Further to yesterday’s blog, the case of Funk v. Cigna Group Insurance, No. 10-3936 (3rd Circuit 2011) raised a third interesting matter. This issue was whether CIGNA could recoup from the plaintiff the long-term disability (“LTD”) benefits it had paid to the plaintiff, to the extent that the plaintiff also received disability benefit payments from Social Security. A provision in the Plan and a related reimbursement agreement (the “Reimbursement Agreement”) allow the LTD benefits paid by the Plan to be offset by Social Security disability benefits and recouped. The plaintiff had received $24,817 in Social Security disability payments (apparently less than the LTD benefits that the Plan had paid prior to the termination of the benefits by CIGNA-see yesterday’s blog-and therefore subject to recoupment). The plaintiff had turned over $18,500 of that amount to CIGNA. The question is whether CIGNA can recoup the remaining $6,317.
The basis of the claim for recoupment is section 502(a)(3) of ERISA, which permits fiduciaries to obtain “appropriate equitable relief”. The relief must fall within a category of relief that was typically available in equity. Here, CIGNA wants relief to enforce the offset/recoupment provisions of the Plan and the Reimbursement Agreement. GIGNA claims that those provisions give it an equitable lien over the $6,317 amount in question, since, in accordance with applicable Supreme Court decisions, the provisions identify specific funds (the Social Security disability benefits) and a particular share of those funds (the amount of overpayment) to which its lien attached. The Court agreed with CIGNA, and ruled that the Plan and Reimbursement Agreement gave rise to an equitable lien over those Social Security payments in question, and that the plaintiff must pay the $6,317 amount to CIGNA. Note that, according to the Court, the funds in question-once received- did not have to still be in the plaintiff’s possession for this result to obtain.