Troiano v. Aetna Life Ins. Co.

• Decision Date: 16 December 2016
• Docket Number: No. 16-1307,16-1307
• Citation: 844 F.3d 35
• Parties: Debra Troiano, Plaintiff, Appellant, v. Aetna Life Insurance Company and General Dynamics Corporation Long Term Disability Plan, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

844 F.3d 35

Debra Troiano, Plaintiff, Appellant,

v.Aetna Life Insurance Company and General Dynamics Corporation Long Term Disability Plan, Defendants, Appellees.

No. 16-1307

United States Court of Appeals, First Circuit.

December 16, 2016

J. Scott Kilpatrick , with whom Mason J. Waring and Chisholm Chisholm & Kilpatrick LTD , Providence, RI, were on brief, for appellant.

Jonathan C. Bond , with whom Miguel A. Estrada , Gibson, Dunn & Crutcher LLP , Washington, DC, Kenneth J. Kelly , Scarlett L. Freeman , and Epstein Becker & Green, P.C. , New York, NY, were on brief, for appellees.

Before Lynch, Lipez, and Barron, Circuit Judges.

LYNCH, Circuit Judge.

This lawsuit arises from a dispute between an ERISA disability plan administrator and a beneficiary over the amount by which the monthly disability payments made to the beneficiary should be offset by her other monthly income from Social Security. The administrator maintains that the disability payments must be offset by the gross (pre-tax) amount of Social Security income, while the beneficiary argues that the payments must be offset by the net (post-tax) amount of Social Security income. The district court found for the administrator, noting that its interpretation of the Plan language to allow for a gross offset was entitled to deference and was, in any event, ultimately reasonable. In addition to contesting this decision, the beneficiary complains that the district court abused its discretion when it denied the beneficiary's broad requests for discovery.

Having made a number of assumptions in the beneficiary's favor, we affirm. To be clear, the dispute is not about whether the Social Security income may offset the disability payments. It is about whether the administrator may use the simple gross amount of the Social Security payments for offset purposes.

I.

Plaintiff Debra Troiano is a former employee of Electric Boat Corporation, a subsidiary of defendant General Dynamics Corporation ("GDC"). While working there from 1988 to 2003, Troiano participated in GDC's long-term disability ("LTD") Plan, which was funded and administered by defendant Aetna Life Insurance Company ("Aetna").

A. The Plan's Structure and Documents

GDC's LTD Plan is an employee welfare benefits plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq. The terms of the Plan are set forth in four relevant documents: (1) the Group Policy, which contains general terms and conditions governing the Plan; (2) the Summary of Coverage, which details the LTD benefits; (3) the Booklet, which describes the group coverage plan; and (4) the Summary Plan Description ("SPD"). GDC issued the SPD in compliance with ERISA, which requires a plan to provide information "written in a manner calculated to be understood by the average plan participant, and ... sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." Id.§ 1022(a).

The Plan itself vests Aetna with broad authority to exercise discretion in administering the Plan. The Group Policy explains that Aetna is a fiduciary under ERISA and has "discretionary authority to ... construe any disputed or doubtful terms of th[e] policy." The Group Policy further reserves Aetna's "right to adopt reasonable policies, procedures, rules, and interpretations of th[e] policy to promote orderly and efficient administration." The SPD describes Aetna's authority in a similarly expansive way, assigning Aetna the "absolute authority and sole discretion" to interpret all terms of the Plan and to resolve ambiguities in the Plan or the SPD.

The relevant documents also provide that a Plan participant who suffers a "total disability" will receive monthly LTD benefits. The amount of such benefits will equal a percentage of the participant's "predisability earnings," up to a monthly maximum of $18,000, "minus all other income benefits" that are "payable for a given month" to the participant or to her spouse, children, or dependents. The Booklet reiterates that "[i]f other income benefits are payable for a given month[,] [t]he monthly benefit payable under th[e] Plan for that month will be the lesser of: the Scheduled Monthly LTD Benefit; and the Maximum Monthly Benefit; minus all other income benefits." It further defines "other income benefits" to encompass "[b]enefits under the Federal Social Security Act."

The SPD consistently states that basic monthly earnings are "the gross monthly pay paid to you by the Company for performing your job in effect immediately before the Disability begins." It clearly provides that "[y]our benefit amount from the LTD Plan is reduced by any payments you are eligible to receive from other sources, such as ... [b]enefits under the Federal Social Security Act." It further clarifies that the monthly LTD payments will not be reduced by any cost-of-living increases in other income benefits.

Importantly, as "an example of how the benefit reduction works," the SPD provides a scenario in which Tom, a fictional beneficiary, "has Basic Monthly Earnings of $3,000, bought the 60% level of coverage, ... becomes eligible for LTD benefits ... [and] qualifies for a Social Security benefit of $600 per month." The SPD expressly states that, under this example, Tom's monthly LTD benefits would be $1,200: $1,800, which equals 60% of $3,000, minus $600 in Social Security benefits.

The SPD explains that participants can choose between one of two benefit levels: the "base level" of 50% of predisability earnings or the "buy-up" level of 60% of predisability earnings. The employer pays the premiums for 50% of coverage. Participants who choose the buy-up level must pay the premium for the additional 10% of coverage. The SPD explains that the "cost for the additional coverage is deducted from [the participant's] paycheck on an after-tax basis." While the participant is "taxed on both [her own] cost and the Company contributions," the SPD assures that "the LTD Plan benefit will not be subject to income tax." Troiano elected the 60% coverage option.

B. Troiano's Eligibility for LTD and Social Security Benefits

Troiano became disabled in July 2003 and applied for Plan benefits. From December 2003, when Aetna approved her claim, until April 2010, when Aetna began offsetting her monthly LTD benefits by her gross Social Security income, Aetna issued to Troiano monthly payments of $3,350, which equals 60% of $5,583.33, Troiano's monthly gross predisability earnings.

In a letter dated June 10, 2009, Aetna informed Troiano that an application for Social Security Disability Insurance ("SSDI") benefits on her behalf was warranted. In fact, Troiano had already applied for SSDI benefits in June 2004. After years of administrative wrangling and litigation in federal district court, an administrative law judge determined in October 2009 that Troiano had been "under a disability," as defined by the Social Security Act, since July 12, 2003. An award letter from the Social Security Administration subsequently confirmed that Troiano had been entitled to baseline monthly payments of $1,783 starting in January 2004 (five calendar months after becoming disabled). It further noted that, in addition to the $1,783, Troiano was entitled to incrementally greater amounts that took into account annual cost-of-living adjustments ("COLAs") for each year she received SSDI payments. By December 2008, the monthly SSDI benefits with COLAs had risen to $2,131, which was $348 more than the $1,783 baseline. The award letter lastly stated that Troiano would receive a lump-sum payment for the amount that had been due to her through January 2010.

In a letter dated April 16, 2010, Aetna informed Troiano that it had learned of her monthly $1,783 SSDI award, as well as the retroactive lump-sum payment. Aetna's letter reminded Troiano that under the provisions of the Plan, her LTD benefits were subject to offset by "other income benefits," that such benefits included "[b]enefits under the Federal Social Security Act," and that Aetna had a right to recover overpayments. After recounting the relevant Plan provisions, the letter announced that Aetna would begin offsetting Troiano's monthly LTD benefits by $1,783, the gross amount of her SSDI benefit. Aetna consistently used this $1,783 amount in all of its calculations regarding the offset. Aetna also demanded, and has since received from Troiano, full reimbursement of $126,526—the amount by which it had overpaid Troiano between January 2004 and March 2010.

Fifteen months later, in a letter dated July 29, 2011, Troiano, through her counsel, first requested that Aetna offset her LTD benefits by the net, rather than the gross, amount of her SSDI benefits. As stated in this letter, it is undisputed that Troiano's LTD benefits were tax-free, whereas she was required to pay federal and state income taxes on her SSDI benefits. Following internal communications discussing the "exact verbiage" that Aetna had used in response to such requests before, Aetna denied Troiano's request in a short letter to her counsel dated November 28, 2011: "It is industry standard to offset the ... gross amount and not the net amount. To adjust the SSDI offset, according to net amount, would involve taxes and we do not get involved in taxation."

After another six months, Troiano's counsel followed up with a second letter. Styled as an "appeal" of Aetna's decision to apply a gross offset and dated May 25, 2012, this letter articulated Troiano's argument for why a net offset was proper.¹ Troiano also requested in the letter that Aetna turn over numerous documents that she claimed were relevant to Aetna's decision to apply a gross offset. She asserted that Aetna was obligated to comply with her request under ERISA and applicable Department of Labor regulations. Although internal emails reveal that Aetna's in-house legal team discussed this May 2012 letter, Aetna never responded...