The Good Guys Win Another One

Last week the Supreme Court of the United States refused to hear Unum Insurance Company’s application to review the decision of the 9th Circuit Court of Appeals in which that court ruled that Unum could not recover the amount of   Social Security benefits paid to one of its disabled insureds.

In Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. 2012), the Ninth Circuit reversed the District Court’s judgment granting reimbursement of LTD benefits. Unum’s insurance policy required the disabled worker to repay “any overpayment resulting from my receipt of benefits from any other source.”  In this case, the disabled worker had received approximately $36,000 in Social Security benefits.  Unum also paid benefits and argued that it had overpaid by that amount because of plaintiff receiving social security disability benefits. Unum had paid benefits for 24 months and then terminated them.  When the disabled worker sued to have them reinstated, Unum filed a counter suit for the $36,000.  The district court granted Unum’s request, but the 9th Circuit reversed it.

What the Ninth Circuit Said

Ms. Bilyeu was not required to pay back the money. That was because of the difference between equitable  and  legal claims.  The Ninth Circuit correctly  noted that ERISA only provides that Unum (and other fiduciaries or administrators) the right to seek equitable remedies to enforce the terms of a plan or insurance contract. The Ninth Circuit held that equity only allows reimbursement from the fund created by the overpayment that is still in the beneficiary’s possession.  In other words, Unum could not state a legal claim to recoup the value of the overpayment from just any property or funds.  It could only state an equitable claim against the exact funds that the beneficiary received to the extent that they were still in her possession.

Because the Social Security Act provides that its payments of benefits are not subject to lien or seizure, Unum could not argue that it had a legal lien on those payments. The court found that Unum “attempted to circumvent the congressional prohibition on assignment and attachment of social security benefits” by characterizing the funds it wanted to seize as those that it had overpaid. But, since the money that Unum had paid Mrs. Bilyeu could no longer be specifically traced or identified (having already been spent), Unum could not satisfy the requirements for an equitable lien by agreement, and it could not go after the money she received from Social Security.

Note however, that if Unum had continued to pay benefits, it could offset the payment of those future benefits by the amount of Social Security benefits Mrs. Bilyeu had received.

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