You know that most ERISA plans, and most supporting insurance policies, have provisions that allow for an offset of Social Security disability benefits.

Can the court invalidate these offset provisions because of “unconscionable” conduct? It depends.

Here’s the case of Hart v. Unum Life Insurance Co. of America Catholic Healthcare West LTD Disability Plan, 2017 WL 4418680 (October 4, 2017)(Court denied Plaintiff’s request to invalidate offset provision).

FACTS: The court previously determined Plaintiff Hart was entitled to ERISA-governed disability benefits. Plaintiff then asked the court to invalidate the Social Security benefit offset provision in the ERISA plan, claiming that Unum’s (wrongful) denial of benefits was unconscionable and forced Hart to “lose her house and her car,” and forced her to prematurely apply for Social Security retirement benefits.

ISSUE: Whether the right to offset Social Security benefit payments should be denied because Unum wrongfully denied disability benefits?

DISTRICT COURT HELD: NO.

  1. Plaintiff “offers no analysis to show that the law in our circuit would permit application of unconscionability principles…to deny effect to an ERISA provision.” Op. at 3.
  2. “Allowing Unum the offset it seeks would still compensate Hart for Unum’s wrongful termination of benefits through the age of 65 but not for the reduction of her social security retirement benefits thereafter.” Op. at 4.
  3. The Court awarded prejudgment interest, which is an “element of compensation, not a penalty.” Op. at 4. “The balance of the equities herein warrants an award of prejudgment interest [at 10%].” Op. at 6.

KEY TAKE AWAY:

-There is some authority allowing a court to exercise “equitable power” to deny offsets, but those cases are distinguishable. See, e.g., Godfrey v. BellSouth Telecommunications, Inc., 89 F.3d 755, 757-9 (11th Cir. 1996)(Offset provision invalid because employer denied disability benefits and then threatened to fire employee unless she returned to work).

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Photo of Mike Reilly Mike Reilly

Mike Reilly is a nationally recognized labor, employment and employee benefits attorney, named one of the “Top 100 Most Powerful Employment Attorneys in the Nation” for the past five consecutive years by Human Resource Executive®. He has decades of experience providing strategic employment…

Mike Reilly is a nationally recognized labor, employment and employee benefits attorney, named one of the “Top 100 Most Powerful Employment Attorneys in the Nation” for the past five consecutive years by Human Resource Executive®. He has decades of experience providing strategic employment advice, and has represented clients in more than 75 jury trials, arbitrations, bench trials and claims before the EEOC and Washington State Human Rights Commission.

Small and large employers retain Mike for his strategic advice and decades of experience in employment issues and litigation, business decisions and litigation avoidance. Mike provides advice in claims involving discrimination, retaliation, wrongful discharge, disability accommodation, ERISA and non-ERISA employee benefit claims, and wage/hour claims. He served as lead counsel in an employee raiding/trade secret case as reported in the Wall Street Journal, and defends employers in class action claims.

Mike’s remarks on employment issues have been quoted in NewsweekCorporate Legal TimesSeattle TimesEmployee Relations Law JournalPuget Sound Business JournalCFO.com, and other professional journals and management publications. Chambers USA’s Guide to America’s Leading Lawyers for Businessrates Mike in the top ranking (band one) for his work in labor and employment law, and has described him as “one of Seattle’s top-rate attorneys” who is “truly phenomenal [with] superb legal instincts” and “an amazingly assertive litigator.” His clients include Nordstrom, Seattle Seahawks, Home Depot, KeyBank, Starbucks, Fred Hutchinson Cancer Research Center, Red Robin and Seattle Chamber of Commerce, among others.