The opinion of the court was delivered by: Honorable Robert M. Dow, Jr.
DEFENDANT'S TRIAL BRIEF PURSUANT TO FED.R.CIV.P. 52
This is a judicial review proceeding under ERISA in which this Court will determine whether Sun Life was reasonable when it offset Plaintiff's long term disability ("LTD") benefits by a portion of a tort settlement arising from the same disability. The parties stipulated to a bench trial on the administrative record pursuant to Fed.R.Civ.P. 52.
Plaintiff was employed as the global controller for a hedge fund, making $1.3 million per year until he suffered a stroke on April 21, 2005. (R. 49, 53, 1432.) He was treated at Northwestern Hospital. Under an employee benefit plan sponsored by his employer and insured by Sun Life, Plaintiff submitted an application for LTD benefits. (R. 47-71.) Sun Life approved the claim and benefits began to accrue as of July 21, 2005 and continued to be paid. (R. 445-46.)
On August 27, 2007, while conducting some routine research to update Plaintiff's file, Robert Goodall (Sun Life claims consultant) discovered that in March 2007, Plaintiff "settled with Northwestern Hospital in the amount of 19.5 million dollars for not giving the proper medical treatment while [Plaintiff was] in the ER on the night of his stroke [April 21, 2005]." (R. 34.)
Sun Life obtained a copy of Plaintiff's malpractice Complaint, as well as the settlement agreement ("Settlement Agreement"), Plaintiffs' Answers to Interrogatories, Plaintiffs' Mediation Statement, and Kelly Baxter's Deposition. (R. 1192, 1400.) The Baxters alleged that as a result of the hospital's negligent treatment of Plaintiff, he suffered "injuries of a personal and pecuniary nature." (R. 1014.) (emphasis added) The Mediation Statement included a report entitled, Ted Baxter Economic Loss. The report showed "net past lost income as of March 19, 2007 [of] $997,342.00 and future lost income ranging from $28,943,212.00 to $63,248,192.00."
(R. 1207; 1213-15.) The Baxters settled the malpractice action for $19,500,000. (R. 940-942.) Sun Life's LTD Policy requires that LTD benefits be offset by "Other Income Benefits."
(Policy 680-81.) In pertinent part, the Other Income Benefits section states:
Other Income Benefits are those benefits provided or available to the Employee while a Long Term Disability Benefit is payable. These Other Income Benefits, other than retirement benefits, must be provided as a result of the same Total or Partial Disability payable under this Policy. Other Income Benefits include:
1. The amount the Employee is eligible for under:
a. Workers' Compensation Law; or
b. Occupational Disease Law; or
c. Unemployment Compensation Law; or
d. Compulsory Benefit Act or Law; or
e. an automobile no-fault insurance plan; or
f. any other act or law of like intent. . . .
9. Any amount due to income replacement or lost wages the Employee receives by compromise, settlement or other method as a result of a claim for any Other Income Benefit.
In an April 18, 2008, letter to Plaintiff's counsel, Mr. Goodall stated Sun Life had determined that Plaintiff's LTD benefit must be offset by the settlement. (R. 1384-1388.) He stated that upon review of the responses to interrogatories, the Mediation Statement, Mrs. Baxter's deposition, and the Basters' Economic Loss Report, "the vast majority of Mr. Baxter's claims relate to his lost wages." (R. 1385.) Nevertheless, Mr. Goodall only applied one-third of the $19.5 million settlement in his calculation of the offset, this being a conservative estimate of Plaintiff's recovery for lost income. (Id.) The amount of the monthly offset was $22,965.90. (Id.) Because this amount exceeded the Plaintiff's monthly LTD benefit, Plaintiff was eligible for and did receive the Minimum Monthly Benefit of $1,500.00. (Id.) Mr. Goodall also determined that there was an overpayment of $375,480. (R. 1386.)
Plaintiff (through counsel) appealed. (R. 1416.) In response, Brian Sullivan (Sun Life appeal specialist), asked David C. Jensen, an attorney in practice for more than 35 years and whose area of expertise is litigation with "special emphasis on professional liability and commercial litigation," to advise whether any part of the settlement related to lost wages. (R. 1418-19, 1434.) Mr. Jensen prepared a written opinion dated August 12, 2008 ("August Letter").
(R. 1431-1435.) He noted that while Plaintiff's stroke was initially disabling, his recovery had been excellent, he had no disfigurement, his physical rehabilitation was relatively quick and successful, his medical bills were very small, and nothing suggested significant medical expenditures in the future. (R. 1431.) Mr. Jensen concluded "[t]he substantial settlement he actually received - $13 million after payment of attorneys fees and expenses --was driven by his lost future income." (Id.)
After reviewing Mr. Jensen's report, Plaintiff's counsel submitted a letter from Neil B. Posner, Esq. (R. 1462-63.) Mr. Posner opined that Sun Life's position concerning application of the malpractice settlement proceeds to offset the LTD benefit was not correct. (R. 1467-86.) Mr. Sullivan forwarded the letter to Mr. Jensen. (R. 1453-54.) Mr. Jensen responded on May 12, 2009, ("May Letter") that he had not changed his opinion "that lost income and the loss of earning capacity for this high wage earner was a significant factor in the mediated settlement into which the [Baxters] entered with Evanston Northwestern Hospital." (R. 1457.) Mr. Jensen stated that he could not comment on the tax issues in Mr. Posner's letter.
Mr. Sullivan then requested James McElligott, Jr., a partner at McGuire Woods LLP who handles employment, executive compensation, and benefits matters, to address the tax issues. (R. 9, 14, 24.) Mr. McElligott responded that Mr. Posner's contentions concerning the tax issues were "clearly wrong." (R. 15.) He observed there is "no suggestion that the 'Other Income Benefits' must be taxable for federal income tax purposes," (R. 15.), and stated that "Sun Life's characterization of the settlement proceeds for purposes of honoring its ...