Overpayment and Offsets A Case Study
Insurers seek to save money in a variety of ways, including denying or terminating a claim. In addition, we’ve been seeing insurers claiming overpayment of benefits and attempting to claw back previously paid out benefits.
Many policies include provisions about overpayment of claims, indicating that the company has the right to seek overpaid benefits, usually in the form of requesting a lump sum repayment or by reducing the amount of future benefits until the alleged overpayment is returned. As you can imagine, this can place an incredible amount of financial stress on an insured, who may be relying on their benefits as a primary source of income after disability.
One such illustrative case is that of Johnson v. Life Insurance Company of America (LINA)[1]. In this case, Johnson, an account executive, became disabled after a motor vehicle left him with extensive damage to his cervical spine. After a spinal surgery on March 27, 2020, he was unable to return to work and filed a claim with LINA on April 6, 2020.
Johnson and LINA initially disputed how his Covered Earnings should be calculated, with the Court ultimate finding in LINA’s favor, resulting in a lower benefit amount for Johnson.
Secondly, LINA applied offsets to Johnson’s monthly benefits because Johnson received Social Security benefits, as well as disability benefits from the Ohio Bureau of Workers’ Compensation (which LINA determined were “other income benefits” under the policy terms). In addition, Johnson received a lump sum bodily injury settlement in connection with the auto accident which resulted in his disability. LINA claimed that it was entitled to the offset the settlement monies. Johnson argued that because the settlement was for pain and suffering and not lost wages, LINA was not entitled to this money because the plan language indicated that offsets were permitted only for “loss of earnings or earning capacity.”
On appeal, LINA recognized that the offset regarding the settlement should not apply, and removed the monthly offset it had attached to future benefits. However, LINA indicated that they would not return what they had already collected/withheld because of what they deemed overpayment in relation to the other offsets (Social Security and Workers Comp payments). The Court found that this was consistent with the plan language and found for LINA again.
This case highlights the importance of recognizing how offsets are treated under a plan, and how an insurance company may be able to recoup any of these offsets. If you are not mindful of the offsets in your policy, you can end up in protracted litigation and/or without sufficient funds to repay money owed to the insurance company. At the same time, insurers can be overly aggressive when it comes to these offset provisions. So, if your insurer is asserting an offset, it is a good idea at least speak with an experienced disability attorney to confirm whether it is a legitimate offset.
Every claim is unique and the discussion above is only a limited summary of the court’s ruling in this case. If you are concerned that your insurer is not evaluating your claim under the proper standard, an experienced disability insurance attorney can help you assess the situation and determine what options, if any, are available.
[1] Johnson v. Life Ins. Co. of N. Am., No. 2:22-CV-933, 2023 WL 5951769 (S.D. Ohio Sept. 13, 2023).
