Elliot v. Elliot, Leibl, & Snyder, LLP Long-Term Disability Plan , 450 F. App'x 637 ( 2011 )

FILED
SEP 21 2011
NOT FOR PUBLICATION MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DAVID SCOTT ELLIOT, No. 09-56730
Plaintiff-Appellant, D.C 5:07-cv-00418-SGL-(OPx)
v.
MEMORANDUM*
ELLIOT, LEIBL, & SNYDER, LLP
LONG-TERM DISABILITY PLAN;
FORTIS BENEFITS INSURANCE
COMPANY; UNIONS SECURITY
INSURANCE COMPANY; AND
ASSURANT EMPLOYEE BENEFITS,
Defendants-Appellees.
Appeal from the United States District Court*
for the Central District of California
Stephen G., Larson, District Judge, Presiding
Argued and Submitted May 6, 2011
Pasadena, California
Before: NOONAN, PAEZ, Circuit Judges, and KORMAN,** District Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable Edward R. Korman, Senior United States District Judge,
Eastern District of New York, sitting by designation.
David Scott Elliot became permanently disabled and began receiving benefits
under the Elliot, Leibl & Snyder, LLP, Long-Term Disability Plan (“Plan”) in
December 1999. Elliot was eligible to receive the maximum benefit
payable–$10,000 per month–exclusive of annual cost of living adjustments
(“COLA”). COLA adjustments occurred annually on the anniversary date of Elliot’s
benefit eligibility, December 20th. The amount payable to Elliot in the subsequent
year was determined by multiplying a COLA “factor” by the benefit then payable to
Elliot.
Elliot applied for Social Security Disability (“SSD”) benefits from the Social
Security Administration on March 12, 2004. In June 2006, he received an award of
SSD benefits retroactive to February 2003. The award totaled $72,954.50, for the
period from February 2003 through April 2006. Following this lump-sum retroactive
award from SSD, USIC recalculated the benefits it had conferred upon Elliot from
February 2003 onwards. This recalculation resulted in a permanent reduction of
Elliot’s benefits going forward and the determination that USIC was entitled to
clawback $79,384.15 in benefits paid to Elliot between 2003 and 2006. This
$79,384.15 clawback was greater than the $72,954.50 retroactive SSD award Elliot
had received. Elliot does not dispute the fact that USIC was entitled to a clawback,
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but contests that the clawback was greater than his retroactive SSD award.
Specifically, he takes issue with the methodology by which USIC recalculated his
benefits beginning in February 2003 to arrive at this greater clawback amount and the
permanent reduction of his benefits going forward.
In February 2003, prior to any recalculation of benefits following the
retroactive SSD award, the benefit payable to Elliot under the Plan was $10,716 a
month. This amount reflected an original monthly payment, or “Schedule Amount,”
of $10,000, plus annual cost of living adjustments for the years 2000, 2001, and 2002.
When USIC recalculated Elliot’s award following the retroactive SSD payment,
USIC reduced Elliot’s monthly benefits beginning in February 2003 to a total benefit
payment of $8,775 a month. To arrive at the $8,775 monthly payment, USIC engaged
in the following exercise: first, it subtracted Elliot’s SSD payment of $1,811 from the
original 1999 $10,000 monthly payment. This calculation resulted in a new monthly
pre-COLA base payment of $8,189. Then, it determined Elliot’s benefit in February
2003, by multiplying the COLAs for 2000, 2001, and 2002 (3%, 2.6% and 1.4%,
respectively) by this $8,189 basis, yielding a COLA-adjusted monthly payment to
Elliot of $8,775. The district court agreed with USIC’s calculation and this appeal
followed.
Because the ERISA Plan in this case conferred unambiguous discretionary
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authority on USIC to determine plan benefits, USIC’s decisions regarding plan
benefits are reviewed for an abuse of discretion. Metropolitan Life Ins. Co. v. Glenn,
554 U.S. 105, 110-11 (2008); accord, Sznewajs v. U.S. Bancorp Amended and
Restated Supplemental Benefits Plan, 572 F.3d 727 (9th Cir. 2009). “A plan
administrator’s decision to deny benefits must be upheld under the abuse of discretion
standard if it is based upon a reasonable interpretation of the plan’s terms and if it was
made in good faith.” McDaniel v. Chevron Corp., 203 F.3d 1099, 1113 (9th Cir.
2000).
We reverse and remand because USIC’s interpretation and application of its
Plan is arbitrary and capricious and inconsistent with the Plan language. Specifically,
by decreasing Elliot’s original $10,000 award, conferred in 1999-dollars, by the
$1,811 SSD benefit conferred to Elliot in 2003-dollars, USIC mixed past and present
dollar amounts in a single calculation, a computation which is mathematically
unsound.
The record shows that in 2006, when the Social Security Administration
calculated Elliot’s award of $1,811/month retroactive to February of 2003, this
calculation necessarily conferred a benefit tied to the cost of living in 2003.
Subsequent increases were intended to ensure a degree of constancy in purchasing
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power.1 This is evidenced by the fact that in subsequent years, Elliot’s original
$1,811/month SSD benefit awarded in February 2003 increased by the cost of living
adjustment as follows: 12/03-11/04: $1,849; 12/04-11/05: $1,898; 12/05-11/06:
$1,976. Accordingly, it follows that had Elliot been eligible for and received an
award from the Social Security Administration in 1999, the award would have been
tied to the cost of living in 1999. Thus, this SSD award would have been for an
amount less than $1,811/month, increasing annually to reach $1,811 by 2003. See,
e.g. COLA adjustments on SSD awards for 2000-2002, US 216. Accordingly, by
subtracting an offset tied to 2003 ($1,811) from a benefit conferred in 1999 ($10,000)
to arrive at Elliot’s benefit in February 2003, USIC subtracted too high a dollar
amount.2
1
It should be noted that money does not maintain a static value over time but rather
becomes less valuable with inflation. Cost of living adjustments (COLAs) are intended to adjust
for this loss of purchasing power by increasing the face value of a dollar in order to keep purchasing
power steady over time.
2
USIC’s methodology in subtracting Elliot’s SSD offset from the $10,000 Schedule Amount
conferred in 1999-dollars would not be mathematically unsound if USIC had adjusted or
“discounted” the $1,811 award conferred in 2003-dollars to reflect 1999-dollars. Such discounting
is accomplished by dividing $1,811 by the Social Security COLA’s for 2002 (1.4%), 2001 (2.6%),
and 2000 (3.5%) as follows: $1,811 / (1.014 x 1.026 x 1.035 ) = $1,681.87. This number represents
what Elliot’s SSD benefits would have been in 1999. Subtracting $1,681.87 from the original
Schedule Amount of $10,000 yields $8,318.13 as the adjusted basis which USIC reasonably could
have used to determine Elliot’s award beginning in February 2003. Calculating Elliot’s award in
February 2003 using USIC’s methodology but this properly adjusted basis, would yield the
following: $8,318.13 x (1.03 x 1.026 x 1.014)=$8,913.50 as the monthly benefit to which Elliot was
entitled beginning in February 2003. This would also be the number upon which Elliot’s subsequent
cost of living adjustments could have been made.
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Elliot argues that, since he did not receive SSD benefits in the years prior to
2003 and because his SSD benefit was conferred in 2003-dollars, USIC should have
subtracted his SSD benefit from the benefit he was receiving from USIC in 2003. In
February 2003, Elliot was due $10,716 per month from USIC and his monthly SSD
benefit was $1,811. Accordingly, USIC should have recalculated his benefits by
subtracting the 2003-SSD benefit of $1,811 from the actual benefit payable to him on
February 1, 2003 of $10,716/month. Under this calculation, Elliot would have
received a monthly payment from USIC of $8,905 in February 2003–approximately
$130 more than Elliot received in that month following USIC’s recalculation of his
benefits, and reflecting the higher basis upon which Elliot’s cost of living adjustments
going forward should have been calculated.
We agree with this methodology which is supported by the language of the
Plan’s COLA clause and which provides that an annual cost of living adjustment will
be determined by taking the amount of “any benefit payable” on the anniversary
date–which must mean the benefit the insured currently receives–and multiplying it
by the lesser of 3% or the SSD COLA. Moreover, the last sentence of the clause re-
enforces this construction. Specifically, it provides that, if the policyholder’s
disability extends beyond the anniversary “of the day after the qualifying period
ends,” then “the benefit to be multiplied by the [new cost-of-living] factor will include
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any past [cost-of living] adjustments” made up to that point. This is precisely the
manner in which USIC calculated the cost of living adjustments until February 2003,
resulting in an amount payable of $10,716 as of that date. Because Elliot did not
receive SSD in the years prior to 2003, we see no justification for reducing that
amount by a portion of the cost of living adjustments that had accrued until that date.
Indeed, at oral argument, the attorney for USIC specifically conceded that he was “not
arguing about the cost of living adjustments that were made prior to 2003.”
In sum, for the foregoing reasons, we hold that the calculation employed by
USIC is arbitrary and capricious, and to the extent that USIC construes the terms of
the policy to justify that result, it constitutes an abuse of discretion that deprives USIC
of the deference in interpreting its own policy language to which it would otherwise
be entitled. See McDaniel v. Chevron Corp., 203 F.3d 1099, 1113 (9th Cir. 2000).
Consequently, we reverse and remand. Because we have concluded that Elliot should
have received $8,905/month from USIC beginning in February 2003, on remand the
district court should determine: 1) how much USIC should have paid Elliot in
subsequent years through today, and 2) how much USIC’s 2006 clawback of Elliot’s
benefits should have been relative to what was actually clawed back. REVERSED
AND REMANDED
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