Social Security Act, there were significant differences,” namely that “the Railroad Retirement Act provides, or can provide, Tier II benefits which are not similar to Social Security benefits.” The District Court, however, made no explicit finding that the policy's offset provision suffers from ambiguity. The District Court nonetheless proceeded to apply “Georgia's rules of construction for insurance policies,” which, as it noted, “do not favor insurance companies.” The District Court criticized Allianz's “all or nothing argument” as “dangerous,” remarking that “while in many ways the Railroad Retirement Act benefits are similar, they are not similar in their entirety in a very significant way.”

In its final analysis, the District Court declined to give the policy an all or nothing interpretation. Instead, the District Court concluded that “the intent of the policy was to create an offset for benefits similar to Social Security benefits” and that allowing Allianz to offset all “benefits received by [Duckworth] that have no similarity to the Social Security Act would be an injustice.” The District Court therefore separately analyzed the offset provision's applicability to Duckworth's RRA Tier I and Tier II benefits. Under this bifurcated mode of analysis, the District Court concluded that Allianz should not have offset Duckworth's RRA Tier II benefits because they are not similar to SSA benefits, but rather analogous to benefits that would be received from a private pension fund. The District Court concluded that Allianz had properly offset Duckworth's RRA Tier I benefits, however, because they are similar to SSA benefits.

Given its finding that Duckworth's RRA Tier I benefits—but not his RRA Tier II benefits—constituted “other income benefits” under the policy, the District Court held that there was an overpayment of $15,228.97, not the higher amount that Allianz had claimed when it stopped paying benefits to Duckworth. The District Court, therefore, entered judgment in favor of Duckworth on his claim that Allianz had miscalculated his monthly benefit. Allianz then filed its notice of appeal.

II. STANDARD OF REVIEW

Because the District Court did not use extrinsic evidence to interpret the policy, we review its interpretation de novo. Bituminous Cas. Corp. v. Advanced Adhesive Tech., Inc., 73 F.3d 335, 337 (11th Cir.1996). In diversity cases, the forum state's choice-of-law rules determine which state's substantive law applies. Under Georgia's choice-of-law rules, the law of the place where a contract was made governs its interpretation, and under Georgia law, construction of a contract without the use of extrinsic evidence is a question of law for courts to decide. Id. (citing cases). We will, therefore, conduct a de novo review of the District Court's interpretation of the policy.

III. DISCUSSION

Allianz contends that the District Court improperly interpreted the offset provision of the policy. In Allianz's view, the provision in question needs no interpretation at all. According to Allianz, the plain language of the offset provision dictates that the only questions the District Court should have asked below are: (1) whether the RRA benefits that Duckworth receives are “disability or retirement benefits,” and if so, (2) whether the SSA and RRA are “similar.” Allianz argues that these questions can only be answered in the affirmative, and that the plain language of the policy required the District Court to enter judgment in its favor. Instead, Allianz contends, the District Court improperly based its decision on an analysis of a fundamentally different question—whether the benefits paid under the SSA and the RRA are similar—and it did so without first identifying any ambiguity in the policy's language and after it had improperly placed upon Allianz the burden of proof.

Duckworth responds that the District Court followed the correct analytical framework by finding an ambiguity in the offset provision and resolving it through a correct application of Georgia's rules of construction for insurance policies.

Both parties agree that Georgia law governs this appeal. As the District Court below and both parties have observed, no cases applying Georgia law have interpreted an insurance policy that allows an offset for disability benefits awarded under an act...