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Can a Personal Injury Settlement Offset Your Long-Term Disability Payments?

On behalf of the DI Law Group posted in ERISA on Monday, June 26, 2017.

In a recent case out of the Second Circuit Court of Appeals, Arnone v. Aetna Life Ins. Co., No. 15-2322, 2017 WL 2675293 (2d Cir. June 22, 2017), the Court found that a personal injury settlement received by the insured could not be used to offset the insured's entitlement to long-term disability benefits.

The insured, Arnone, sustained serious injuries during the course of his employment. He filed for, and was granted, long-term disability benefits through his employer for the injury. The insured subsequently filed a personal injury suit against his employer's customer and settled for $850,000.

Due to this large settlement, the insurance company ("Aetna") reduced Arnone's disability benefits by the portion relevant to the settlement. Aetna argued that under the insurance policy, it was allowed to reduce its payment obligation. Consequently, Arnone sued Aetna to recover these "offset" benefits.

The Court decided that Aetna was mistaken in withholding benefit payments and ordered that it pay Arnone for the unpaid benefits. The Court further held that Aetna should have been familiar with this practice and could not "insulate itself from the application of relevant state law by hoping that during the claim process, its insured fail to invoke . . . a state law with which [it] should already be quite familiar [with]."

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