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Williams v. Group Long Term Disability Insurance

July 17, 2008

MARK WILLIAMS, PLAINTIFF,
v.
GROUP LONG TERM DISABILITY INSURANCE AND RELIANCE STANDARD LIFE INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Wayne R. Andersen United States District Court

Judge Wayne Andersen, District Judge

MEMORANDUM OPINION AND ORDER

This matter comes before the court on plaintiff Mark Williams' motion to dismiss defendants' counterclaim for a constructive trust pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, the motion [14] is denied in part and granted in part.

BACKGROUND

Plaintiff Mark Williams filed a one-count complaint in Case No. 05 C 4418 against defendants Group Long Term Disability Insurance (the "Plan") and Reliance Standard Life Insurance Company ("Reliance Standard") claiming that he had not been paid long-term disability benefits allegedly due to him under the Plan. The parties filed cross-motions for summary judgment. On August 2, 2006, we issued a Memorandum Opinion and Order granting plaintiff's motion for summary judgment and denying defendants' motion for summary judgment. However, plaintiff's request for reinstatement of the long-term benefits he claimed were due to him was denied. Instead, this matter was remanded to the Plan's administrator to review plaintiff's claim for long-term disability benefits anew in proceedings consistent the court's Memorandum Opinion and Order.

Plaintiff has filed a new complaint claiming that the Plan's administrator still is wrongfully denying his long-term disability benefits allegedly due under the Plan. Reliance Standard has filed a counterclaim for a constructive for reimbursement of the disability benefits it paid to plaintiff at the same time he was collecting Social Security and Veterans Administration benefits. Reliance Standard seeks to recover the amount that was overpaid. Plaintiff has moved to dismiss the counterclaim arguing that there is no mechanism under ERISA which permits Reliance Standard to recover the overpayment and that the Plan does not allow for an offset of Veterans Administration benefits.

DISCUSSION

A. Reliance Standard Has an Equitable Lien on the Overpayment and A Right to Recover under Section 502(a)(3) of ERISA

Reliance Standard contends that its counterclaim for reimbursement is an equitable lien and thus an equitable remedy permitted under section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3). Plaintiff, however, argues that the counterclaim does not seek an equitable lien, but rather is a claim for monetary damages at law, which is inappropriate under ERISA.

Reliance Standard relies on the United States Supreme Court's decision in Sereboff v. Mid. Atl. Med. Servs Inc., 126 S.Ct. 1869 (2006), to support its contention that the counterclaim is an equitable lien which is permissible under ERISA. In Sereboff, the Supreme Court held that, when an insurance policy has a provision stating that certain funds may need to be returned to the insurer, an equitable lien by agreement results. 126 S.Ct. at 1871-72.

The Plan at issue here specifically provides that a claimant's gross monthly benefits is reduced by "Other Income Benefits" that a claimant receives. The Plan identifies categories of "Other Income Benefits" that are subject to the offset, which include, among other sources, disability benefits under the Social Security Act which an insured is eligible to receive because of a total disability. Since the Plan specifically provides that the Insurer can recover the overpayment of funds in the amount of other benefits received, Reliance Standard's counterclaim qualifies as an equitable lien as contemplated by the Supreme Court in Sereboff. Thus, pursuant to the Supreme Court's holding in Sereboff, Reliance Standard has an equitable lien on the overpayment of benefits and a right to recover those funds under section 502(a)(3) of ERISA.

B. The Counterclaim for the Overpayment of Benefits Does Not Involve a Lien on Social Security or Veterans Administration Benefits

Plaintiff next argues that the counterclaim should be dismissed because a lien may not attach to Social Security or Veterans Administration benefits. 42 U.S.C. § 407; 38 U.S.C. § 5301(a). While it is true that a lien may not attach to Social Security or Veterans benefits, Reliance Standard does not seek reimbursement of plaintiff's Social Security or Veterans benefits. Rather, Reliance Standard seeks reimbursement of the funds that it actually paid to plaintiff. Reliance Standard is not seeking to attach a lien to plaintiff's Social Security or Veterans benefits, but rather to recover the overpayment of funds plaintiff received as a result of collecting both Social Security and Veterans benefits at the same time he collected long-term disability benefits under the Plan.

Another court in this district has reached the same conclusion in a case involving the offset of Social Security benefits by an insurance company. Smith v. Accenture U.S. Group Long-Term Disability Ins. Plan, 2006 WL 2644957 (N.D. Ill. Sept. 13, 2006). In Smith, the district court concluded that the "other income" provision of the insurance plan at question established an equitable lien, and therefore the defendant's ...


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