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:: The Conflict Between ERISA Overpayment Claims And Statutory Protection Of SSDI Benefits

The plaintiff also argues for dismissal of the counterclaim because MetLife seeks to recover funds received under the Social Security Act, which funds are protected from “execution, levy, attachment, garnishment, or other legal process.” See 42 U.S.C. § 407. For support, the plaintiff cites Ross v. Pa. Mfrs. Ass’n Ins. Co., No. Civ.A 1:05-0561, 2006 U.S. Dist. LEXIS 33875, 2006 WL 1390446 (S.D. W.Va. 2006), and Mote v. Aetna Life Ins. Co., 435 F. Supp. 2d 827 (N.D. Ill. 2006). “However, the better reasoned opinions that have addressed this issue hold that § 407(a)’s prohibition is not triggered by this kind of reimbursement provision because the insurance company “‘seeks the amount it overpaid [the claimant rather than] any of [the claimant's] Social Security benefits.’” Mattox v. Life Ins. Co. of N. Am., 536 F. Supp. 2d 1307, 1327 (N.D. Ga. 2008) (quoting Gilcrest v. Unum Life Ins. Co. of Am., No. 05-CV-923, 2006 U.S. Dist. LEXIS 54167, 2006 WL 2251820, at  (S.D. Ohio, Aug. 4, 2006)); see also Dillard’s Inc. v. Liberty Life Assurance Co. of Boston, 456 F.3d 894, 900-01 (8th Cir. 2006).

Herman v. Metro. Life Ins. Co., 2008 U.S. Dist. LEXIS 101612 (M.D. Fla.) (December 16, 2008)

This district court opinion involves the common fact pattern in which plan participant and long term disability carrier dispute the carrier’s rights to recoup benefits paid based on the LTD policy’s provisions requiring reimbursement of LTD benefits where the participant has received Social Security Disability Income (“SSDI”) benefits.

Between March 24, 2003, and March 1, 2006, MetLife paid the plaintiff long-term disability benefits totaling $ 342,196.80 ($ 9,721.50 per month).  On July 23, 2003, the plaintiff signed an “Agreement Concerning Long Term Disability Benefits,” which requires the plaintiff to notify MetLife upon receiving a Social Security Administration (“SSA”) decision on her claim for Social Security Disability Income (“SSDI”) and to reimburse the Plan upon receipt of any retroactive SSDI benefits.

The district court held for the carrier.

In so holding, the court rejected two important defenses asserted in such cases: first, that the carrier’s claims were not claims for equitable relief, as required by ERISA Section 502(a)(3), and second, that the SSDI benefits were protected from recovery based upon 42 U.S.C. § 407 (protecting funds from “execution, levy, attachment, garnishment, or other legal process.”).

Equitable Relief?

The district court opines that the carrier’s claim is equitable, stating:

Viewed most favorably to MetLife, the counterclaim states a claim for equitable relief under 29 U.S.C. § 1132(a)(3). MetLife seeks to enforce a lien by agreement on a specifically identified fund–the plaintiff’s SSDI award. MetLife alleges entitlement to a specific portion of the fund–the entire amount of the award minus $ 5,300.00 for court-approved attorney fees in the SSDI action. Finally, MetLife alleges that the fund is within the plaintiff’s control. (Doc. 15, P 36) See Popowski v. Parrott, 461 F.3d 1367, 1373-74 (11th Cir. 2006)  (interpreting two subrogation and reimbursement provisions in light of Sereboff).

Remarkably, in view of the subsequent ruling of the court that 42 U.S.C. § 407 does not apply, the court holds that the carrier’s claim meets the Knudson/Sereboff requirements for an (a)(3) claim because it alleges entitlement to a specific res – the SSDI award.  The court is to be commended for articulating and applying the res requirement – but its reliance on this finding undercuts its subsequent position on 42 U.S.C. § 407.

SSDI Benefits and 42 U.S.C. § 407

The district court really doesn’t engage in any independent analysis on the application of 42 U.S.C. § 407.  It simply repeats a conclusory statement, virtually verbatim, from another district court opinion that “the better reasoned opinions that have addressed this issue hold that § 407(a)’s prohibition is not triggered by this kind of reimbursement provision  . . .”   (citing, Mattox v. Life Ins. Co. of N. Am., 536 F. Supp. 2d 1307, 1327 (N.D. Ga. 2008))

The Mattox opinion simply quotes Gilcrest v. Unum Life Ins. Co. of Am., No. 05-CV-923, 2006 U.S. Dist. LEXIS 54167, 2006 WL 2251820, at *2 (S.D. Ohio, Aug. 4, 2006)).  There, the district court simply opined that:

Here, though, Unum seeks the amount it overpaid Gilcrest; it does not seek any of Gilcrest’s Social Security benefits. As such, Gilcrest’s § 407 argument is without merit.

Finally, the “see also” citation in these cases to Dillard’s Inc. v. Liberty Life Assurance Co. of Boston, 456 F.3d 894, 900-01 (8th Cir. 2006), can be misleading.  Dillard’s did involve a claim based upon overpayment due to an SSDI award, but it did not address the § 407 argument as presented in the subsequent district court opinions.

Granted, there may be implicit approval in Dillard’s for a claim on SSDI funds, but the Dillard’s opinion only states:

The present case is analogous to Sereboff in that Liberty seeks reimbursement for amounts paid to Bolton from a third-party source, the Social Security Administration. Liberty’s complaint states that it is a request for equitable relief, and Liberty seeks a particular share of a specifically identified fund–all overpayments resulting from the payment of social security benefits.

Note: The tension in these recoupment cases is between the requirement of a specific res, pursuant to Knudson/Sereboff, and the protection of the funds under § 407 of the funds that are the target of the ERISA claim.  The problem does constitute one of mutual exclusivity.  In some cases, a carrier may seek the “amount” of SSDI payments from LTD overpayments that are held in identifiable accounts.  On the other hand, when the funds sought are specifically identified as SSDI benefits, the goals of the two statutes are in conflict.  The conflict should be admitted and resolved on principled grounds – not appeals to authority based upon “better reasoned” opinions.