Dao v. Liberty Life Assurance Company of Boston

Filing 203


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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 HONG-NGOC T. DAO, Case No. 14-cv-04749-SI Plaintiff, 8 v. 9 10 LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, Defendant. 11 ORDER RE: CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT; MOTION FOR DETERMINATION OF VALIDITY OF POLICY PROVISIONS; AND MOTION TO COMPEL United States District Court Northern District of California Re: Dkt. Nos. 170, 182, 185 12 13 14 On July 1, 2016, the Court held a hearing on the parties' cross-motions for partial summary judgment and plaintiff's motion for a determination of the validity of policy provisions and motion 15 to compel. For the reasons set forth below, the Court GRANTS in part and DENIES in part 16 17 18 defendant's motion for partial summary judgment, DENIES plaintiff's motion for partial summary judgment, and DENIES plaintiff's motion for a determination of the validity of policy provisions and motion to compel. 19 20 BACKGROUND 21 I. Plaintiff's claim for benefits 22 On October 26, 2014, plaintiff Hong-Ngoc T. Dao filed this lawsuit against defendant 23 24 25 26 27 28 Liberty Life Assurance Company of Boston ("Liberty"). Plaintiff has a contract with Liberty for supplemental disability insurance. The second amended complaint alleges, among other things, that Liberty breached this contract by improperly and unreasonably denying plaintiff's claim for long-term disability benefits, and by wrongfully refusing to pay the requested benefits. Liberty issued a Group Disability Income Policy of the University of California, Policy 1 No. GD3-860-037972-03/GF3-860-037972-01 ("the Policy"), which provides group disability 2 insurance benefits to eligible employees of the University of California("UC") through its Short 3 Term Disability Insurance Plan and Supplemental Disability Insurance Plan. Dkt. No. 185-6, Ex. 4 1. The Policy provides up to 12 months of short term disability ("STD") benefits, followed by 5 long term disability coverage ("LTD") under the Supplemental Disability Insurance Plan. For 6 STD coverage, the "Covered Person" must be totally disabled from performing his or her "own 7 occupation." 8 performing "any occupation." Id. at P00011. Id. For LTD coverage, the "Covered Person" must be totally disabled from Plaintiff was first enrolled in the Supplemental Disability Insurance Plan in 2005, when 10 she began work at the University of California at UCSF. Dkt. No. 185-6, Ex. 2 (Dao depo. at 119- 11 United States District Court Northern District of California 9 46.1 Plaintiff had a one year break in service in approximately 2008, after which she accepted a 12 job at UC Berkeley in 2009, and then she moved to her most recent position as a Research Policy 13 Manager at the University of California Office of the President (UCOP) in November 2011. 14 According to the declaration of Corie Gillham, Short Term Disability Case Manager II for 15 Liberty, in July 2013 plaintiff reported experiencing increased migraines and stress and stopped 16 working. Gillham Decl. ¶ 4. Plaintiff submitted a claim for STD benefits on September 30, 2013, 17 and provided the names and contact information for two treating physicians, Dr. Heublein 18 (primary care) and Dr. Kitt (neurologist). Id. Liberty claims it requested information from both 19 doctors and that it received some but not all of the requested information from Dr. Heublein and 20 did not receive any information from Dr. Kitt. Plaintiff claims that the evidence shows that 21 Liberty never requested any information from Dr. Kitt until July 2014. Liberty states that based 22 on the information provided by Dr. Heublein, Liberty initially approved plaintiff’s STD claim on 23 October 8, 2013, and issued payments commencing August 5, 2013. 24 During the fall of 2013, Dr. Heublein extended plaintiff’s return to work several times, and 25 26 27 28 1 The parties agree that the UC insurance plans are exempt from the provisions of the Employee Retirement Income Security Act (ERISA). Silvera v. The Mutual Life Ins. Co.,884 F.2d 423, 427 (9th Cir. 1989) (where a governmental entity purchases a benefit plan on behalf of government employees and delegates the administration to a private insurer, the plan is a government plan exempt from ERISA) 2 1 in early 2014, Dr. Heublein released plaintiff to return to work 20 hours a week as of February 10, 2 2014. Plaintiff worked part time from February to April 2014, working mostly from home, and 3 was therefore eligible for partial disability benefits. 4 On January 29, 2014, Liberty sent plaintiff a letter stating that her STD benefits would end 5 on August 5, 2014, and that Liberty would begin to evaluate an LTD claim while also continuing 6 to process her STD claim. Between January and July of 2014, Liberty requested that plaintiff and 7 her physicians provide information in support of her claims for benefits. Liberty asserts that 8 plaintiff and her physicians failed to provide the requested information, and in a letter dated 9 August 5, 2014, Liberty denied plaintiff's claim for LTD benefits. The parties dispute whether Liberty acted reasonably with regard to its investigation of 11 United States District Court Northern District of California 10 plaintiff’s claims for STD and LTD benefits. Plaintiff contends that Liberty failed to conduct a 12 proper investigation and instead “papered the file” to support a denial of LTD benefits. Plaintiff 13 alleges, inter alia, that Liberty’s claim file notes do not support various assertions made by Liberty 14 about efforts that it made to contact plaintiff and her physicians, that Liberty backdated a request 15 for medical information, that Liberty repeatedly requested information that was irrelevant to its 16 LTD evaluation, and that Liberty put plaintiff under five days of covert surveillance in order to 17 find some reason to deny her claim.2 Plaintiff also claims that her physicians provided sufficient 18 evidence of her disability prior to Liberty’s denial of her LTD claim in August 2014. Plaintiff’s 19 primary care physician, Dr. Heublein, stated in July 2014 that plaintiff suffered from chronic 20 migraine headaches with nausea, vertigo and photophobia, and that her symptoms made it difficult 21 for her to perform activities of daily living. Another physician, Dr. James, stated in July 2014 that 22 plaintiff had been diagnosed with Major Depressive Disorder, Post Traumatic Stress Disorder, and 23 Chronic Migraines with aura. 24 According to Liberty, plaintiff repeatedly failed to respond to letters, phone calls, and 25 requests for information, plaintiff never completed the STD claim forms, and she only returned 26 2 27 28 Liberty hired an investigator to conduct surveillance of plaintiff’s home from April 1-5, 2014. The investigator did not see plaintiff during this time. According to plaintiff, Liberty also conducted online surveillance of plaintiff’s internet presence, and plaintiff states that the investigator did not find any activity inconsistent with plaintiff’s symptoms. 3 1 some of the LTD claim forms for the first time in July 2014. Liberty denies that it backdated any 2 letters and states that the date on the letters at issue was a typographical error. Liberty also asserts 3 that it conducted surveillance on plaintiff based on her failure to respond to requests for 4 information, and that Liberty contacted all of plaintiff’s physicians as soon as plaintiff informed 5 Liberty about her treatment from these physicians and provided contact information for the 6 physicians. Liberty also claims that despite repeatedly requesting current medical information 7 from plaintiff’s medical providers, the physicians either did not respond or provided information 8 that was either incomplete or not recent. Plaintiff's attorney sent a letter dated October 1, 2014, to Liberty. Dkt. No. 185-5, Ex. 1. 10 Plaintiff characterizes this letter as a pre-litigation settlement demand, while Liberty characterizes 11 United States District Court Northern District of California 9 this letter as an appeal of the denial of LTD benefits. The letter stated, inter alia, that plaintiff had 12 authorized her counsel to settle all claims she has against Liberty for $6,000,000, and set forth the 13 facts in support of plaintiff's claim for LTD benefits. Liberty Technical Claims Team Manager 14 Trisha Brewster has submitted a declaration stating "Because Plaintiff was challenging the denial 15 and claimed continued disability, and Liberty Life had now received some records and information 16 on her psychological treatment from Dr. James and Plaintiff's neurologist had contacted Liberty 17 Life agreeing to provide the records requested, I interpreted the letter as an appeal and made the 18 decision to reopen the claim and approve benefits at that time." Dkt. No. 185-5 ¶ 6. 19 On October 14, 2014, Ms. Brewster wrote to plaintiff's counsel and informed him that 20 Liberty was re-opening plaintiff's claim to conduct additional investigation, and advised that LTD 21 benefits were being reinstated retroactive to August 5, 2014 with the understanding that additional 22 records would be provided. Id., Ex. 2. Liberty issued a check to plaintiff on October 14, 2014 for 23 $8,411.68 for the period from August 5, 2014 to October 4, 2014. 24 Plaintiff filed this lawsuit on October 26, 2014. 25 From October 29, 2014 through March 30, 2015, Liberty issued plaintiff monthly checks 26 for $4,205.84. 27 On November 28, 2014, the Social Security Administration awarded plaintiff Social 28 Security disability benefits. Dkt. No. 185-1, Ex. 2. The award letter stated that plaintiff was 4 1 found to be disabled under Social Security's rules on July 5, 2013, and that plaintiff would receive 2 a retroactive award of $22,264.00 for the period from January 2014 through December 2014, and 3 that she would then receive monthly benefits. Id. Plaintiff's initial Social Security benefit amount 4 was $2,024.30 per month. Id. In March 2015, Liberty learned that plaintiff had received an award of Social Security 6 disability benefits. On March 30, 2015, Liberty sent a letter to plaintiff's attorney stating that 7 pursuant to terms of the Policy regarding "Benefits from Other Income," Liberty "will begin 8 reducing [plaintiff's] disability benefit from Liberty to offset for her Social Security benefits and 9 we will calculate the overpayment due." Id. Ex. 3. That letter also cited the Policy's provision 10 regarding "Right of Recovery," and stated "We ask that you set aside any retroactive payment 11 United States District Court Northern District of California 5 received to repay this obligation. Once we have calculated the amount due, we will notify you." 12 Id. 13 On April 9, 2015, Liberty sent plaintiff's counsel another letter stating that based upon 14 plaintiff's Social Security award, "we have reduced [plaintiff's] LTD monthly benefit from 15 $4205.84 to $3864.17, to reflect her Social Security award." Id. Ex. 4. The letter also stated 16 Liberty had calculated the amount of the overpayment that plaintiff was required to repay Liberty 17 as $15,964.93. Id. 18 monthly benefit of $3,864.17. Between April 2015 and July 2015, plaintiff received the lowered LTD 19 In another letter dated July 27, 2015, Liberty informed plaintiff that Liberty had not 20 received repayment of the overpayment, and that "If we do not receive repayment for the 21 overpayment due by August 10, 2015, we will begin reducing [plaintiff's] Supplemental Disability 22 benefits to recover the overpayment." Id. Ex. 5. In a letter dated August 18, 2015, Liberty 23 informed plaintiff's attorney that "Liberty Life will withhold [plaintiff's] monthly disability benefit 24 payment in the amount of $3864.17 beginning with the next payment scheduled to release on 25 August 29, 2015. . . . Please note that, although the scheduled repayments will absorb [plaintiff's] 26 entire benefit payment for a period of time, once she has fully repaid Liberty Life, she will again 27 receive disability payments, provided she continue[s] to be eligible under her contract." Id. Ex. 6. 28 From August 2015 through December 2015, Liberty ceased paying plaintiff LTD benefits in order 5 1 to recover the alleged overpayment. In January 2016, Liberty resumed making monthly LTD 2 payments of $3,864.17 to plaintiff, and plaintiff continues to receive monthly LTD benefits from 3 Liberty. 4 5 II. The Policy The Policy includes in the SCHEDULE OF BENEFITS an explanation of how benefits are 7 calculated, which includes the deduction of Benefits from Other Income and instruction to see 8 SECTION 4 for a discussion of Benefits from Other Income. Dkt. No. 185-6, Ex. 1, P0006, 9 P0007. SECTION 4- DISABILITY INCOME BENEFITS states how benefits are obtained and 10 calculated, including the offset of Other Income Benefits. Id., P00015-26. This offset is discussed 11 United States District Court Northern District of California 6 for short term disability at P00015-20, and for long term disability at P00021-26. Under SHORT 12 TERM/SUPPLEMENTAL DISABILITY COVERAGE, the Policy explains how to obtain and 13 calculate benefits: 14 Disability Benefit 15 When Liberty receives proof that a Covered Person is Totally Disabled due to Injury or Sickness and requires the regular attendance of a Physician, Liberty will pay the Covered Person a Weekly Benefit after the end of the Waiting Period. The benefit will be paid for the period of Total Disability if the Covered Person gives to Liberty proof of continued: 16 17 18 1. Total Disability; and 19 2. regular attendance of a Physician, 20 21 22 23 24 25 26 27 28 The proof must be given upon Liberty's request and at the Covered Person's expense. For the purpose of determining Total Disability, the Injury must occur and the Covered Person's Total Disability must begin while the Employee is insured for this coverage; and Total Disability which is the result of the Covered Person's Sickness must begin while the Employee is insured for this coverage. In addition, a loss of a license for any reason does not, in itself, constitute Total Disability. The Weekly Benefit will not: 1. exceed the Covered Person's Amount of Insurance; or 2. be paid for longer than the Maximum Benefit Period. The Amount of Insurance and the Maximum Benefit Period are shown in the Schedule of Benefits. 6 1 2 3 4 5 6 7 8 9 Amount of Total Disability Weekly Benefit To figure the amount of Monthly Benefit: 1. Multiply the Covered Person's Eligible Earnings by the Benefit Percentage shown in the Schedule of Benefits. 2. Take the lesser of: a. the amount figured in step (1) above; or b. 70% of the Covered Person's Eligible Earnings less the Benefits from Other Income, (shown in the Benefits from Other Income provision of this coverage); or c. the Maximum Monthly Benefit shown in the Schedule of Benefits. The Total Disability Benefit payable will never be less than the Minimum Monthly Benefit shown in the Schedule of Benefits. 11 United States District Court Northern District of California 10 Benefits From Other Income (Applicable to Class 1-Short Term Disability): 12 Benefits from Other Income means those benefits shown below and in Section 1 Schedule entitled "Lump Sum Benefits": 13 14 1. any Disability and/or Retirement benefits for which the Covered Person is eligible under Social Security; . . . . 15 On Page P00018, the Policy also includes a section titled Benefits from Other Income 16 (Applicable to Class 2-Supplemental Disability). The Policy also states that Benefits from 17 Other Income includes "1. any Disability and/or Retirement benefits for which the Covered 18 Person is eligible under Social Security." 19 Under the section titled LONG TERM SUPPLEMENTAL DISABILITY COVERAGE, 20 the subsections are also bolded and titled Total Disability Benefit and Amount of Total 21 Disability Weekly Benefit. Id. P00021-24. Those sections contain language almost identical to 22 the SHORT TERM/SUPPLEMENTAL DISABILITY COVERAGE section, referring to Monthly 23 Benefit rather than Weekly Benefit. 24 COVERAGE also includes a bolded sub-heading titled Benefits from Other Income. That 25 section defines Benefits From Other Income as: 26 27 28 LONG TERM SUPPLEMENTAL DISABILITY 5. The amount of Disability and/or Retirement Benefits under the United States Social Security Act, the Canada Pension Plan, the Quebec Pension Plan, or any similar plan or act for which: a. The Covered Person is eligible for; and 7 1 2 b. The Covered Person's spouse [or minor children] receive or are eligible for because of the Covered Person's eligibility for Retirement Benefits . . . . Under Section 7, GENERAL PROVISIONS (Id. P00031-34), the Policy also states: 3 4 5 6 7 Right of Recovery If benefit overpayment on any claim occurs, it will be required that reimbursement be made to Liberty within 60 days of such overpayment, or Liberty has the right to reduce future benefit payments until such reimbursement is received. Liberty has the right to recover such overpayments from the Covered Person or the Covered Person's estate. Also under Section 7, the Policy states: 8 9 10 United States District Court Northern District of California 11 12 Interpretation of Policy Liberty shall possess the authority, in its sole discretion, to construe the terms of this policy and to determine benefit eligibility hereunder. Liberty's decisions regarding the construction of the terms of this policy and benefit eligibility shall be conclusive and binding. Finally, the Policy states: 13 Conformity with State Statutes 14 Any provision of this policy which, on its Effective Date, is in conflict with the statutes of the governing jurisdiction of this policy is hereby amended to conform to the minimum requirements of such statute. 15 16 17 LEGAL STANDARD 18 Summary judgment is proper if the pleadings, the discovery and disclosure materials on 19 file, and any affidavits show that there is no genuine issue as to any material fact and that the 20 movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). The moving party 21 bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex 22 Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party, however, has no burden to 23 disprove matters on which the non-moving party will have the burden of proof at trial. The 24 moving party need only demonstrate to the Court that there is an absence of evidence to support 25 the non-moving party’s case. Id. at 325. 26 Once the moving party has met its burden, the burden shifts to the non-moving party to 27 “set out ‘specific facts showing a genuine issue for trial.’” Id. at 324 (quoting then-Fed. R. Civ. P. 28 56(e)). To carry this burden, the non-moving party must “do more than simply show that there is 8 1 some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith 2 Radio Corp., 475 U.S. 574, 586 (1986). “The mere existence of a scintilla of evidence . . . will be 3 insufficient; there must be evidence on which the jury could reasonably find for the [non-moving 4 party].” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). 5 In deciding a summary judgment motion, the court must view the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in its favor. Id. at 255. 7 “Credibility determinations, the weighing of the evidence, and the drawing of legitimate 8 inferences from the facts are jury functions, not those of a judge . . . ruling on a motion for 9 summary judgment.” Id. However, conclusory, speculative testimony in affidavits and moving 10 papers is insufficient to raise genuine issues of fact and defeat summary judgment. Thornhill 11 United States District Court Northern District of California 6 Publ’g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). The evidence the parties 12 present must be admissible. Fed. R. Civ. P. 56(c)(2). 13 14 DISCUSSION 15 Plaintiff moves for summary judgment on her claims for breach of contract, breach of the 16 implied covenant of good faith and fair dealing, promissory fraud, declaratory relief, and unfair 17 competition. Defendant moves for summary judgment on plaintiff's claims for promissory fraud, 18 fraud, negligent misrepresentation, declaratory relief and unfair competition. Defendant also 19 moves for summary judgment on plaintiff's requests for punitive or treble damages. 20 The Court finds that there are numerous disputes of fact regarding defendant's handling of 21 plaintiff's claim such that summary judgment is inappropriate on all claims except plaintiff's 22 claims for declaratory relief. The parties hotly dispute, inter alia, whether Liberty "sanitized" the 23 claims file and/or "papered" the file to support a denial, whether plaintiff and her physicians had 24 provided sufficient evidence of disability under the Policy at the time Liberty denied plaintiff's 25 LTD claim, and whether Liberty's handling of plaintiff's claim was reasonable or in bad faith or 26 fraudulent. The Court also finds there are disputes of fact regarding plaintiff's damages, and 27 whether defendant acted with malice, oppression and fraud. Accordingly, the Court DENIES the 28 parties' cross-motions for partial summary judgment on plaintiff's claims for breach of contract, 9 1 breach of the implied covenant of good faith and fair dealing, promissory fraud, fraud, negligent 2 misrepresentation, unfair competition, and plaintiff's request for punitive or treble damages.3 3 Plaintiff's sixth cause of action for declaratory relief seeks a declaration that the Policy 4 provisions related to the Social Security offset and recoupment, and the "discretionary clause," are 5 illegal and unenforceable. Both parties have moved for summary judgment on this claim. In 6 addition, plaintiff's motion for determination of validity of policy provisions seeks a ruling as to 7 the validity of these same provisions. Plaintiff seeks discovery related to these provisions, and to 8 reopen discovery to conduct discovery on whether Liberty "sanitized" plaintiff's claim file. 9 10 I. Plaintiff seeks declaratory relief declaring that the Policy's offset and recoupment United States District Court Northern District of California 11 12 Declaratory relief -- Social Security offset provisions violate section 407 of the Social Security Act. Section 407 states: 13 15 The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law. 16 42 U.S.C. § 407(a). Plaintiff argues that "the Policy’s Social Security benefit transfer provision 17 transfers a disabled insured’s Social Security Disability Income Benefit payments from the insured 18 to Liberty. Liberty saves money and pays less than a disabled insured would expect because that 19 disabled individual might receive, or is receiving, Social Security disability income." Dkt. 170-1 20 at 17. 14 21 Liberty contends that numerous courts have held that both an insurance policy's Social 22 Security offset provision, as well as related provisions permitting recoupment of overpayments in 23 light of a retroactive Social Security benefits award, are legal under the Social Security Act. 24 Courts have held that these provisions do not violate Section 407 because the insurance companies 25 are not attempting to recover a recipient's Social Security benefits, but rather are seeking to 26 3 27 28 The parties have raised a number of evidentiary objections in the course of briefing the instant motions. The Court finds it unnecessary to rule on these objections at this time as there is sufficient admissible evidence to present disputes of fact. The parties may renew specific objections in motions in limine or at the time of trial. 10 1 recover funds that the insurance company already paid under the insurance policy. In Fortelney v. 2 Liberty Life Assurance Co. of Boston, 790 F. Supp. 2d 1322, 1343-44 (W.D. Okla. 2011), the court 3 held: 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Initially, the court finds that Liberty was authorized to require the offset of social security benefits paid to a policyholder and any dependents against the amounts payable to the policyholder under the LTD policy. Under the specific terms of the LTD policy, LTD benefits are reduced by "Other Income Benefits," which includes social security benefits that the policyholder "receives or is eligible to receive" and that "his spouse, child or children receives or are eligible to receive because of [the policyholder's] Disability." See, Liberty's motion, Ex. 1, LTD–1, LTD–22. Courts have enforced disability benefit plans which include such offset provisions. . . . Moreover, courts have determined that such an offset provision does not violate section 407(a). The court additionally concludes that Liberty was entitled to seek reimbursement of LTD benefits paid to Fortelney and Carter, without a reduction for social security benefits, when they received their lump-sum retroactive social security benefits. The LTD policy expressly provides that Liberty has a right to recover any "overpayment of benefits" caused by the policyholder's receipt of "Other Income Benefits." See, Liberty's motion, Ex. 1, GNP–4. The LTD policy also provides that Liberty may recover an overpayment by "requesting a lump sum payment" of the overpaid amount; reducing "any benefits payable" under the policy; taking any “appropriate collection activity available” or “placing a lien, if not prohibited by law, in the amount of the overpayment.” Id. It further provides that full reimbursement is to be made to Liberty. Id. Plaintiffs additionally signed a reimbursement agreement which provided for the repayment in full of an overpayment. Courts have permitted equitable claims to be filed against claimants, seeking restitution of the overpayments under ERISA, 29 U.S.C. § 1132(a)(3). . . . Courts have found these claims not to violate § 407(a) because the insurance company did not seek to recover the policyholder's social security benefits (although the amount in question was the same as the amount of the claimant's social security benefits), rather, the insurance company was seeking to recover in equity from funds the plan has already paid under the long term disability benefits plan. In addition, a district court has permitted recoupment of an overpayment by withholding future benefit payments under a long term disability plan, finding that such action did not violate § 407(a). Stuart v. Metropolitan Life Ins. Company, 664 F.Supp. 619, 625 (D.Me.1987).10 The court concluded that the recoupment for amounts not reimbursed was not a “transfer” under § 407(a). Id. Moreover, another district court decision permitted an insurer to receive a policyholder's retroactive social security benefits to reimburse the insurer for an overpayment when the policyholder chose to pay the benefits instead of having the insurer recover the overpayment by reducing the policyholder's future benefit payments. . . . In the case at bar, Liberty did not seek reimbursement of the overpayments to Fortelney and Carter by filing an equitable claim for restitution under § 1132(a)(3). The allegations of the Amended Complaint, however, reveal that as to the overpayment of LTD benefits to Carter based upon Chelsea Carter's receipt of retroactive social security benefits, Liberty withheld all LTD benefits owed to Carter to recover the overpayment. The court, agreeing with the district court in Stuart, finds that the withholding of future disability benefits until the overpayment 11 4 based upon the social security benefits paid to Chelsea Carter was recouped was permissible and did not violate § 407(a). Stuart, 664 F.Supp. at 625. Moreover, such action was in accordance with the LTD policy and the SSRA executed by Carter. See, Liberty's motion, Ex. 1, GNP–4; Ex. 2 to Liberty's supplement to motion to dismiss. In so finding, the court rejects plaintiffs' arguments urging the court to disallow any offsetting of social security benefits of a policyholder's dependent against the policyholder's long term disability benefits as unlawful and unfair. . . . 5 Id. (internal citations omitted); see also Mayhew v. Hartford Life & Accident Ins. Co., 822 F. 6 Supp. 2d 1028, 1034 (N.D. Cal. 2011) (SSDI dependent benefits are properly offset from 7 disability policies where the contract requires and offset does not violate Section 407); Cusson v. 8 Liberty Life Assurance Co. of Boston, 592 F.3d. 215, 231-232 (lst Cir. 2010) ("[W]e find that 9 § 407(a) does not bar Liberty's claim because Liberty is not attempting to recover Cusson's SSDI 10 benefits. Rather, Liberty seeks to recover in equity from funds Liberty itself already paid under the 11 LTD plan. Although the amount in question happens to be the same as the amount of Cusson's 12 retroactive SSDI payment, the funds Liberty is targeting do not come from SSDI, and thus 13 § 407(a) does not prohibit Liberty's claim."); Godwin v. Sun Life Assurance Co., 980 F.2d 323, 14 324 (5th Cir. 1992); Lamb v. Connecticut General Life Ins. Co., 643 F.2d 108, 110 (3d Cir. 1981); 15 Dowell v. Aetna Life Ins. Co., 468 F.2d 802, 803 (4th Cir. 1972); Poisson v. Allstate Life 16 Insurance Co., 640 F. Supp. 147, 149 (D. Me. 1986) ("The Defendant did not assert entitlement to 17 the Plaintiff's Social Security benefits in any way. Rather, the Defendant asserted that its 18 contractual obligation to the Plaintiff is payment of a dollar amount which maintains her income at 19 a contractually agreed upon level, depending on other benefits she receives. The fact that Plaintiff 20 ultimately received Social Security benefits for months past rather than present does not change 21 the nature of the contract. Allstate sought return of an alleged overpayment, not a right to 22 Plaintiff's Social Security benefits as such."). 1 2 United States District Court Northern District of California 3 23 Plaintiff does not address the numerous cases cited by defendant. Instead, plaintiff relies 24 on Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. 2012). In that 25 case, the Ninth Circuit vacated a district court judgment reimbursing a plan administrator's 26 overpayments of long-term disability benefits to a beneficiary because it did not constitute 27 equitable relief under ERISA § 502(a)(3). The insurance company had initially paid Bilyeu's 28 claim for disability benefits, and the plan required Bilyeu to "reimburse Unum for any 12 1 overpayment arising from her receipt of disability payments from any other source." Id. at 1087. 2 After Bilyeu challenged the termination of her benefits, Unum filed a counterclaim seeking 3 reimbursement of an alleged overpayment. 4 reimbursement, but the Ninth Circuit reversed, holding that the district court had improperly 5 awarded legal relief unavailable under ERISA. The court held that Unum failed to establish the 6 criteria for an equitable lien by agreement under ERISA because the reimbursement agreement did 7 not identify a specific fund, distinct from Bilyeu's general assets, from which reimbursement was 8 sought, and that even if the overpaid benefits qualified as a "particular fund," Unum had not 9 established the funds were within Bilyeu's "possession or control" because "Bilyeu ha[d] spent the 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 Id. at 1087–88. The district court awarded overpaid benefits." Id. at 1094. The court noted in dicta, Unum's reimbursement agreement would have avoided these problems if, consistent with Sereboff, it had identified the third party recovery—here, Bilyeu's social security disability benefits—as the particular fund enlisted to serve as security for the overpayment of benefits. Of course, that would not have worked in this case: Under the Social Security Act, Bilyeu could not assign her social security benefits, and Unum could not attach them. See 42 U.S.C. § 407(a). "The purpose of the exemption created by Congress in 42 U.S.C. § 407 is to protect social security beneficiaries from creditors' claims." Dionne v. Bouley, 757 F.2d 1344, 1355 (1st Cir. 1985). By identifying the overpaid benefits as the particular fund, rather than the social security benefits, Unum attempts to circumvent the congressional prohibition on assignment and attachment of social security benefits. Id. at 1093-94. Bilyeu does not support plaintiff's claim that the Social Security offset and recoupment 19 provisions violate the Social Security Act. As Liberty notes, Bilyeu addressed the specific 20 question of whether an insurance company could seek, as equitable relief under ERISA, 21 reimbursement of overpaid benefits from an individual's general assets. This case is not governed 22 by ERISA, and further Liberty is not seeking to recover from plaintiff's general assets. More 23 importantly, Liberty does not seek to attach plaintiff's Social Security benefits. Instead, Liberty 24 offset plaintiff's benefits because her Social Security benefits constitute "other income" under the 25 Policy, and Liberty recouped the overpayment from plaintiff's insurance benefits. Once Liberty 26 recouped the overpayment, plaintiff resumed receiving her monthly disability payments. The 27 Court agrees with the reasoning of the numerous courts that have held that such provisions do not 28 violate the Social Security Act, and accordingly, the Court GRANTS defendant's motion for 13 1 summary judgment on this claim. 2 Plaintiff also contends that these provisions are not enforceable because they are not 3 conspicuous. To be enforceable, "any provision that takes away or limits coverage reasonably 4 expected by an insured must be 'conspicuous, plain and clear.'" Haynes v. Farmers Ins. Exchange, 5 32 Cal. 4th 1198, 1204 (quoting Steven v. Fidelity & Casualty Co., 58 Cal.2d 862, 878 (1962)). 6 "Thus, any such limitation must be placed and printed so that it will attract the reader's attention. 7 Such a provision also must be stated precisely and understandably, in words that are part of the 8 working vocabulary of the average layperson." Haynes, 32 Cal. 4th at 1204. "The burden of 9 making coverage exceptions and limitations conspicuous, plain and clear rests with the insurer." 10 Id. United States District Court Northern District of California 11 The Court finds that these provisions are conspicuous and therefore enforceable. The 12 Social Security offset provision is covered twice in SECTION I-SCHEDULE OF BENEFITS and 13 three times in SECTION 4- DISABILITY INCOME BENEFITS. Under a bolded heading titled 14 Amount of Insurance Benefits, the Policy states that benefits are calculated by subtracting 15 "Benefits from Other Income" from the relevant "Benefit Percentage of Eligible Earnings." The 16 policy repeatedly directs the reader to Section 4 to find the definition of "Benefits from Other 17 Income." The bolded subsections titled Benefits from Other Income explain at P00016 and 18 P00018 that Benefits from Other Income include: "1. any Disability and/or Retirement benefits for 19 which the Covered Person is eligible under Social Security . . . . " See also id. at P00021-24. 20 These bolded subheadings explain how to obtain benefits, the amount of the benefit to be 21 calculated, circumstances in which the benefits may be limited, and circumstances in which other 22 income may be offset against the Policy benefits, specifically listing Benefits from Other Income 23 and explaining that it includes: "5. The amount of Disability and/or Retirement Benefits under the 24 United States Social Security Act . . . for which: a. The Covered Person is eligible for . . . ." Id. at 25 P00024. The Court finds that "the entire policy adequately directs the reader to the terms of the 26 relevant exclusionary language." Travelers Prop. Cas. Co. of Am. v. Superior Court, 215 Cal. 27 App. 4th 561, 575 (2013). 28 14 1 2 3 4 5 II. Declaratory relief -- Discretionary clause The Policy contains a section titled "Interpretation of the Policy." It states: Liberty shall possess the authority, in its sole discretion, to construe the terms of this Policy and to determine benefit eligibility hereunder. Liberty's decisions regarding construction of the terms of this Policy and benefit eligibility shall be conclusive and binding. Dkt. No. 185-6, Ex. 1, P00031. Plaintiff seeks a declaration from this Court that this clause is a "discretionary clause" that 7 is "void and unenforceable in its entirety" under Cal. Ins. Code § 10110.6, and asks "that the Court 8 declare invalid and void each and every of LIBERTY's policy term construction and 9 interpretations and benefit eligibility determinations that LIBERTY has made, utilized, relied on 10 or propagated in relation to any claim since January 1, 2012, including Plaintiffs claim." SAC ¶¶ 11 United States District Court Northern District of California 6 178-83. 12 Section 10110.6 provides, 13 (a) If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed, whether or not in California, that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for benefits or coverage, to interpret the terms of the policy, contract, certificate, or agreement, or to provide standards of interpretation or review that are inconsistent with the laws of this state, that provision is void and unenforceable. 14 15 16 17 18 19 20 21 (b) For purposes of this section, "renewed" means continued in force on or after the policy's anniversary date. (c) For purposes of this section, the term “discretionary authority” means a policy provision that has the effect of conferring discretion on an insurer or other claim administrator to determine entitlement to benefits or interpret policy language that, in turn, could lead to a deferential standard of review by any reviewing court. 24 (d) Nothing in this section prohibits an insurer from including a provision in a contract that informs an insured that as part of its routine operations the insurer applies the terms of its contracts for making decisions, including making determinations regarding eligibility, receipt of benefits and claims, or explaining policies, procedures, and processes, so long as the provision could not give rise to a deferential standard of review by any reviewing court. 25 (e) This section applies to both group and individual products. 26 (f) The commissioner may adopt regulations reasonably necessary to implement the provisions of this section. 22 23 27 28 (g) This section is self-executing. If a life insurance or disability insurance policy, contract, certificate, or agreement contains a provision rendered void and 15 1 2 unenforceable by this section, the parties to the policy, contract, certificate, or agreement and the courts shall treat that provision as void and unenforceable. Cal. Ins. Code § 10110.6. Defendant argues that § 10110.6's prohibition on discretionary clauses only applies to 4 policies governed by ERISA, and here, it is undisputed that the Policy at issue was issued to the 5 University of California, which is a state entity and therefore is not subject to ERISA. Defendant 6 argues that a discretionary clause only affects the standard of review in claims subject to ERISA. 7 Defendant also argues that "no court has ever held that by invalidating a 'discretionary clause' in 8 an insurance policy, the insurer is no longer invested with the ability to interpret the contract and 9 make benefit eligibility determinations under the policy." Dkt. No. 185 at 19. Defendant also 10 argues that "even if the Court held that §10110.6 did invalidate the Interpretation of the Policy 11 United States District Court Northern District of California 3 clause, the Policy's Conformity to State Law provisions ensure that the Policy is read to conform 12 with the statutes of the governing jurisdiction and would ensure that any void terms were not 13 incorporated into the Policy. The statute itself is self-executing and no further action would be 14 needed to void the provision beyond application of the statute itself." Id. at 19 n. 3. 15 Plaintiff appears to concede that § 10110.6 was enacted to eliminate the abuse of discretion 16 standard of review that applies in ERISA cases when a policy confers discretion on the insurer to 17 interpret policy terms. See Dkt. No. 170 at 9-10. Plaintiff argues, however, that "[t]he use of 18 discretionary clauses, according to [The National Association of Insurance Commissioners], may 19 result in insurers engaging in inappropriate claim practices and relying on the discretionary clause 20 as a shield," Standard Ins. Co. v. Morrison, 584 F.3d 837, 840 (9th Cir. 2009), and thus the issue 21 is not just relevant to ERISA plans. However, Morrison is inapposite because in that case the 22 question was whether a state's practice of disapproving insurance policies with clauses vesting 23 discretion in insurers violated ERISA. (The Ninth Circuit held that the state's practice was not 24 preempted by ERISA.) Plaintiff has not cited any cases addressing the impact of § 10110.6 on a 25 non-ERISA policy, and the Court's research did not locate any. To the contrary, all of the cases 26 examining § 10110.6 have arisen in the ERISA context, and those cases hold that § 10110.6 27 renders void grants of discretionary authority in insurance contracts and thus that a de novo 28 standard of review applies. See, e.g., Curran v. United of Omaha Life Ins. Co., 38 F. Supp. 3d 16 1 1184 (S.D. Cal. 2014); Gonda v. The Permanente Med. Grp., Inc., 10 F. Supp. 3d 1091, 1092 2 (N.D. Cal. 2014); Cerone v. Reliance Standard Life Ins. Co., 9 F. Supp. 3d 1145 (S.D. Cal. 2014). 3 A district court has discretion to decline jurisdiction over a claim for declaratory relief. 4 28 U.S.C. § 2201(a); Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995). Here, in light of the 5 fact that this case is not governed by ERISA, plaintiff has not shown an actual controversy. 6 Accordingly, the Court DISMISSES plaintiff's claim for declaratory relief to the extent plaintiff 7 seeks relief regarding the discretionary provision. 8 9 III. Plaintiff's motion to compel In light of the Court's rulings with regard to the Social Security offset and recoupment 11 United States District Court Northern District of California 10 provisions and the discretionary provision, the Court DENIES plaintiff's motion to compel 12 discovery related to these provisions. The Court also DENIES the balance of plaintiff's motion to 13 compel, finding that plaintiff's motion is untimely and that plaintiff has not demonstrated any good 14 cause for reopening discovery approximately six weeks before trial. 15 CONCLUSION 16 17 For the foregoing reasons, the Court GRANTS in part and DENIES in part defendant's 18 motion for partial summary judgment, DENIES plaintiff's motion for partial summary judgment, 19 and DENIES plaintiff's motion for a determination of the validity of policy provisions and motion 20 to compel. 21 22 IT IS SO ORDERED. 23 24 25 26 Dated: July 5, 2016 ______________________________________ SUSAN ILLSTON United States District Judge 27 28 17

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