A recent ruling received by DeBofsky, Sherman & Casciari examined the issue of how to determine pre-disability earnings.  In Cheney v. Standard Ins. Co., 2015 WL 2015 U.S.Dist.LEXIS 30918 (N.D.Ill. March 13, 2015)(Issue: Pre-Disability Earnings). In an earlier ruling (Cheney v. Standard Ins. Co., No. 13 C 4269, 2014 WL 4259861 (N.D. Ill. Aug. 28, 2014)), the court established that the plaintiff, Carole Cheney, a former partner in the law firm of Kirkland & Ellis, was entitled to disability benefits.  In this ruling, the court resolved the earnings forming the basis of the benefit amount.  The question was whether Cheney’s 2010 or 2011 earnings would be used; and the resolution of the question depended on when plaintiff ceased “active work.”  The policy provided that the benefit for partners was based on the average monthly compensation during the tax year prior to the last day of active work.  The issue was significant because Cheney took significant time off from work in 2010 due to her medical condition that ultimately caused her to cease working altogether in 2012.  Cheney argued her last day of active work was January 3, 2012 when a scheduled leave of absence commenced, while Standard asserted that the last date of active work was December 19, 2011, which was the plaintiff’s last day of working for the firm.  The court agreed with Cheney.

In the court’s prior ruling on summary judgment, the court found that since the plaintiff was considered active for the purpose of continuing coverage through January 3, 2012 and Plaintiff was paid as an active employee until that date, Cheney should be deemed an active employee during the holidays and would be be deemed to be “performing with reasonable continuity the Material Duties” of her occupation even while on vacation.  The court remarked that another way of stating the same thing was to say that “plaintiff’s legal disability did not begin until her leave of absence started, which then ended her period of ‘Active Work.'”

The defendant argued that since Cheney did not bill hours after December 19, 2011, that is when her active work ended.  However, because the court found the policy terminology has “alternate interpretations,” the court deemed the policy ambiguous.  The court also applied the “reasonable expectations of the insured” doctrine to find “it to be a reasonable expectation for an employee to believe she would remain ‘Actively At Work’ while still employed, and prior to taking any official leave.”

The court also expressed concern about the unfairness of a contrary result.  The court observed:

[I]f the policy to be read as defendants suggest, plaintiff’s benefits would be based on a year – 2010 – that is not reflective of plaintiff’s long-time career at the law firm. Plaintiff was paid $64,660 in 2010 which was not representative of her “average monthly compensation from [her] Employer” during “the prior tax year” simply because she did not work the full year. A reasonable expectation would be that plaintiff would be paid based on her regular compensation, not based on a year that was vastly different than other years.

The court reached a common-sense conclusion, because a different conclusion would have led to an absurd result because of Cheney’s unusually low earnings in 2010, which were depressed on account of her medical condition.  But this ruling illustrates the complexity of issues that seem straightforward such as determining the earnings in effect at the time of disability

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