ERISA-First Circuit Finds That An Administrator’s Interpretation Of The Term “Earnings” In A Long-Term Disability Plan Subject To ERISA Is Unreasonable, And Overturns Its Decision To Stop Benefits

In D&H Therapy Associates v. Boston Mutual Life Insurance, Nos. 10-1423, 10-1494 (1st Cir. 2011), the plaintiff, D & H Therapy Associates (“D & H”), acquired a long-term disability plan (the “Plan”) from the defendant, Boston Mutual Life Insurance (“Boston Mutual”), in 2000. The Plan is subject to ERISA. Under the Plan, employees who suffer specified reductions in monthly earnings due to long-term disability are eligible for benefits. Dolan is both a part-owner and an employee of D&H. In 2001, she became physically unable to continue some of her tasks as an employee. This prompted a reduction by D & H in her monthly W-2 earnings. In 2002, she began receiving long-term disability (“LTD”) benefits under the Plan. After a 2006 audit, however, Boston Mutual terminated the benefits and demanded Dolan return past payments. It told Dolan that she had failed to account for her non-salary income, including earnings from her ownership stake in D&H. Taking those amounts into account, Dolan’s monthly earnings had been (and continue to be) too high for her to receive (“LTD”) benefits under the Plan.

Dolan argued, among other things, that the Plan defines “earnings” as W-2 income, so that the non-salary income is not relevant to the determination of whether she is entitled to the LTD benefits. Boston Mutual counterclaimed that, under the Plan, it is entitled to reimbursement of the $163,661.57 it paid to Dolan as LTD benefits.

In analyzing the case, the Court said that, since the Plan gave Boston Mutual authority to determine benefit eligibility and construe its terms, Boston Mutual’s decision to terminate Dolan’s benefits is entitled to a deferential review. However, the Court found that Boston Mutual’s interpretation of the Plan-to include non-salary income in “earnings”- was very unreasonable. This obtained because the interpretation was not consistent with how the term “earnings” was used in the Plan, particularly considering certain other definitions. Thus, the Court found that Boston Mutual’s decision to terminate Dolan’s benefits cannot be upheld, even under the deferential review. The Court ruled that Dolan is allowed to continue to receive LTD benefits from the Plan, and it denied Boston Mutual’s claim for reimbursement for past payments.

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