Lessard v. Metropolitan Life Ins. Co.

• Decision Date: 28 December 1989
• Citation: 568 A.2d 491
• Parties: , 11 Employee Benefits Cas. 2458, Unempl.Ins.Rep. (CCH) P 15986A Lucille G. LESSARD, et al. v. METROPOLITAN LIFE INSURANCE CO.
• Court: Maine Supreme Court

Page 491

568 A.2d 491

28 Soc.Sec.Rep.Ser. 344, 11 Employee Benefits

Cas. 2458,

Unempl.Ins.Rep. (CCH) P 15986A

Lucille G. LESSARD, et al. v. METROPOLITAN LIFE INSURANCE CO.

Supreme Judicial Court of Maine.

Argued Nov. 3, 1989.

Decided Dec. 28, 1989.

Jon Holder, (orally), Holder, Grover & Wilkinson, Portland, for plaintiffs.

Howard H. Dana, Jr., (orally), Robert A. Moore, Verrill & Dana, Portland, for defendant.

Before McKUSICK, C.J., and ROBERTS, WATHEN, GLASSMAN, CLIFFORD and COLLINS, JJ.

WATHEN, Justice.

Plaintiffs Lucille G. Lessard and Robert F. Daniels, named plaintiffs in a class action suit, appeal an order of the Superior Court (York County, Lipez, J.) granting summary judgment in favor of defendant, Metropolitan Life Insurance Company (Metropolitan), on counts I, II, IV, V, VI, VII and VIII, and denying plaintiffs' cross-motion for summary judgment on counts I, II, IV, V and VI of plaintiffs' eight-count complaint. At issue is Metropolitan's practice of recouping overpayments created by the award of retroactive Social Security Disability Income Benefits (SSDIB) by withholding future long term disability benefits otherwise due disabled workers under a Long Term Disability Plan underwritten by Metropolitan. On appeal, plaintiffs contend that the motion justice committed various errors of law. We affirm the Superior Court's order respecting all counts but count VI. We vacate the judgment entered on count VI and direct the entry of judgment in favor of plaintiffs on the issue of liability only.

As reported by the Superior Court, the facts are as follows:

This controversy arises out of a group health and welfare plan instituted by Borden, Inc. [Borden], for the benefit of its employees. At issue here is the Long Term Disability Benefits Plan portion of the overall health and welfare package. The basic facts are not in dispute.

Since 1964 Borden has continuously maintained a long term disability benefits plan for its employees. The Borden Benefits Committee, which was charged with the administration of the Borden Long Term Disability Benefits Plan (the Plan or the LTD Plan), procured a group insurance policy from Metropolitan in 1969 to provide Plan benefits. The group policy was drafted under the direction of Borden and mirrors the Plan language. Although both the Plan and the policy were amended from time to time during the duration of the group policy, ¹ the provisions of the Plan that are here at issue have remained fundamentally the same since 1972.

In 1974 Congress enacted the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 to 1461 (1985 & Supp.1987) (ERISA) (effective January 1, 1975). With only certain exceptions, this Act pre-empted all state laws relating to employee health, welfare and pension plans and replaced them with a comprehensive federal scheme designed to ensure the proper handling of funds held in trust for those plans. The Act requires that plan participants and beneficiaries be adequately informed of their rights and duties under those plans, and it protected their interests in vested benefits and pensions. See 29 U.S.C. § 1001 (Congressional findings and declarations of policy).

The Borden LTD Plan fell within the ambit of this broad employee benefits scheme. Pursuant to these new ERISA requirements, the Benefits Committee named itself as the Plan Administrator and named Metropolitan as a fiduciary for claims administration purposes only. In its capacity as Plan Administrator, the Benefits Committee was responsible for issuing and did issue a Summary Plan Description (SPD) to the Plan participants. This Summary Plan Description was a synthesis of the much larger and more complex Plan documents and the group insurance policy, and was required by ERISA to be "written in a manner calculated to be understood by the average plan participant, and [to] be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." 29 U.S.C. § 1022(a)(1). Since ERISA did not mandate that any specific benefits be offered by the Plan, the Plan itself remained substantively unaffected by the enactment of ERISA.

The provisions at issue here concern the integration of Plan benefits and benefits from other sources. The Plan worked as follows: When a plan participant became disabled, he or she would initially be entitled to short term disability benefits. After 27 weeks of disability, short term disability benefits would expire and the participant would become eligible for long term disability benefits under the Plan. A claim would be submitted to Borden, which was forwarded to Metropolitan. Metropolitan then made the determination of eligibility or non-eligibility and informed Borden of its decision. In cases of eligibility, Metropolitan began issuing benefit checks to the disabled participant.

Benefits under the Plan were limited to a maximum of 60% of the participant's pre-disability income. If the participant was receiving no other benefits, Metropolitan would pay the entire 60%. However, pursuant to the integration of benefits provision, if the disabled participant was receiving disability benefits from some other source, such as a Workers' Compensation fund, the benefits payable under the Plan would be reduced by the amount of the other benefit, so that the total amount of disability benefits paid to the participant would not exceed 60% of pre-disability income.

In many instances, disabled participants would be eligible for Social Security Disability Income Benefits (SSDIB). After determining that a participant was eligible for Plan benefits, Metropolitan would urge the disabled participant to apply for SSDIB, if the participant had not done so already. Borden, and Metropolitan as the fiduciary for claims administration, claimed the right under the Plan to reduce benefits payable to the disabled participant by the amount of SSDIB that Metropolitan projected that the participant was entitled to receive. The Plan allowed Metropolitan to employ this "carve-out" device even if the participant did not apply for SSDIB. Disabled participants whose Plan benefits were reduced by a carve-out had a strong motivation to apply for SSDIB.

Many participants applied for SSDIB and were denied these benefits at the initial stage of the application process. After further appeal and review within the Social Security Administration, many of these initial denials were later reversed and SSDIB awarded to the applicant. Although this Court does not have an authoritative figure, Metropolitan states that as many as 80% of the SSDIB applications that are initially denied are later approved on appeal. Plaintiffs do not challenge this estimate.

When an initial denial of SSDIB was reversed on appeal and SSDIB were awarded, this determination resulted in prospective eligibility for SSDIB and, in addition, the disabled applicant would receive a lump sum figure for retroactive SSDIB for the time that the application was pending. The longer the process, and the more stages that an applicant had to pursue until a final determination of eligibility for SSDIB, the greater the retroactive SSDIB amount.

All of the plaintiffs in this class action applied for and were initially denied SSDIB. Although Metropolitan claimed the right under the Plan to continue a carve-out of Plan benefits even after an initial denial if it believed the particular participant was eligible for and would eventually receive SSDIB, its actual practice after an initial SSDIB denial was to begin paying a disabled participant the maximum amount of Plan benefits without reduction. Metropolitan sent to each participant a Reimbursement Agreement before paying full benefits under the Plan. The Reimbursement Agreement was an acknowledgment that an award of retroactive SSDIB would result in an overpayment of Plan benefits and an obligation to reimburse the Plan. Although Metropolitan did not require that participants sign the Reimbursement Agreement before receiving full Plan benefits, more than half of the plaintiffs did sign Reimbursement Agreements.

Full Plan benefits were often paid for long periods while the SSDIB appeal proceeded. At varying points in time, all of the plaintiffs succeeded in winning SSDIB on appeal. The award of SSDIB included a retroactive award. When notified of the SSDIB award, Metropolitan would request that the disabled participant reimburse Metropolitan for the amount by which the retroactive SSDIB combined with the previously paid Plan benefits exceeded 60% of the participant's pre-disability earnings.

If a participant did not or could not reimburse the overpayment on request, and Metropolitan failed to reach agreement on reimbursement with the participant, Metropolitan would withhold current Plan benefits owed to the disabled participant and apply this amount to the outstanding overpayment balance. Although Metropolitan might in some instances only withhold part of the participant's Plan benefit check, in the cases of the plaintiffs it appears that Metropolitan withheld the entire monthly Plan benefit amount until the overpayment balance was satisfied.

Plaintiffs' complaint contains eight counts. Counts I and IV state causes of action based on ERISA, alleging that Metropolitan wrongfully withheld benefits in violation of both its fiduciary duties and the terms of the Plan; count II alleges that Metropolitan's practice of recouping overpayments by withholding benefits violated a provision of the Social Security Act, 42 U.S.C. § 407 (1982 & Supp.1987); count III seeks return of attorney fees expended by plaintiffs in prosecuting their Social Security appeals; count V alleges that the challenged practice violated New York Insurance Law § 3212(c)(1) (McKinney 1985); finally, counts VI, VII and VIII state common law causes of action in contract and for conversion and bad faith, respectively. The parties agree that New York law...