As you might expect, many individuals who have ERISA claims also have claims for Social Security Disability benefits. Indeed, many insurance companies require LTD claimants to file for Social Security disability. This is done because most plans offset the LTD benefit by the Social Security disability benefit and this reduction is considered by the insurers to be one of the most important cost containment features of their LTD contracts (and is usually termed “recovery of an overpayment”).
In fact, insurance companies that issue LTD plans will commonly direct an insured to contact a specific representative to assist him or her in obtaining Social Security disability benefits. What you might not expect, however, is that when the Social Security Administration finds favorably for a claimant the insurance company will commonly reject the analysis of the Administration. It is as bad as it sounds. In other words, it is not unusual for an insurer to require that an insured file for Social Security disability benefits, suggest a specific representative to hire, recover the “overpayment” from their insured once the Social Security Administration finds in the claimant’s favor, and then deny the LTD claim though it is based on nearly identical arguments that the suggested representative made in front of the Administration.
Insurance companies can get away with doing this because under the law an ERISA decision-maker is not automatically bound by the findings of the Social Security Administration that a person is disabled. See, e.g., Whitaker v. Hartford Life and Acc. Ins. Co., 404 F.3d 947, 949 (6th Cir. 2005). However, the ERISA decision-maker is not free to ignore the decision of the Social Security Administration, and the fact that a person has been found disabled by that Agency is a factor a court should consider, in the context of the record as a whole. Calvert v. Firstar Finance, Inc., 409 F.3d 286, 295 (6th Cir. 2005). Moreover, while a Social Security award does not automatically mean the claimant is entitled to benefits under a private disability plan, “[i]f the plan administrator (1) encourages the applicant to apply for Social Security disability payments; (2) financially benefits from the applicant’s receipt of Social Security; and then (3) fails to explain why it is taking a position different from the Social Security Administration on the question of disability, the reviewing court should weigh this in favor of a finding that the decision was arbitrary and capricious.” DeLisle v. Sun Life Assur.Co of Canada, 2009 FED App. 0082P at 5-6 (6th Cir. March 4, 2009) citing Bennett v. Kemper Nat’l Servs., 514 F.3d 547, 554 (6th Cir. 2008).
Accordingly, it is important to know that it is common for an insurance company to practice intentional self-contradiction by having its agent or quasi-agent (in the case of a suggested representative) argue that its insured was disabled for purposes of Social Security disability and then reject nearly identical arguments when brought by the insured in his or her LTD claim. While the law indicates that an ERISA decision-maker is not automatically bound by the findings of the Social Security Administration, a court should be skeptical when an insurance company requires the claimant to apply for Social Security, benefits financially from the favorable decision of the Administration, and especially, if it takes an active role in helping the claimant obtain those benefits.