In an unpublished opinion issued on July 7, 2014 from the United States Court of Appeals for the Tenth Circuit, a Federal Court ruled somewhat surprisingly and approved Sun Life’s decision to “offset” VA Benefits from a disabled Veteran’s monthly disability benefits. While this case is not “binding precedent,” it can serve as a warning for those that are receiving VA Benefits, or any other income benefits, that are not listed in their Long Term Disability (LTD) ERISA Policy.

What Are Other Income Benefits?

Most, if not all, LTD ERISA group insurance policies contain language in the policy entitled “Other Income Benefits.” This section of the policy states that if a claimant is receiving Long Term Disability benefits and also benefits from other sources, the insurance company may reduce the Disability Benefits by the amount of money the claimant is getting from the other sources. The policies will then list what other income benefits they will “offset” for. In most instances, the policies will allow an offset for Social Security Disability Benefits and Social Security Retirement benefits the claimant or the claimant’s dependents receive. Often times other income benefits will also include retirement benefits if they were funded by the claimant’s employer who sponsored the LTD Policy, workers compensation benefits, and benefits received from other Group Disability Insurance Policies. Some policies will even offset for VA benefits. With the case in question, the policy did not specifically state that VA benefits would be offset.

Facts of the Case

Dr. Howard Holbrooks served for six years as a physician in the United States Army. After being honorably discharged in 2003, Dr. Holbrooks worked as an Anesthesiologist for Community Health Systems. On May 7, 2009, Dr. Holbrooks was unfortunately diagnosed with Amyotrophic Lateral Sclerosis (ALS, or better known as Lou Gehrig’s Disease). As a result of his diagnosis, Dr. Holbrooks applied for and was approved for LTD benefits under a Sun Life Long Term Disability Insurance Policy that was provided to him through his employment with Community Health Systems. Under this policy, Dr. Holbrooks would receive benefits in the amount of 60% of his prior monthly earnings.

In addition to his disability benefit from Sun Life, Dr. Holbrooks also was entitled to receive service-connected disability benefits from the Department of Veterans Affairs. After being awarded VA benefits, Sun Life determined that such benefits were “other income benefits” and thus reduced the amount of benefit they paid each month by the amount he was getting from the VA.

Seeing as the policy did not specifically list VA Benefits as being “offsettable”, Dr. Holbrooks appealed Sun Life’s decision to offset the benefits. Sun Life upheld its decision and ultimately a lawsuit was filed. Unfortunately for Dr. Holbrooks, the trial court and the court of appeals have upheld Sun Life’s Decision.

The Court’s Rationale

The Policy in question states that any benefits under the following sources are considered “other income benefits”: (a) workers’ compensation law; or (b) occupational disease law; or (c) unemployment compensation law; or (d) compulsory benefits act or law; or (e) an automobile no-fault insurance plan; or (f) any other act or law of like intent…

The Courts noted that VA benefits are “nondiscretionary, statutorily mandated benefits, [which][a] veteran is entitled to… upon showing that he meets the eligibility requirements set for in the governing statutes and regulations.” The Courts further noted that “VA regulations establish a presumption of service connection for ALS for any veteran who develops ALS any time after separation from military service.” The Courts then concluded that because “the VA was required by law to pay Dr. Holbrooks’s disability benefits, Sun Life was entitled to offset those benefits under the terms of the Policy.” The Court thus ruled that such benefits were “compulsory benefits” and thus eligible to be an offset under the policy in question.

Why Does This Decision Matter?

This decision can serve as an educational tool for those receiving both LTD benefits and VA benefits. If the insurance company is now not offsetting those benefits, they may be able to in the future and an overpayment may be owed to the insurance company. Additionally, the courts’ decisions show that while benefits might not be specifically listed in the policy, they may still be “offsettable.” Therefore, it is never safe to assume that your other income benefits cannot be offset just because those benefits are not specifically listed in the policy.