After more than 10 years of war in Iraq and Afghanistan, many veterans are returning home with disabilities, some of which are latent and do not manifest themselves until years later.
If a veteran who later qualifies for veteran benefits also receives disability benefits under their private-sector employer’s group long-term disability insurance plans, the question has arisen in several cases as to whether the disability insurers may coordinate the benefits and reduce their payment obligation by the amount of disability payments the insured receives from the Veterans Administration.
Two courts of appeals recently ruled that offsets of veteran benefits are impermissible where the policy is unclear.
In both Riley v. Sun Life and Health Insur. Co., 657 F.3d 739 (8th Cir. 2011) and Hannington v. Sun Life and Health Insur. Co., 711 F.3d 226 (1st Cir. 2013), the courts of appeals determined that veteran disability benefits differ from other types of disability benefits.
However, in Holbrooks v. Sun Life Assur.Co. of Canada, 2013 U.S.Dist.LEXIS 156208 (D.Kansas Oct. 31, 2013), a district court ruled that Sun Life may offset veteran disability payments.
The claimant for benefits in Holbrooks was an anesthesiologist who had served in the Army for six years until his discharge in 2003 at the rank of major. Following his discharge, Dr. Howard Holbrooks went to work for a health-care provider in Kansas and received long-term disability insurance coverage as a benefit of his employment.
Some time later, Holbrooks was diagnosed with amyotrophic lateral sclerosis (ALS), which entitled him to receive disability benefits from August 2009 until his death in February 2013.
Holbrooks concurrently received service-connected disability benefits in 2008 from the Department of Veterans Affairs. A VA regulation, 38 C.F.R. Section 3.318, establishes a presumption of service connection for any veteran who develops ALS after separation from the military. The regulation was promulgated after a study showed that military veterans experienced a higher incidence of ALS than members of the general public.
Although there was no dispute as to Holbrooks’ entitlement to long-term disability payments, the Sun Life policy under which he was insured contained a provision that offsets against Sun Life’s payments, any “other income benefits,” a term that included:
- 1. The amount the employee is eligible for under:
- a. Workers’ Compensation Law; or
- b. Occupational Disease Law; or
- c. Unemployment Compensation Law; or
- d. Compulsory Benefit Act or Law; [*6] or
- e. an automobile no-fault insurance plan; or
- f. any other act or law of like intent …
- 6. The disability or retirement benefits under the Social Security Act, or any similar plan or act. …
Sun Life maintained that VA benefits were “Other Income Benefits” under Paragraphs 1(d) as arising under “Compulsory Benefit Act or Law,” and 1 (f) as under “any other act or law of like intent” and offset the payments received from the Department of Veterans Affairs. The court agreed.
The court found that VA benefits constitute “disability benefits arising under a ‘Compulsory Benefit Act or Law.'”
The court reached that conclusion by finding that VA benefits are “‘compulsory’ in the sense that the VA was ‘required’ by law to provide them.” (citing American Heritage Dictionary of the English Language, 274 (New College Ed. 1978)).
The court added a citation for the conclusion that “Veteran’s disability benefits are non-discretionary, statutorily mandated benefits.” (citing Cushman v. Shinseki, 576 F.3d 1290, 1297 (Fed. Cir. 2009)) and the court also cited the regulation providing that “veterans who develop ALS are guaranteed disability benefits.” The court also made an alternative finding that the VA benefits could be offset under the provisions applying to a “Workers’ Compensation Law” or legislation “of like intent.”
The court determined that the purpose behind workers’ compensation is “closely aligned” to the intent behind the Veterans Benefit Act.
This decision rewards Sun Life’s sloppy draftsmanship. Had Sun Life intended to offset VA benefits, it could easily have drafted its policy to say so.
Just because the insurer now wishes it had written the policy differently does not mean that a court should make that wish come true.
Especially in an era where public policy favors that our society take better care of those who faithfully served our country and defended our freedom, this ruling is shocking, particularly since it comes on the heels of two recent appellate decisions involving the same insurance company and the same provision.
A compulsory benefit act or law is one such as the law at issue in Metro.Life Ins.Co. v. Mass., 471 U.S. 724 (1985), which involved a state statute that mandated the inclusion of mental health coverage in group health plans.
Such laws are generally deemed to apply to benefits that employers are required to provide to their employees and not to laws of general applicability. Nor is the VA benefit comparable to workers’ compensation, because once again, those benefits are provided under state laws that bind employers to compensate their employees who are injured on the job or who develop occupational illnesses.
Workers’ compensation benefits are also unlike VA benefits because unlike workers’ compensation or Social Security disability, VA benefits are not an “insurance” program but, as Riley pointed out, “are considered obligatory compensation for injuries to service men and women during military duty.”
VA benefits also differ from workers’ compensation and Social Security because they have nothing to do with rank, length of service or pay received while serving.
Moreover, VA benefits are funded by Congress rather than based on a tax such as Social Security benefits. Further, unlike Social Security or workers’ compensation where the claimant has the burden of proving entitlement to benefits, the standards to qualify for VA benefits are designed to “give the benefit of the doubt to the claimant.” 38 U.S.C. Section 5107(b).
Given the absence of clear language permitting the offset of VA benefits, the 10th U.S. Circuit Court of Appeals should reconsider this ruling.