Plaintiffs Kathleen Schultz and Mary Kelly brought this putative class action under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. They seek to recover benefits under the long-term disability benefit plans maintained by their former employers (Aviall, Inc. and Perkins Coie, respectively) and issued by the Prudential Insurance Company of America. Like many private disability insurance plans, these plans provide for a reduction of private disability benefits if the disabled employee also receives federal disability benefits under the Social Security Act, as both of these plaintiffs do. The plaintiffs agree that some reduction of their private benefits was correct, but they dispute the correct calculation of the reduction.
When calculating the amount of the reduction based on Social Security disability benefits, both plans counted both the amounts payable to each plaintiff under 42 U.S.C. § 423 (primary disability insurance benefits) and amounts payable on behalf of their dependent children under 42 U.S.C. § 402(d) (child’s benefits based on parent’s disability). The plaintiffs contend that the plans do not authorize Prudential to include in the offset calculation the benefits paid to their dependent children on ac
The issue is whether children’s Social Security disability benefits paid based on a parent’s disability are “loss of time disability” benefits under the language of the Aviall and Perkins Coie Long Term Disability Plans, and accordingly, whether Prudential acted properly when it reduced plaintiffs’ private disability benefits based on their children’s Social Security disability benefits. Under the Aviall Long Term Disability Plan, plaintiff Schultz’s gross monthly long-term disability benefit amount was to be reduced by other “deductible sources of income.” The Aviall Plan listed eight types of deductible sources of income, one of which was “The amount that you, your spouse and children receive or are entitled to receive as loss of time disability payments because of your disability under ... the United States Social Security Act.” Likewise, under the Perkins Coie Long-Term Disability Plan, plaintiff Kelly’s long-term disability benefits were subject to deductions of certain sources of income. The deductible amount was “equal to the total amount of payments or benefits which for that Calendar Month or part of a Calendar Month are Periodic Benefits ... payable to you or to your spouse or children based on your work and earnings[.]” There were five categories of deductible “Periodic Benefits” under the Perkins Coie Plan, one of which was “Loss of time disability benefits payable under or by reason of ... The United States Social Security Act as amended from time to time.” Pursuant to these provisions, Prudential offset from plaintiffs’ monthly long-term disability benefit payments the amount that each plaintiffs household was awarded in primary and dependent Social Security disability benefits. Consistent with the parties’ arguments, and because the language of the offset provisions in the two plans is substantially similar, we consider the two plans and provisions together.
Before addressing the merits, we address the standard of review. The Su
Turning now to the merits, the plaintiffs agree that their own, primary Social Security disability benefits under section 423 may be used as offsets as “loss of time disability” benefits. They contend only that their children’s Social Security disability benefits under section 402(d) do not constitute “loss of time disability” benefits, so that Prudential’s use of their children’s Social Security payments to offset plaintiffs’ private disability benefits violated the plans. Essentially, they argue, the purpose of Social Security payments to a dependent child of a disabled parent is not to replace the income that the household has lost as a result of the parent’s inability to work. The purpose is instead to provide additional “support” for the child. The phrase “loss of time” is a term of art, plaintiffs argue, meaning “loss of business time connected with the insured’s occupation,” citing 17 Couch on Insurance § 246.84 (3d ed. 2007). In their attempt to distinguish “loss of time” or “disability” payments made to dependents from “support” payments made to dependents, they rely on language in
In re Unisys Corp. Long-Term Disability Plan ERISA Litigation,
The interpretation of language in a plan governed by ERISA is controlled by federal common law, which draws on general principles of contract interpretation, at least to the extent that those principles are consistent with ERISA. See
Young v. Verizon’s Bell Atl. Cash Balance Plan,
We do not believe the Aviall or Perkins Coie plan language on the offset is ambiguous, however. The only reasonable interpretation of the applicable language is that when a disabled employee’s dependent children receive Social Security payments by reason of the parent-employee’s disability, those benefits are disability benefits based on the employee’s “loss of time.” The offsets were permissible under these plans.
Virtually all courts considering this issue have found that dependent children’s Social Security benefits were subject to offset under nearly identical policy language. See
Mayhew v. Hartford Life & Accident Ins. Co.,
To avoid this result, the plaintiffs rely heavily on language in the Third Circuit’s decision in
In re Unisys Corp. Long-Term
The district court’s decision in
Carstens
supports plaintiffs’ case, but we respectfully disagree with that court’s analysis.
Carstens
dealt with an offset provision like those at issue here: it provided that the defendant could offset “periodic benefits, for
loss of time
on account of the Employee’s disability, under or by reason of ... the United States Social Security Act as amended from time to time.” See
Carstens,
We are not persuaded by these arguments. The plaintiffs’ assertion that “loss of time” is a term of art does not apply in this context. In the cases cited in
Carstens
and by the plaintiffs here, the issue was whether there was coverage under a disability insurance contract for an insured’s inability to work at his or her specific occupation or whether the contract covered an insured’s inability to work in any occupation. See 17 Couch on Insurance § 246.84;
Weum v. Mut. Benefit Health & Accident Ass’n,
The offset provisions in these plans refer specifically to Social Security disability benefits paid to children. These benefits are paid under the Act to compensate the household for the loss of income it has suffered as a result of the disability of one of its breadwinners. See
Califano v. Goldfarb,
As a result of that total loss of time, a Social Security disability benefits recipient is entitled to a certain “package of benefits,” including dependent child benefits. See,
e.g., Hopkins v. Cohen,
The plaintiffs also rely on the legislative history of the Social Security Act, but the available history does not change our analysis. In 1958, when Congress amended the Act, the responsible committee wrote:
In providing monthly benefits for the dependents of workers entitled to disability insurance benefits, the committee has given recognition to the problems confronting families whose breadwinners have been forced to stop work because of total disability. The benefit amount payable to the disabled worker under the present disability insurance provisions does not provide adequate protection for his family. The needs of the family of a disability insurance beneficiary are as great as, or greater than, the needs of the family of an old-age insurance beneficiary. It is reasonable to assume, also, that in a great many cases the care which the disabled person requires makes it difficult, if not impossible, for his wife to increase the family income by working. In addition, a person receiving disability insurance benefits frequently has high medical expenses.
S.Rep. No. 85-2388 (1958), reprinted in 1958 U.S.C.C.A.N. 4218, 4228. This passage recognizes that the family of a disabled worker suffers not only from the worker’s loss of wages but also from added expenses associated with the disability. But contrary to plaintiffs’ assertions, this passage does not suggest that Congress meant to treat primary and children’s Social Security disability benefits under the Act as anything other than replacement income for the disabled person and his or her family. The dependent’s Social Security benefit therefore is based entirely on the disabled parent’s loss of income, which is a measurement of that parent’s total “loss of time.”
Finally, plaintiffs’ arguments simply fail to account for the plan language calling for offsets based on Social Security benefits that dependent children receive. The Aviall plan requires offsets for amounts that “you, your spouse and children receive ... as loss of time disability payments because of your disability under ... the United States Social Security Act,” and the Perkins Coie plan requires offsets for payments “to you or to your spouse or children based on your work and earnings.” The plans’ references to children must mean something with regard to children’s Social Security disability benefits. What is plaintiffs’ theory? The Social Security Act provides benefits to the dependent child of a deceased, disabled, or retired wage earner under 42 U.S.C. § 402(d)(1)(B). Ordinarily, those benefits are discontinued when the child reaches the age of 18, but they may be extended under certain circumstances, such as if the child herself is disabled before the age of 22. See 42 U.S.C. § 402(d)(1)(E), (G).
The plaintiffs’ theory is that the offset provisions apply to this latter category of benefits — benefits payable to the disabled child of a disabled parent — “in that they compensate the recipient [child] for time away from work due to a disability.” By contrast, they argue, Social Security payments made to a non-disabled child of a disabled parent under 42 U.S.C. § 402(d)(1)(B) do not compensate the recipient (child) for time away from work and therefore may not be offset under the plan language. Under the plaintiffs’ formulation, then, children’s Social Security disability benefits paid to a disabled child may be offset under the “loss of time” language of the plans, while dependent Social Security disability benefits paid to a non-disabled child may not.
In oral argument, we asked about this rather unusual position by asking plaintiffs’ counsel a hypothetical question involving two households, each with a disabled parent. Household A has a non-disabled dependent child, while Household B has a disabled dependent child. Under the plaintiffs reading of the plans, Household B’s monthly long-term disability benefit could be offset based on dependent Social Security disability payments, while Household A’s monthly long-term disability benefit could not. In other words, Household B has suffered not only the disability of a former wage earner but also the disability of a child, yet rather than receiving the greater monthly benefit, it would receive the lesser. This outcome would be untenable and would verge on the unconscionable. In light of the plaintiffs’ argument, we wish to make abundantly clear that the offset language in these plans would not apply to Social Security benefits paid because of the child’s disability. The result the plaintiffs seek is not a reasonable interpretation of the plans’ use of the phrase “loss of time disability benefits.”
Notes
. Because we find that the reductions were proper under the terms of the plans, we do not reach the second issue presented by the plaintiffs in this appeal: whether our precedents, such as
Jass v. Prudential Health Care Plan, Inc.,
. In a footnote to their brief, the defendants claim that “discovery would confirm that the Plans are vested with discretionary authority to interpret Plan documents, subject to an arbitrary and capricious standard of review.” During argument, counsel for the defendants claimed that a yet unproduced, broader, “master” plan grants discretionary power, and that the document would control if the plaintiffs’ case survived on the pleadings. Defendants filed their motion to dismiss before discovery, but plaintiffs assert that they requested copies of all plan documents and summary plan descriptions during administrative appeals. In response, the defendants produced only the policies. The defendants do not dispute this, and do not argue for a deferential standard of review' — but claim they do so only because of the Rule 12(b)(6) standard.
Perhaps the defendants believed that the plaintiffs failed to word their requests for relevant plan documents using magic terms that would trigger production at the administrative level. From the defendants’ description of the "master” plan, however, there is little doubt that they believe the document is controlling and thus clearly relevant to the plaintiffs’ case. Yet defendants withheld it in pre-litigation discovery, risking sanctions of up to $110 per day, which might still be imposed. See 29 U.S.C. § 1132(c); 29 C.F.R. § 2575.502c-1. We are left to wonder why.