Appeals Court Finds for Plaintiff in Denied Disability Insurance Claim

May 15, 2013, 8:00AM. By Gordon Gibb

Sacramento, CAA woman who filed a long-term disability claim under California insurance law found herself in a legal battle with the insurer who provided coverage to her company insurance plan, filing a lawsuit against the insurer when her benefits were terminated. The insurer also sought a repayment of benefits, described as overpaid, after the plaintiff secured additional benefits from another source.

According to court records, plaintiff Leah Bilyeu filed a long-term disability (LTD) claim through her employee LTD benefits plan with Unum - the benefits provider - in April 2004, due to the results of several medical conditions that prevented her from “materially performing the duties of any occupation,” according to the lawsuit. Bilyeu made application in April 2004, and was finally granted benefits six months later.

The plaintiff received benefits for two years until they were abruptly stopped by Unum, citing a clause in the policy that referenced a two-year cap on LTD benefits arising from mental illness.

However, Bilyeu disputed Unum’s position that her troubles stemmed exclusively from mental illness. While a medical consultant working under the auspices of Unum concluded that “Bilyeu’s fatigue in large part arises from her anxiety and depression…,” the plaintiff’s own physician disputed that view, stating “[the plaintiff’s] fatigue is mainly physical.” Dr. Kenneth Proefrock also disagreed with Unum’s opinion that Bilyeu “should have full-time sedentary work capacity,” according to court records.

What’s more, according to the denied disability insurance claim, Unum sought a repayment of benefits in the amount of $36,597 that Bilyeu received through social security. Thus, when Bilyeu filed her initial denied ERISA disability claim against Unum, the insurer filed a counterclaim seeking repayment of benefits.

After the district court granted Unum’s motion for summary judgment on its counterclaim, Bilyeu appealed and the Ninth US Circuit Court of Appeals vacated the lower court’s judgment for Unum. When the latter appealed the Ninth Court’s vacate order to the California Supreme Court, the latter refused to review the Ninth Court’s ruling.

The Ninth Court of Appeals held that Unum, under ERISA, could not seek repayment of benefits in such fashion. Unum, the Ninth Court ruled, failed to satisfy the requirements for an equitable lien by agreement due to the fact the funds subject to the lien - the overpayment - had been consumed by the plaintiff and therefore no longer in the possession of the plaintiff. To that point, Unum sought repayment of benefits from the plaintiff’s general assets.

Such legal relief is not available to Unum as a plan fiduciary under the terms of ERISA.

“We vacate the judgment in favor of Unum on Bilyeu’s claim for denial of benefits,” wrote the Ninth Circuit Court in its ruling with regard to the California ERISA-denied claim. “We hold that the district court abused its discretion by dismissing this claim for failure to exhaust administrative remedies. The exhaustion requirement should have been excused because Bilyeu acted reasonably in light of Unum’s ambiguous communications and failure to engage in a meaningful dialogue.”

The Employee Retirement Income Security Act (ERISA, as amended 1974) regulates employee benefits plans and sets forth various requirements of fiduciaries.

The denied ERISA disability case is LEAH A. BILYEU v. MORGAN STANLEY LONG TERM No. 10-16070 DISABILITY PLAN; MORGAN STANLEY D.C. No. LONG TERM DISABILITY PLAN 2:08-cv-02071-SRB.