Ruling addresses policy limitations

Ruling addresses policy limitations

October 5, 2011
By Mark D. DeBofsky

Mark D. DeBofsky is a name partner of Daley, DeBofsky & Bryant. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law.

Despite significant medical advances in recent years, many debilitating impairments remain impossible to diagnose through imaging such as X-ray or MRI, electrodiagnostic testing or blood tests. Consequently, due to potential uncertainty as to the legitimacy of such conditions, disability insurers have adopted policy provisions that purport to limit payments for conditions such as fibromyalgia, chronic fatigue syndrome and even migraine headaches. A recent ruling from the 7th U.S. Circuit Court of Appeals, Weitzenkamp v. Unum Life Ins.Co. of America, 2011 U.S.App.LEXIS 19283 (7th Cir. Sept. 20, 2011), addressed the validity of such policy limitations. The plaintiff, Susie Weitzenkamp, a sales representative for Time Warner Cable Inc., became disabled in 2005 due to fibromyalgia, chronic pain and other maladies. She applied for and received long-term disability benefits from Unum Life Insurance Co.; however, Unum terminated the benefit payments after 24 months, which ultimately led to this lawsuit. Because Weitzenkamp also qualified for Social Security disability benefits, Unum maintained it overpaid her claim based on policy provisions that offset Social Security payments. Although Unum was successful in the lower court, the court of appeals overturned Unum's benefit denial; however, it did uphold Unum's right to recoup the overpayment. The court of appeals issued an earlier ruling in July. Although this opinion reached the same conclusion, the court issued a different rationale for finding in Weitzenkamp's favor in this opinion.

The main issue before the court related to the policy provision cited by Unum as the basis for terminating Weitzenkamp's benefits after 24 months. Without that limitation, the district court would have found in Weitzenkamp's favor since the court agreed her disability was ongoing. The policy imposed a 24-month limitation on the duration of benefit payments for "[d]isabilities, due to sickness or injury, which are primarily based on self-reported symptoms, and disabilities due to mental illness, alcoholism or drug abuse." Self-reported symptoms are defined as "the manifestations of your condition which you tell your doctor that are not verifiable using tests, procedures or clinical examinations standardly accepted in the practice of medicine." Such symptoms include, but are not limited to "headaches, pain, fatigue, stiffness, soreness, ringing in ears, dizziness, numbness and loss of energy." Weitzenkamp challenged the applicability of that provision on two grounds: First, that the limitation was not included in the summary plan description her employer provided. That argument was key to the initial ruling, but on reconsideration, the 7th Circuit found the argument foreclosed by CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), since no specific harm was caused to Weitzenkamp due to the failure to include the limitation in the summary plan description.

Second, the plaintiff argued the limitation was inapplicable because her treating doctor reported findings on physical examination that were characteristic of fibromyalgia. Although Unum acknowledged the fibromyalgia diagnosis, it emphasized that her pain complaints were based on self-reports and, therefore, triggered the 24-month limitation.

The dispute came down to two competing interpretations of the meaning of the self-reported illness limitation. Unum asserted the focus should be on whether limitation of function is based on self-reported symptoms, while the plaintiff argued the emphasis needed to be on whether the diagnosis of the disease is primarily based on self-reported symptoms. The court agreed with the plaintiff, finding that "when the clause is considered in context and in light of actual application, the only viable conclusion is that the self-reported symptoms limitation applies to disabling illnesses or injuries that are diagnosed primarily based on self-reported symptoms rather than to all illnesses or injuries for which the disabling symptoms are self-reported." (emphasis in original). The court explained that if Unum's interpretation were followed it "would sweep within the limitation virtually all diseases, leaving only a small subset for coverage beyond that time period." That is because "[f]or most illnesses or injuries, the disabling aspect is not the disease itself, but the pain, weakness or fatigue caused by that illness or injury." The court listed as examples Stage IV cancer or advanced heart disease where disability is not necessarily due to the condition itself, but results from pain, weakness or fatigue. Hence, Unum's interpretation of its limitation would arguably exclude disabilities due to those conditions. Indeed, Unum argued that regardless of the etiology of pain, if the disability was on account of the claimant's pain the limitation would be applicable because "pain itself is self-reported and not verifiable." The 7th Circuit ruled that while language in the policy required the court to give deference to Unum's interpretation of the policy language under ERISA guidelines, the court refused to "countenance a reading that would allow Unum arbitrarily to disallow any illness or injury that it preferred not to cover based on provisions in the policy" that were not more explicit. Therefore, because even Unum conceded that fibromyalgia was "objectively verifiable," the court ruled the limitation inapplicable and ordered benefits reinstated since there was no viable dispute that Weitzenkamp remained disabled.

The court did, however, uphold Unum's right to recoup an overpayment due to the Social Security award. ERISA permits recoveries of overpayments when the insurance policy or benefit plan authorizes the plan's recoupment rights according to Sereboff v. Mid Atl. Med. Servs. 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006). While acknowledging that general principle, Weitzenkamp nonetheless argued that a provision of the Social Security Act, 42 U.S.C. § 407(a), protects Social Security benefits from "execution, levy, attachment, garnishment or other legal process." Weitzenkamp maintained that Unum was seeking a lien over her Social Security benefits; the court disagreed, though, finding the lien was over the funds paid by the insurance company. The court explained, "although the amount in question happens to be the same as the amount of Weitzenkamp's retroactive Social Security payment, the funds Unum is targeting do not come from Social Security. Rather, they come from overpayments Unum paid to Weitzenkamp." Accordingly, the counterclaim was upheld.

This is a significant ruling on a number of issues. Most importantly, it places limits on an insurer's interpretive discretion, prohibiting an interpretation of a policy limitation that could lead to absurd results. However, the court left the insurance company with an opening — just as mental impairment limitations have been more carefully drafted in recent years to specify which conditions are limited, the court left the door open to the issuance of new policies containing language explicitly limiting the duration of payments for disability due to fibromyalgia so long as state insurance departments approve such policy terminology, a step that would not even be necessary for sponsors of self-funded plans.

As to the offset issue, the court could have sidestepped the issue altogether since the court commented the counterclaim was not challenged in the district court. The issue was therefore arguably waived. Since benefits were reinstated, the amount of the overpayment could have been recouped as an reduction against either past-due benefits owed or by withholding against future benefits according to Northcutt v. Gen. Motors Hourly-Rate Employees Pension Plan. 467 F.3d 1031 (7th Cir. 2006). Northcutt ruled that permitting recoupment in such a manner is an appropriate equitable remedy. Although Northcutt was not cited in Holmstrom v. Metro.Life Ins.Co. 615 F.3d 758 (7th Cir. 2010), which similarly involved a reinstatement of disability benefits and a counterclaim seeking reimbursement of an overpayment, the court of appeals simply left it to the district court on remand to allow the parties to work out the benefit amounts due since the right to recoup the overpayment was uncontested as it was here as well.

Since the court did uphold the counterclaim, though, a brief discussion of a Supreme Court ruling relating to Social Security's anti-alienation law (42 U.S.C. § 407(a)) bears mention. In Philpott v. Essex County Welfare Bd., 409 U.S. 413 (1973), the Supreme Court ruled that a municipality was barred from recouping interim public assistance paid while the welfare recipient was applying for Social Security payments. Despite the claimant having signed an agreement to repay the county upon receipt of Social Security benefits, the court ruled that funds paid by Social Security retain their character as monies protected by 42 U.S.C. § 407 and could not be claimed in a lawsuit in order to satisfy the reimbursement claim. Following that ruling, Mote v. Aetna Life Insur. Co., 435 F. Supp. 2d 827, 830 (N.D.Ill. 2006) , barred a disability insurer from asserting a counterclaim to recover an overpayment caused by a Social Security award, pointing out, "the funds on which defendants seek to impose an equitable lien are exactly the same funds that the law labels and treats as Social Security funds that are taken out of reach by Section 407(a)." Here, however, the court took a different course and found the funds over which the insurer sought reimbursement were disability insurance payments even though the payment sought was in the same amount as the Social Security benefits.

I represented the plaintiffs in Holmstrom and Mote.