ERISA insurer entitled to offset settlement on 2nd medical condition

An insurer may be entitled to an offset from a workers' compensation lump-sum payment when the claimant is already receiving disability benefits from the insurer, even if the medical conditions are unrelated.

Case name: Carden v. Aetna Life Ins. Co., No. 07-2165 (4th Cir. 03/11/09).

Ruling: The 4th U.S. Circuit Court of Appeals found the insurance company was entitled to offset the claimant's long-term disability benefits with his workers' compensation disability benefits.

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What it means: An insurer may be entitled to an offset from a workers' compensation lump-sum payment when the claimant is already receiving disability benefits from the insurer, even if the medical conditions are unrelated.

Summary: The claimant worked as a power plant operator when he began experiencing vertigo and made a claim under the company's Employee Retirement Income Security Act long-term disability plan. He subsequently made a separate workers' compensation claim against his employer for asbestosis for which he received a lump-sum payment. Upon discovering that the claimant had received a workers' compensation settlement, the insurer sought to offset the recovery from the long-term disability benefits he was receiving for his vertigo.

The insurer argued the asbestosis settlement award fell under the category "other income benefits" which the claimant was required to disclose under the terms of the disability plan. The insurer argued it was allowed to offset the benefits because the claimant had received disability benefits in excess of his entitlement. The claimant argued that the vertigo disability benefits and the lump sum payment for asbestosis were not issued for the same medical condition and thus could not be offset.

The 4th Circuit reasoned that the insurer was the fiduciary, as defined by ERISA, and had discretionary authority to interpret the plan and its terms. The court found the insurer acted reasonably in the interpretation of the plan's language. The court noted that the insurer's interpretation was consistent with the plan's design, which was to assure "an income stream for the disabled employee during the period of disability rather than an independent benefit quantified by a specific disability."

The court pointed out that the plan was silent as to offsets for different conditions but did not specify that that disability benefits from one medical condition could not be set off against disability benefits of another.

April 6, 2009

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