This article was initially published in the Chicago Daily Law Bulletin on January 11, 2017.
By Mark D. DeBofsky
Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari P.C. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law. He can be reached at firstname.lastname@example.org.
A cynical observer once commented that "no good deed goes unpunished." Unfortunately for the plaintiff in Boyles v. American Heritage Life Insurance Co., 2016 WL 7489048 (W.D. Pa. Dec. 28, 2016), that expression dictated the outcome in this case.
The plaintiff, Robert P. Boyles Jr., worked as a commercial insurance producer for an agency that had acquired his family-owned insurance brokerage in 2006.
As an agency employee, Boyles received group long-term disability insurance coverage through a policy underwritten by American Heritage Life Insurance Co. from Jan. 1, 2010 through July 31, 2013. The agency then switched insurers to Unum Life Insurance Company of America on Aug. 1, 2013.
In December 2012, Boyles, who had a history of back problems, advised his employer of his intent to apply for disability benefits due to his medical condition. His employer then offered to continue his salary, due to his long tenure and work ethic, while he recovered from back surgery.
Boyles subsequently received what his employer described as "full-paid medical leave" from December 2012 through Nov. 22, 2013, when his employment was terminated after it became apparent he would be unable to return to work.
While on "leave," Boyles would come in to work occasionally — his employer estimated that he worked approximately 10 to 20 hours per week from May 2013 until his termination. Adding further complication to the saga, Boyles tripped and fell at work, suffering a concussion and a shoulder injury.
Shortly after his termination, Boyles submitted a disability claim to American Heritage, but it was denied primarily due to his receipt of his full salary. The insurer maintained that due to the absence of any decrease in earnings, Boyles failed to meet the definition of "disability" contained in the policy.
Boyles also submitted a claim to Unum, but that claim was denied based on a determination that Boyles was not in "active employment" following the inception of that policy in August 2013.
The court acknowledged that "Boyles is a sympathetic [p]laintiff." However, the court determined that the continuation of Boyles’ salary and the change in insurance carriers "combined to create a unique set of circumstances in which Boyles was denied coverage by both insurers, even though he clearly suffered a disability that prevented him from continuing to work."
The court referenced the case of McKay v. Reliance Standard Life Insurance Co., 428 Fed.Appx. 537 (6th Cir. 2011), which presented the same circumstance involving the employee’s receipt of salary continuation and a change in insurers and agreed that that terms of both policies compelled the court to reach the same result here.
The court ruled that the American Heritage policy terms necessitated a conclusion that Boyles was ineligible to receive benefits since he failed to fulfill the two necessary conditions to qualify for benefits — "(1) the employee must be unable to perform the material duties of his regular occupation; and (2) he must suffer ‘a 20 percent or more loss in his monthly earnings.’"
Because Boyles was paid his full salary until his termination date, the court determined that he never met the necessary earnings loss.
Although Boyles tried to claim that the payment he received should not be considered "monthly earnings," the court cited the policy’s definition of that phrase and ruled that since the payment came from his employer, he could not establish the earnings loss. Therefore, Boyles was found ineligible to receive coverage from American Heritage.
The court then examined whether Boyles could qualify for Unum coverage which became effective prior to his termination. However, after reviewing the Unum policy terms, the court concluded that Boyles never met the "active at work" eligibility requirements to be covered under that policy.
To be eligible for the Unum coverage, Boyles would have needed to work at least 37.5 hours per week, which he never did following the effective date of the Unum policy.
The court pointed out that the Unum coverage listed three conditions for "active employment": (1) that the employee was "working for [his] employer for earnings that are paid regularly"; and (2) that the employee was "performing the material and substantial duties of [his] regular occupation"; and (3) that the employee was working at least 37.5 hours per week.
The court further noted that the requirements are defined with the conjunctive "and"; thus, all three conditions had to be met, but the evidence showed that Boyles did not meet those requirements after Aug. 1, 2013, the Unum policy’s effective date.
Further, although the Unum policy contained a "continuity of coverage" provision that would have carried over his American Heritage coverage and also precluded the invocation of a pre-existing condition exclusion, for that provision to apply, Boyles would have had to be actively employed at the time the new coverage commenced.
Since he did not work the necessary number of hours for "active" employment specified by the policy, the court found him ineligible for coverage on that basis as well.
This is a truly unfortunate outcome since there is no reason to doubt that Boyles was disabled and should have received coverage. However, the court was constrained to apply the terms of both policies.
Another case that involved a similar circumstance was Reinertsen v. Paul Revere Life Insurance Co., 127 F.Supp.2d 1021 (N.D. Ill. 2001). There, too, the insured was unable to collect benefits because his salary was continued as a beneficent act by the employer after he suffered a brain hemorrhage and stroke.
Tragically, in this case, the unpublished 6th U.S, Circuit Court of Appeals McKay case, and Reinertsen, the employers’ good deeds unintentionally ended up severely punishing their employees.