LTD Benefits May Be Offset by Veteran's Disability Benefits

​The 1st U.S. Circuit Court of Appeals ruled that an insurer did not violate the Uniformed Services Employment and Reemployment Rights Act (USERRA) or the Employee Retirement Income Security Act (ERISA) when it deducted an employee's veteran's disability benefits from an employer's long-term disability (LTD) plan benefits.

The plaintiff was first employed by the Athens Group approximately 18 years after his honorable discharge from the U.S. Army. After learning that he suffered from multiple sclerosis, the plaintiff sought LTD benefits from Athens Group's LTD policy issued by Sun Life Assurance Company of Canada. Under the ERISA-governed plan, the plaintiff was entitled to monthly benefit payments calculated at 60 percent of his total monthly earnings, less any "other income benefits."

After the plaintiff had received LTD benefits for nearly a year, he submitted a claim to the U.S. Department of Veterans Affairs ("the VA") for service-connected disability compensation available under the Veterans' Benefits Act. The VA awarded those benefits, including benefits retroactive to 18 months earlier. The plaintiff promptly notified Sun Life that his claim for veterans' benefits had been granted.

Thereafter, Sun Life informed him that his veterans' benefits were considered other income benefits subject to offset under the plan and, as a result, his monthly plan benefits would be decreased from $2,500 to $465. Sun Life also sought reimbursement of $32,560 for past overpayments. The policy defined "other income benefits" to include U.S. Social Security, disability and retirement benefits, and similar benefits awarded under a compulsory benefit act or law.

The plaintiff brought this action alleging that Sun Life discriminated against him in violation of USERRA and breached its fiduciary duty under ERISA.

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Sun Life filed a motion for summary judgment with the district court based on two core arguments:

• Veterans' benefits should be included within the definition of "other income benefits."
• Sun Life did not violate USERRA because the plaintiff's military status was not a motivating or substantial factor in its decision-making process.

The plaintiff disputed these arguments and claimed that Sun Life violated ERISA by not disclosing in its letters to him the specific sections in the policy on which its denial was based. The district court granted Sun Life's motion, and the plaintiff appealed.

In affirming the district court's order in favor of Sun Life, a unanimous three-judge panel of the 1st Circuit held that Sun Life could properly deduct the veterans' benefits based on the policy's clear language. The court held that veterans' benefits derived from a compulsory benefit act or law similar to Social Security benefits, and the policy specifically authorized an offset.

Moreover, the appeals court stated that, while Sun Life did not refer the plaintiff to the specific portion of the policy supporting its decision, the explanation of the denial was sufficient to meet ERISA's notification requirements.

Finally, the court ruled that USERRA was not violated, as the policy did not distinguish between military benefits and nonmilitary benefits. So, there was no evidence that Sun Life was motivated by the plaintiff's military service when interpreting the plan.

Martinez v. Sun Life Assurance Company of Canada, 1st Cir., No. 18-2127 (Jan. 27, 2020).

Professional Pointer: Insurance carriers may deduct veterans' benefits from LTD benefits, but judicial interpretations of USERRA remain limited in number. Thus, employers should be careful to avoid actions that might be interpreted as treating veterans differently than similarly situated employees with no military service.

Michael W. Foster is an attorney with Foster Employment Law, the Worklaw® Network member firm in Northern California.

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