ERISA-Eighth Circuit Rules That Proceeds From Sale Of A Business Are Not Salary For Purposes Of Determining Long-Term Disability Benefits

The case of Govrik v. Unum Life Insurance Company of America, No. 11-3711 (8th Cir. 2013) involved a dispute between Unum Life Insurance Company of America (“Unum”) and Kevin Sullivan (“Sullivan”) (now deceased) over long-term disability (“LTD”) benefit payments. After paying LTD benefits to Sullivan for several years, Unum discontinued the payments in January 2010. Sullivan sued Unum, arguing that the termination of his LTD benefits violated ERISA, and Unum counterclaimed for overpayment of benefits. The district court granted summary judgment to Sullivan and Unum appealed.

In this case, Sullivan was the president of a corporation named In Home Personal Care, Inc.(“IHPC”). He also had owned an interest in a subsidiary of IHPC. Sullivan sold this interest to IHPC in 2000 for $440,000. In 2004, Sullivan had received certain large payments in connection with the sale of this interest. In 2004, IHPC purchased a group LTD policy from Unum. The policy covered Sullivan, as president, for two-thirds of his monthly salary up to $10,000. In 2006, due to a worsening medical condition, Sullivan filed a claim for LTD benefits under the policy. Unum approved the claim and began to pay Sullivan his LTD benefits. In 2010, however, Unum determined that the payments made by IHPC in 2004 for the sale of the interest in its subsidiary did not constitute monthly salary, and terminated the LTD benefit payments. Sullivan brought this suit to have his LTD benefits restored.

In analyzing the case, the Eighth Circuit Court of Appeals (the “Court”) noted that the policy gave Unum, as plan administrator, the discretionary power to construe ambiguous terms or make eligibility determinations. Therefore, Unum’s decision to treat the 2004 payments made by IHPC as other than monthly salary and thus terminate the LTD benefits is reviewed for an abuse of discretion. The Court then said that it did not find any such abuse in Unum’s decision. As such, the Court reversed the district court’s summary judgment and remanded the case back to the district court to consider Unum’s claim for overpayment of benefits.

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