A recent appellate court ruling illustrated a serious problem that partially or residually disabled individuals face - what happens if their earnings temporarily exceed the maximum amount that may still be earned in order to be considered partially/residually disabled. In Safdi v. Covered Employer's Long Term Disability Plan Under the Union Central Employee Security Benefit Trust, 2015 WL 7434095 (6th Cir. November 24, 2015), the U.S. Court of Appeals ruled that unless full time work is resumed, a single instance of earning excess benefits could result in the permanent cessation of benefits.
The case involved a physician who became partially disabled after undergoing cancer treatment. Although the doctor was able to resume working, it was on a limited basis and he remained unable to return to full time work. Thus, Dr. Safdi qualified for and received partial disability benefits. However, after reviewing the doctor's tax returns, the insurance company asserted that because earnings exceeded the permissible earnings limitation, not only was Dr. Safdi no longer qualified to receive benefits, he was also deemed to have been overpaid for the period of time after his earnings were greater than 80% of his pre-disability income.
Even though Dr. Safdi remained impaired and his income again fell below the 80% threshold, the court interpreted the policy terms to allow a restoration of benefits only if he had returned to full-time employment. Since that never occurred, the court upheld the benefit termination.
The court based its conclusion on a finding "that Safdi did not satisfy the Recurrent Disability provision because he cannot show two distinct periods of Residual Disability separated by a return to work on a full-time basis." The court determined that under a plain reading of the policy terms, the recurrent disability provision was only applicable if there was some period of time between periods of residual disability that Salfdi was not disabled and returned to work full-time. According to the record, Safdi never returned to work at the same number of hours as the other doctors in his practice and he performed fewer surgical duties.
The court further explained the policy's recurrent disability provisions as follows: "The only obvious purpose of Recurrent Disability is to allow a participant to skip a second Elimination Period, and the consequent wait for benefits, if he recently satisfied a prior Elimination Period. This purpose has no clear relation to revival of benefits after exceeding the 80% threshold." Although Safdi claimed that the district court's interpretation of the policy was irrational and led to unfairly harsh results, the court found otherwise, suggesting:
The fact that benefits are terminated if a participant is either no longer Disabled or exceeds the earnings threshold suggests that the drafters contemplated that at least some Disabled participants would lose their benefits despite an inability to work full time. Also, the use of Indexed Average Monthly Earnings, rather than Average Monthly Earnings, also ameliorates some of the harshness in the termination condition; the former measure grows by 5% each year, making it increasingly difficult to exceed the earnings ratio. Those who exceed 80% of their Indexed Average Monthly Earnings may very well be on the road to physical or financial recovery, and others earning just below that threshold may in fact exceed their pre-disability earnings while still collecting benefits.
Safdi responded by suggesting that a participant could be victimized and unjustly cut off from receiving benefits based by a one-time spike in earnings. However, the court of appeals disagreed. The court then concluded as follows:
As a general matter, courts are not well equipped to assess the net effects of insurance contracts such as this. Instead, we depend on the plain language of the plan to determine how the parties allocated risks. Safdi does not point to a clear basis in the Policy for reviving his benefits after triggering the Termination provision, and Union Central therefore deserves judgment on his claim.
Dr. Safdi's final argument should have been the winner. As a shareholder of the practice, Dr. Safdi would undoubtedly have received profit distributions attributable to the success of the practice as a whole, even if he could only work half the number of hours as his peers. The court appears to have unfairly denied Dr. Safdi benefits even though there was no dispute whatsoever (as the district court initially found) that he remained limited in his ability to work on a full-time basis as a gastroenterologist. Thus, the court denied him the protection the policy was intended to provide; i.e., financial protection in the event of loss of income due to sickness or injury.
While it is true that recurrent disability provisions typically require a return to full-time work before the provisions of such policies are triggered, the unfortunate circumstances presented here led to an absurd and unfair result.
This case should be a wake-up call to anyone receiving residual disability benefits and a warning that even if hours and regular compensation remain at a level that would otherwise trigger residual disability payments, benefits could be lost if there is even a one-time spike in earnings.