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Court Sides With Insurer On Reimbursement Claim Involving ERISA Plan Offset For Social Security Disability Benefits

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The opinion is Jones v. Life Insurance Company of North America, No. 08-CV-6586, 2011 WL 1979936 (W.D.N.Y. May 20, 2011), and the lawsuit involved claims by Plaintiff Charles R. Jones to long-term disability benefits under an employee benefit plan offered by his former employer, Electronic Data Systems, and issued by Life Insurance Company of North America (LINA). 

Jones alleged that he is disabled, and so is entitled under this ERISA plan to disability benefits and that LINA, by denying his claim for benefits, breached a fiduciary duty owed to him.

LINA argued that his claims were baseless, and asserted a counterclaim for restitution based on his receipt of Social Security Disability benefits, for which LINA alleged that it was entitled to an offset under the Plan.

On competing motions for summary judgment, the court rejected the claim for breach of fiduciary duty and then turned to the offset counterclaim.

First, Jones argued that the claim for reimbursement of Social Security Disability benefits was a legal claim, not an equitable claim, and therefore LINA could not proceed, under ERISA, for a claim for reimbursement.

In particular, Jones said that the court did not have subject matter jurisdiction pursuant to the Supreme Court’s decision in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002), where the Supreme Court held that claims under 20 U.S.C. § 1132(a)(3) are cognizable only to the extent that the claimant seeks equitable relief. Jones maintained that the LINA reimbursement claim was one for money damages, and thus was a “classic form of legal relief”. 

LINA argued that Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006), distinguished and clarified Knudson, and that courts in the Second Circuit have held that claims for reimbursement of Social Security Disability benefits under similar circumstances are considered equitable claims for restitution.

The court in the Jones case agreed with LINA, concluding that the claim was valid under the Sereboff reasoning and that LINA’s claim should prevail:

In Sereboff,that Supreme Court held that a claim for reimbursement based on an ERISA benefit plan provision, which provided that the insurer would be reimbursed for funds received from a third party, was equitable in nature because “it sought to impose a constructive trust or equitable lien on ‘particular funds or property in the defendant’s possession.’ ” 547 U.S. at 362 . . . . The SereboffCourt distinguished Great–West [v. Knudson] because the funds received by the Plaintiff in Great–West [v. Knudson] were not actually in her possession, but in a trust created under California law. Id. at 363. Such facts are not present here or relevant to this case. Further, contrary to Plaintiff’s argument, the SereboffCourt also rejected a requirement that the funds sought to be recovered be directly traceable to particular funds in the defendants’ possession, rather than from the defendant’s general assets. 547 U.S. at 364–5.

District Courts in this Circuit have followed Sereboff in cases with factual circumstances similar to the instant action ( insurance company seeking restitution for overpayment of benefits due to the receipt of social security disability benefits) and have found that such claims are cognizable under ERISA. See Aitkins ex rel Casillas v. Park Place Entertainment Corp.,2008 WL 820040 (E.D.N.Y. March 25, 2008) (citing cases). This Court finds that LINA’s claim for reimbursement of funds pursuant to the Plan and the reimbursement agreement is equitable in nature, that this Court has jurisdiction to decide the claim, and that, LINA has stated a claim upon which relief may be granted.

Plaintiff also argues that LINA seeks to “recover the proceeds from social security benefits, which, he argues, 42 U.S.C. § 407(a) expressly prevents.” . . . . However, Courts in this Circuit and others have also rejected this argument. See Solomon v. Metropolitan Life Ins.Co.,628 F.Supp.2d 519, 534 (S.D.N.Y.2009) (finding that § 407 was not a bar to recovery because the “counterclaim asserts a property interest in [Defendant’s] own overpayment of benefits rather than [Plaintiff]’s social security benefits.”). Accordingly, this Court does not find that § 407 is a bar to recovery on LINA’s Counterclaim.

Plaintiff has not disputed the substantive elements of LINA’s Counterclaim for reimbursement, i.e.that it is entitled to reimbursement under the Plan, that Plaintiff received Social Security Disability benefits, and that the amount of restitution owed is $35,877.40. This Court finds that LINA’s claim is equitable in nature and that neither the Supreme Court’s decision in Great–West [v. Kundson] nor 29 U.S.C. § 407(a) are a bar to LINA’s claim, and accordingly, this Court hereby grants LINA’s Motion for Summary Judgment on its Counterclaim for offset in the amount of $35,877.40.

Jones v. Life Insurance Company of North America, No. 08-CV-6586, 2011 WL 1979936 (W.D.N.Y. May 20, 2011).