:: Claims Manual Policies Rejected As Irrelevant In Disability Offset Case

n my view, whether the claims manual was part of the administrative record, or whether it guided the internal decision-making of UNUM’s claims adjusters, is immaterial to resolution of the dispute before me. There is no dispute the claims manual is not part of the disability policy. There is no provision in the disability policy that incorporates or refers to the claims manual, or indicates that the definition or application of any given term in the policy is governed by a claims manual.

Thus, while the manual may well provide internal guidance for UNUM’s employee’s, and may furnish an administrative basis for the approach taken by UNUM in 2005, applying the standards of de novo review set forth above, I cannot find that a reasonable person in the position of a plan participant would understand that the disability policy is modified or controlled by provisions set forth in an internal claims manual. The provisions of UNUM’s claims manual do not assist me in the resolution of this dispute.

Mactas v. UNUM Life Ins. Co. of America, Slip Copy, 2008 WL 2001250 (D.Colo.) (May 08, 2008)

This recent offset case provides several noteworthy points for both claimants and plan administrators. The dispute can be reduced to a dispute over whether indexed earnings included bonuses or not.

The interesting legal points of the case lie in the district court’s assessment of probative value of UNUM’s internal claims manual, its perspective in applying the standard of review and as an illustration of the felicitous effects of de novo review for a claimant’s case.

The Facts

The plaintiff had suffered a stroke, been approved for disability and, after a period of disability returned to work. He continued to receive partial disability benefits.

The parties did not dispute plaintiff’s disability, nor the plaintiff’s entitlement to some continuing disability benefits, nor even that there must be some offset to the benefits based on earnings.

The dispute between the parties was limited to this question:

whether the earnings offset calculation should include bonus income received by the plaintiff since September 2002 in his position with a new employer?

What A Difference A Date Makes

The policy in question was an older one. The significance of this lies in the lack of a discretionary clause:

The parties agree that UNUM’s decision is subject to de novo review as the UNUM policy, issued long ago, does not contain the requisite grant of discretion to the claims administrator to trigger a deferential standard. In applying de novo review, I must give the language of the policy its common and ordinary meaning as a reasonable person in the position of the plan participant, not the actual participant, would have understood the words to mean. Chiles v. Ceridian Corp., 95 F.3d 1505, 1511 (10th Cir.1996) (quoting Blair v. Metropolitan Life Ins. Co., 974 F.2d 1219, 1221 (10th Cir.1992)).

Reversals Of Position

UNUM originally offset plaintiff’s bonuses:

As described by plaintiff, an issue arose in 2001 as to whether UNUM had been properly calculating the earnings setoff since a portion of plaintiff’s earnings was derived from bonuses as opposed to regular periodic wages. Apparently, UNUM initially took the position that bonus money should be included when calculating the earnings setoff.

Then, UNUM determined that plaintiff’s bonuses should not be excluded from earnings for purposes of benefits calculation.

However, by letter dated August 7, 2001, UNUM customer care specialist Patrick Taylor advised plaintiff that the inclusion of bonus income as part of the earnings setoff to reduce his monthly benefit was incorrect.

When plaintiff took employment, still part-time, at a new company, UNUM reversed its position again:

After reviewing the information, UNUM advised plaintiff in February 2006, that his benefits had been overpaid since 2002 in the amount of $86,991.78, and that going forward UNUM would begin to deduct $1,000 monthly from his benefits checks to recoup the overpayment. UNUM’s letter indicates that the basis for the reduction is due to the fact that bonuses are considered earnings that may be offset.

UNUM’s Argument – The “Different Employers” Distinction

UNUM argued that it did not act inconsistently by including bonus income in the amount of the earnings offset in its 2005 calculation, because in 2001 plaintiff was working for the employer which purchased the disability policy, while in 2005 he was working for a different employer.

In support of its argument that it acted consistently, UNUM points to the provisions from its internal claims manual quoted above, which excludes bonuses and other forms of compensation in the earnings offset if the insured returns to work for the same employer in his usual occupation, but includes such income “if the employee returns to work with a different employer.”

Not In The Record, Not In The Policy, Not Relevant

The district court did not find this argument compelling. First, it objected to the attempt to incorporate into the policy the terms of a manual that was not even a part of the administrative record:

This internal claims manual itself is not part of the administrative record in this case, although a copy was attached by UNUM as Exhibit A to its opening brief. That exhibit is one of the documents which plaintiff moved to strike from defendant’s brief. Defendant has replied that whether or not the manual itself is in the record, it cited to its “policy” when it explained the denial of plaintiff’s appeal in its letters of May and June 2006 (Defendant’s Brief at 18).

In my view, whether the claims manual was part of the administrative record, or whether it guided the internal decision-making of UNUM’s claims adjusters, is immaterial to resolution of the dispute before me. There is no dispute the claims manual is not part of the disability policy. There is no provision in the disability policy that incorporates or refers to the claims manual, or indicates that the definition or application of any given term in the policy is governed by a claims manual.

Reasonable Person Standard Applied

The district court then turned to the reasonableness of the benefit decision from the participant’s point of view. Applying the de novo standard, the court stated:

Thus, while the manual may well provide internal guidance for UNUM’s employee’s, and may furnish an administrative basis for the approach taken by UNUM in 2005, applying the standards of de novo review set forth above, I cannot find that a reasonable person in the position of a plan participant would understand that the disability policy is modified or controlled by provisions set forth in an internal claims manual.

Note: UNUM relied heavily on Riddell v. UNUM, 457 F.3d 861 (8th Cir.2006). In that case, however, the treatment of bonuses was aptly address by definitions in the policy. By contrast,

. . . in the case at bar, where the term “monthly earnings” as used in the earnings offset formula is not defined, this analysis of Riddell is not applicable.

Effect Of The Standard Of Review – Another important contrast with Riddell was the standard of review:

Moreover, the policy at issue in Riddell gave discretion to the plan administrator, so that its decision was reviewed under an abuse of discretion standard, and the issue was whether the plan administrator’s interpretation was reasonable. 457 F.3d at 864. By contrast, the instant case is on de novo review.

Claims Manual – The manual distinction in employers did not reflect “common and ordinary meaning of the language”:

But, accepting the rationale that disability benefits are intended to replace a portion of the disabled employee’s lost salary, as set forth in the Riddell case, the inclusion or exclusion of bonuses should not depend on whether the employee is working for the original employer or a different employer. Thus, while UNUM’s claims manual policy may be a bright line guide for its internal administrators, I do not see how the distinction it makes between the original employer and a different employer reflects the common and ordinary meaning of the language in the earnings offset formula contained in the disability policy. Nor is such distinction one that a reasonable person in the position of the plan participant would likely make based on the language of the disability policy.

Rule Of Construction – The standard of review permitted application of the doctrine of contra prefereundum:

In addition, where a provision in a disability policy is ambiguous, the doctrine of contra prefereundum is applicable if the policy is subject to a de novo review by the court, as in this case. Miller v. Monumental Life Ins. Co., 502 F.3d 1245, 1253 (10th Cir.2007). Application of the doctrine provides for construction of the ambiguous language against the insurer. Id. at 1254-55.