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April 2015 Archives

Post-Disability Earnings - Profit Distribution or Income?

Two recent cases looked at monies paid to disability insurance claimants after the onset of disability and analyzed the question of whether the monies constituted income or profit distributions.  Although the claimants lost in both Fine v. Sun Life Assur. Co. of Canada, 2015 WL 1534513 (E.D. Va. April 6, 2015)and in Bencivenga v. Unum Life Ins. Co. of Am., 2015 WL 1439697 (E.D. Mich. March 27, 2015), the issue is one that frequently emerges but has yet to be definitively resolved.  Fine was the owner of a company prior to the onset of his disability and claimed that post-disability payments represented a distribution of the company's profits.  However, an agreement reached between the former owner and the company delineated the payments as income for ongoing consulting work.  In Bencivenga, the claimant was the owner of an insurance brokerage; and the court found that renewal commission payments received by the brokerage constituted earnings.

What Are Pre-Disability Earnings?

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.

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