A recently issued unpublished ruling from the 10th U.S. Circuit Court of Appeals, Holbrooks v. Sun Life Assurance Company of Canada, 2014 U.S.App.LEXIS 12741 (10th Cir. July 7, 2014)(unpublished), departed from two contrary appellate rulings in determining that veterans’ benefits are offset table from long-term disability payments as “other income benefits.”
Typically, in order to prevent a double recovery of benefits for the same disability, group long-term disability insurance benefits are reduced by the Social Security, workers’ compensation or comparable benefits the insured receives. However, the Holbrooks ruling raises the question of whether veterans’ benefits should also be a reduction.
In this case, Howard Holbrooks, a former military physician who received VA benefits due to amyotrophic lateral sclerosis (ALS), was subjected to an offset of those benefits from the disability benefits he was receiving through his post-military private employment.
The policy permitted offsets of “Other Income Benefit[s],” such as Social Security and other listed types of benefits. The policy also permitted an offset of benefits received “under a Compulsory Benefit Act or Law; and/or any other act or law of like intent,” which Sun Life maintained to be inclusive of veterans’ benefits.
Holbrooks’ widow, who was substituted as plaintiff after her husband died, challenged that decision, and after exhausting her pre-litigation appeals, she also lost both in the district court and in the court of appeals.
VA benefits were not explicitly listed among the types of other income that Sun Life could offset against disability benefits, yet the insurer initially maintained that VA benefits could be offset because they were similar to workers’ compensation benefits. Alternatively, Sun Life asserted that such benefits was paid under a “Compulsory Benefit or Law.” The court agreed.
The court applied the Merriam-Webster online dictionary definition of “compulsory” to mean “required by a law or rule [or] having the power of forcing someone to do something.” The court then examined the nature of VA benefits, which it deemed “non-discretionary, statutorily mandated benefits, [which] [a] veteran is entitled to … upon a showing that he meets the eligibility requirements set forth in the governing statutes and regulations.” (citing Cushman v. Shinseki, 576 F.3d 1290, 1298 (Fed. Cir. 2009)).
The court further relied on a VA regulation that establishes a presumption of benefits eligibility for any veteran who develops ALS after separation from military service. 38 C.F.R. Section 3.318(a). Thus, the court reasoned, “Because the VA was required by law to pay [Dr.] Holbrooks’ disability benefits, Sun Life was entitled to offset those benefits under the terms of the policy.”
Issued as an unpublished ruling, it is no surprise that the decision lacked a detailed rationale. However, given the significance of this issue as hundreds of thousands of veterans have recently served in Afghanistan and Iraq, and many have returned with disabilities, the court overlooked an opportunity to give greater consideration to the issue presented.
The court did not even acknowledge that two circuits have issued contrary rulings: Riley v. Sun Life and Health Insurance Co., 657 F.3d 739 (8th Cir. 2011), and Hannington v. Sun Life and Health Insurance Co., 711 F.3d 226 (1st Cir. 2013) (although High v. E-Systems Inc., 459 F.3d 573 (5th Cir. 2006) permitted such offsets).
While Sun Life made somewhat different arguments in those cases, the bottom line is that the courts that ruled against Sun Life did so on account of the insurer’s failure to explicitly specify veterans’ benefits as an offset against disability insurance payments.
Both Riley and Hannington were troubled by Sun Life’s efforts to shoehorn veterans’ benefits into a provision that appears never to have been intended to apply to such benefits when the policies failed to include such benefits in the laundry list of offsets explicitly stated in the policy.
An earlier ruling from the Texas Supreme Court is also enlightening on this issue. Barnett v. Aetna Life Insurance Co., 723 S.W.2d 663 (Tex. 1987), determined that VA benefits could not lawfully be offset against private long-term disability insurance payments as a payment under a compulsory benefit law.
The court construed “compulsory” to apply to laws such as workers’ compensation or Social Security disability, which are intended to provide substitute payments for work-related earnings based on an insured’s loss-of-time ability to work.
However, unlike Social Security disability payments or workers’ compensation, VA benefits are not necessary tied to the claimant’s ability to work since “the VA applicant need only show the disability, not that it is affecting his earning capacity, nor that he was employed on the day of the injury.” 723 S.W.2d at 667.
Thus, the court concluded after acknowledging the sacrifices made by military personnel, “Benefits under the VA appear to be unique in character and scope, certainly important enough to warrant specific mention in an insurance policy if they are sought to be offset.
“This is especially true when the insurance company saw fit to explicitly mention the Railroad Retirement Act, which affects far fewer people on a day-to-day basis.” Id.
Although Barnett‘s rationale may not be entirely sound since there is an overlap between disability payments based on loss of time and disability due to loss of use since both types of disabilities affect earning capacity, it remains inescapable that Sun Life could have- but failed to- specify that it was going to deduct veterans’ payments.
That failure alone should have compelled a different result.
This article was initially published in the Chicago Daily Law Bulletin.