948 F.3d 62
1st Cir.2020Background
- Marco Martinez, an honorably discharged Army veteran with multiple sclerosis, received long-term disability (LTD) benefits under an ERISA plan insured by Sun Life (60% of earnings less “Other Income Benefits”).
- In January 2015 the VA awarded Martinez service-connected Veterans’ disability compensation (retroactive to July 2013); Martinez informed Sun Life.
- Sun Life reduced Martinez’s LTD payments by the amount of the Veterans’ Benefits and sought reimbursement for alleged overpayments, invoking the Plan’s “Other Income Benefits” provision (including a catchall for a “Compulsory Benefit Act or Law”).
- Martinez appealed administratively and then sued, asserting (inter alia) ERISA benefit claims, fiduciary/co-fiduciary liability, and USERRA discrimination; the district court granted summary judgment/judgment on the pleadings for Sun Life.
- The First Circuit affirmed: it held the phrase “Compulsory Benefit Act or Law” unambiguous and encompassing VA service-connected compensation, rejected Martinez’s notice and discovery objections, dismissed fiduciary claims, and rejected the USERRA claim for failure to plausibly plead a motivating military-status-based intent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether VA service‑connected disability compensation falls within the Plan’s “Compulsory Benefit Act or Law” (offsetable Other Income Benefit) | Martinez: “Compulsory” reasonably read to mean compulsory vis‑à‑vis a third party (like employer/insurer) and thus not VA benefits; term ambiguous and must be construed against insurer | Sun Life: “Compulsory” means statutorily required benefits payable to any eligible claimant; VA compensation is mandatory under 38 U.S.C. §1110 and fits the term | Held: Unambiguous — “Compulsory Benefit Act or Law” covers VA service‑connected benefits; offset permitted as matter of law |
| Whether Sun Life’s denial letters gave adequate ERISA notice of the specific reason (reliance on the “Compulsory Benefit Act or Law”) | Martinez: Sun Life failed to identify that specific provision in its denials and thus cannot rely on it in litigation; prejudiced by lack of notice | Sun Life: Letters referenced the Other Income Benefits provision and Holbrooks precedent; Martinez raised the compulsory/non‑compulsory issue on appeal, so no prejudice occurred | Held: Notice adequate (and even if not, Martinez suffered no prejudice); court could consider that rationale |
| Whether Sun Life (and plan sponsor via SPD) breached fiduciary duties or participated in a fiduciary breach by offsetting VA benefits | Martinez: Interpretation and nondisclosure of VA offset breached fiduciary duties and SPD obligations | Sun Life: Following an unambiguous plan term cannot be a fiduciary breach; SPD mirrored plan language and adequately apprised participants | Held: Fiduciary, co‑fiduciary, and participation claims fail because the plan/SPD plainly permit the offset |
| Whether offset of VA benefits violated USERRA (discrimination based on military service) | Martinez: Treating VA benefits differently (or offsetting them) discriminates against servicemembers in violation of USERRA | Sun Life: The offset is facially neutral and applied because the benefits duplicate LTD for same disability; no evidence military status motivated the decision | Held: USERRA claim dismissed — plaintiff failed to plausibly allege that military status was a motivating factor in Sun Life’s decision |
Key Cases Cited
- Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) (standard for judicial review of ERISA benefit determinations when no discretionary grant)
- Holbrooks v. Sun Life Assurance Co. of Canada, [citation="570 F. App'x 831"] (10th Cir.) (upholding offset of service‑connected VA benefits under "compulsory" provision)
- Hannington v. Sun Life & Health Ins. Co., 711 F.3d 226 (1st Cir. 2013) (discussed limits of similarity to Social Security offsets; distinguishes factual posture)
- Glista v. Unum Life Ins. Co. of Am., 378 F.3d 113 (1st Cir. 2004) (courts may address reasons not articulated in initial denial but relief depends on prejudice)
- Troiano v. Aetna Life Ins. Co., 844 F.3d 35 (1st Cir. 2016) (ambiguity in plan terms construed against insurer under ERISA)
- Velázquez‑García v. Horizon Lines of P.R., Inc., 473 F.3d 11 (1st Cir. 2007) (USERRA pleading standard: plausible allegation that military status was a motivating factor)
- Riley v. Sun Life & Health Ins. Co., 657 F.3d 739 (8th Cir. 2011) (characterizing Veterans’ benefits as obligatory/statutorily mandated)