By Maggie Smith of Disability Insurance Law Group:
In a decision last month out of the Fifth Circuit Court of Appeals, the Court found Metropolitan Life Insurance Company (“MetLife”) was unreasonable to reduce Mr. Thomason’s long-term disability benefits by pension funds that he directly rolled over to an IRA.
Mr. Thomason worked for Verizon Communications, and participated in the long-term disability benefit and pension plans offered as a benefit of his employment. Unfortunately, Mr. Thomason experienced various health issues that disabled him from his employment and caused him to become eligible to receive long-term disability benefit payments from MetLife. The long-term disability benefit plan at issue was insured by MetLife and included (in relevant part) that “your LTD plan benefit is reduced by benefits provided from these sources: – pension benefits from a Verizon pension plan, if you elect to receive them.”
Following his disability, Mr. Thomason determined that it was in his best financial interest to perform a trustee-to-trustee direct rollover from his pension account to his IRA. Mr. Thomason had determined that the Verizon pension plan was qualified under section 401(a) of the Internal Revenue Code and subject to IRS regulations, including the publication that explains that if funds are rolled over from a qualified retirement plan directly into a traditional IRA, then tax penalties may deferred and the funds are not considered income until received as a distribution that was not rolled over. Thus, Mr. Thomason also concluded that the offset provision of the Verizon pension plan would not apply to the direct rollover of funds because he would not receive his pension benefits until he withdrew them from his IRA.
However, MetLife determined that in conducting this transaction, Mr. Thomason had “elected to receive . . . pension benefits from a Verizon pension plan,” and thus began reducing Mr. Thomason’s disability benefit payment by over $1,300 per month, over half of what he previously received. Despite two appeals filed by Mr. Thomason with MetLife disputing that MetLife was permitted to reduce his disability benefit by pension funds in this situation, MetLife refused to change its position and continued to offset Mr. Thomason’s benefit as a result of the rollover of the pension funds.
Thus, Mr. Thomason filed a lawsuit arguing that because he chose a trustee-to-trustee transfer of his pension funds (pension trust to IRA), he did not “elect to receive” the funds, so the offset provision should not apply and MetLife was wrong to reduce his benefit. MetLife continued to argue that Mr. Thomason had “elected to receive . . . pension benefits from a Verizon pension plan” and thus it was within its right under the plan to reduce his benefit as it had been doing.
The Court found that the phrase “elect to receive” pension benefit was ambiguous because it was susceptible to more than one reasonable interpretation, as it gave no indication of whether a direct rollover in a trustee-to-trustee transfer constituted a beneficiary “electing to receive” pension benefits. The Court applied the rule of contra proferentem, which resolves ambiguities against the drafter of an insurance contract (MetLife) and in favor of coverage for the insured (Mr. Thomason), and ruled in favor of Mr. Thomason. In so ruling, the court declined to reach the actual meaning of “elect to receive” but instead held that Mr. Thomason had not elected to receive the funds when he directly rolled them over from the pension fund to his IRA through a trustee-to-trustee transfer. It thus overturned MetLife’s determination as wrong and unreasonable, and ordered that MetLife to pay the full disability benefit owed under the plan, without any reduction for the rollover of the pension funds to the IRA.
If your insurance company is improperly reducing your disability benefit amount under offset provisions like the one at issue in Mr. Thomason’s case or failing to uphold its promises under your insurance contract, contact one of our experienced attorneys today for a free consultation.