Wolfensberger v. Aetna Life Insurance Company
Filing
43
MEMORANDUM Opinion and Order Signed by the Honorable Robert M. Dow, Jr on 3/11/2013. Mailed notice(tbk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JOAN A. WOLFENSBERGER,
)
)
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)
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Plaintiff,
v.
AETNA LIFE INSURANCE COMPANY,
Defendant.
No. 11-cv-7671
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
Plaintiff Joan Wolfensberger sustained injuries in a car accident and became unable to
work in 2002. Plaintiff applied for and received long-term disability (“LTD”) benefits pursuant
to an employer-based LTD policy that she held with Defendant Aetna Life Insurance Company.
Plaintiff subsequently settled a worker’s compensation claim related to the accident for
$270,000. When Defendant learned of the worker’s compensation settlement, it notified Plaintiff
that it would offset her LTD benefits payments by 50% of the settlement amount, in accordance
with the “other income benefits” provision of the policy. Plaintiff initiated an appeal of
Defendant’s offset but did not receive a decision from Defendant. Approximately four months
after she submitted her appeal to Defendant, Plaintiff filed the instant ERISA action seeking a
declaratory judgment that Defendant had no right to offset her benefits, as well as recovery of the
benefits that were allegedly unlawfully withheld.
Currently before the Court are the parties’ cross-motions for summary judgment. [15],
[28].
For the reasons stated below, the Court denies Plaintiff’s motion [15] and grants
Defendant’s motion [28].
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I.
Background
The facts in this case are largely undisputed. Plaintiff was employed by Accenture as a
senior project manager. Accenture offered its employees LTD insurance through Defendant.
Plaintiff participated in the LTD plan. On March 8, 2002, Plaintiff was seriously injured in a car
accident and became unable to work. Plaintiff applied for LTD benefits from Defendant under
the plan. Defendant approved Plaintiff’s claim and began paying benefits in June 2002. Plaintiff
also applied for and was approved for Social Security disability benefits effective January 2004.
Plaintiff filed at least two lawsuits in connection with the car accident. In October 2009,
Plaintiff settled one of the suits, which asserted tort claims, and received a payment of $825,000
from Illinois National Insurance Company. Pursuant to the settlement, Plaintiff signed a release
agreement that provided, in pertinent part, “that the sums paid pursuant to this Release
specifically includes [sic] payment of any and all liens or claims, by whomsoever made, from
any other source. [Plaintiff] further agrees in consideration of the payment herein to make
payment of any and all liens or claims growing out of the incident in question and to hold
harmless [Illinois National] from any such liens or claims and to defend and indemnify [Illinois
National], Releasees, insureds, their insurers and attorneys for any claims or actions related to or
arising out of same.” [27-4] at CF001461.
Two months later, on December 17, 2009, the Illinois Workers’ Compensation
Commission approved a settlement agreement in a workers’ compensation suit Plaintiff brought
against Accenture. See [27-4] at CF001431. (The settlement was actually signed by the settling
parties on November 30, 2009. See id.) The settlement was entered on a standardized form that
had spaces for the settling parties to note any deductions for attorneys’ fees, medical reports and
x-rays, or “other” items. See [27-4] at CF001430-31. Near the line for attorneys’ fees, there is a
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handwritten notation, “-0- waived,” along with the signature of Plaintiff’s then-attorney and a
note identifying him as such. Id. at CF001431. The form reported that the “Total Amount of
Settlement” was $270,000.00; the “Amount employee will receive” was $270,000. Id. The
settlement agreement was accompanied by a rider that provided, in pertinent part, “This
settlement is intended to include and compromise liability for temporary total disability
compensation, as well as all medical, surgical, hospital and rehabilitation expenses incurred or to
be incurred, for all of which the petitioner [Plaintiff] assumes responsibility. * * * The petitioner
has recovered in excess of $800,000.00 in a settlement of related actions filed before the Circuit
Court of Cook County. The respondent waives its right to a recovery or reimbursement, if any,
under Section 5(b) of the [Illinois Workers’ Compensation] Act associated with the related thirdparty litigation.” [27-4] at CF001432.
By letter dated March 9, 2011, Defendant notified Plaintiff that Defendant had been
“informed that [Plaintiff] received a Workers’ Compensation Settlement for the injury which
resulted in your claim for disability benefits * * * in the amount of $270,000.00.” [27-4] at
CF001439. Citing the “other income benefits” provision of Plaintiff’s LTD plan, Defendant
stated that “[u]nder the terms of your plan 50% of the award is considered other income, and will
reduce your LTD benefit over 60 months in the amount of $2,250.00 per month from December
2009 through December 2014.” Id. Defendant also set forth in the letter calculations pertaining to
the offset and an alleged related overpayment of $33,191.88 in LTD benefits. See id. at
CF001440. Defendant sent Plaintiff and her attorney a substantially identical letter in early April
2011. See id. at CF001444-46.
By letter dated June 30, 2011, Plaintiff through a new attorney appealed Defendant’s
offset. [27-4] at CF001447-49. Plaintiff acknowledged that “workers’ compensation benefits are
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encompassed by the policy’s ‘other income benefits’ provisions,” but contended that “no offset is
due in this instance.” Id. at CF001447. In support of this contention, Plaintiff pointed to the
workers’ compensation settlement rider and its reference to Section 5(b) of the Illinois Workers’
Compensation Act. See id. at CF001447-48. Plaintiff quoted Section 5(b) and asserted that the
lien allegedly established by it was extinguished by the tort settlement release, which provided
“that the sums paid pursuant to this Release specifically includes [sic] payment of any and all
liens or clams, by whomsoever made, from any other source.” Id. at CF001448. Plaintiff
contended that “the amount paid as part of the Workers’ Compensation proceeding is added to
the sum paid by Illinois National Insurance Company; and that payment is not enumerated within
the ‘other income benefits’ listed in the policy.” Id. Plaintiff included with the letter copies of
both settlement agreements, as well as a copy of Section DI 52001.090 from the Social Security
Administration’s Program Operations Manual System. See id.; id. at CF001450-63. Plaintiff
contended that Section DI 52001.090 “explains that if the worker repays the workers’
compensation, as was done here, it ‘results in the worker’s being in the same position he would
have been in had he never received any WC, but had simply sued for personal injuries,’ and
asserted that Plaintiff’s WC payment is effectively added to the other payment as if workers’
compensation benefits had never been paid.” Id. at CF001448. Plaintiff did not forward to
Defendant any medical records or invoices for legal or medical services that she had received.
By letter dated July 22, 2011, Plaintiff through her new attorney informed Defendant that
“[w]e would appreciate a response to our initial correspondence we sent to Aetna via certified
mail on June 30, 2011.” [27-4] at CF001467. The parties dispute the extent and content of their
subsequent telephonic communications. They agree that Plaintiff’s appeal was never resolved.
See [24] ¶ 50; [38] ¶ 50. Plaintiff contends that Defendant “refused to provide her or her
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attorneys with a final decision regarding her appeal,” [38] ¶ 50, while Defendant contends that
“the appeal determination was not provided before Plaintiff filed her complaint as a result of
human error and inadvertence.” [24] ¶ 50. No appeal determination appears in the record.
II.
Legal Standard
Summary judgment is proper if “the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). On cross motions for summary judgment, the Court construes all facts and inferences “in
favor of the party against whom the motion under consideration is made.” In re United Air Lines,
Inc., 453 F.3d 463, 468 (7th Cir. 2006) (quoting Kort v. Diversified Collection Servs., Inc., 394
F.3d 530, 536 (7th Cir. 2005)); see also Gross v. PPG Indus., Inc., 636 F.3d 884, 888 (7th Cir.
2011); Foley v. City of Lafayette, Ind., 359 F.3d 925, 928 (7th Cir.2004). To avoid summary
judgment, the opposing party must go beyond the pleadings and “set forth specific facts showing
that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986)
(internal quotation marks and citation omitted).
A genuine issue of material fact exists if “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Id. at 248. The party seeking summary judgment
has the burden of establishing the lack of any genuine issue of material fact. See Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). Summary judgment is proper against “a party who fails to
make a showing sufficient to establish the existence of an element essential to that party's case,
and on which that party will bear the burden of proof at trial.” Id. at 322. The party opposing
summary judgment “must do more than simply show that there is some metaphysical doubt as to
the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586
(1986). “The mere existence of a scintilla of evidence in support of the opposing] position will
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be insufficient; there must be evidence on which the jury could reasonably find for the [opposing
party].” Anderson, 477 U.S. at 252.
III.
Analysis
A.
Standard of Review
Plaintiff's claim is governed by the Employee Retirement Income Security Act
(“ERISA”), 29 U.S.C. § 1001, et seq., which was “enacted to promote the interests of employees
and their beneficiaries in employee benefit plans, and to protect contractually defined benefits.”
Black & Decker Disability Plan v. Nord, 538 U.S. 822, 829 (2003) (quoting Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 113 (1989)). The statute permits a person who is denied
benefits under an ERISA employee benefit plan to challenge that denial in federal court. Metro.
Life Ins. Co. v. Glenn, 554 U.S. 105, 108 (2008); see also 29 U.S.C. § 1132(a)(1)(B).
Generally, “[t]he standard of review of a Plan Administrator’s decisions regarding
benefits depends on whether the Plan Administrator was given the discretion to make those
decisions.” Vallone v. CNA Fin. Corp., 375 F.3d 623, 629 (7th Cir. 2004). The Supreme Court
has held that “a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de
novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority
to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). When the administrator has such discretion,
courts review the administrator’s decision under an arbitrary and capricious standard, see
Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355, 360 (7th Cir. 2011), which for ERISA
purposes is synonymous with abuse of discretion. Raybourne v. Cigna Life Ins. Co. of N.Y., 576
F.3d 444, 449 (7th Cir. 2009).
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The policy at issue here provides that Defendant “shall have discretionary authority to:
determine whether and to what extent employees and beneficiaries are entitled to benefits; and
construe any disputed or doubtful terms of this policy.” [24-2] at Policy000019. The parties
agree that this language vests Defendant with the discretion contemplated by Firestone. See [17]
at 6 (“[T]he Policy does confer discretionary authority upon Aetna * * *.”); [28-1] at 4 (“[T]here
is no dispute that the Plan provided such discretionary authority.”). Indeed, it communicates the
same message as language that the Seventh Circuit has identified as providing a “safe harbor”:
“Benefits under this plan will be paid only if the plan administrator decides in his discretion that
the applicant is entitled to them.” Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir.
2000). Despite the parties’ agreement on this matter, they dispute which standard of review the
Court should apply in light of Defendant’s failure to resolve Plaintiff’s administrative appeal.
Plaintiff contends that “when Defendant failed to timely respond to Plaintiff’s appeal
submission, it relinquished its discretionary authority, thereby making the standard of review de
novo.” [17] at 6. Defendant maintains that the arbitrary and capricious standard of review should
apply, because “[t]here was regular communication with Plaintiff’s attorneys and the appeal was
in the process of being reviewed.” [37] at 10.
The Seventh Circuit has not yet clarified which standard of review applies where a plan
administrator with discretion fails to render a decision on administrative appeal. 1 In a case
involving an administrator who did resolve an appeal but allegedly made other procedural
missteps, the Seventh Circuit explained in a footnote that the “alleged procedural violations do
1
The Court notes that Estate of Joseph J. Malecki v. Anheuser-Busch Deferred Income, Stock Purchase &
Savings Plan, which presented this very issue to another district court in this Circuit, is currently on
appeal before the Seventh Circuit. Case No. 12-2586. Appellate proceedings are currently stayed,
however, and briefs have not yet been filed in the matter. The district court in Malecki concluded that a de
novo standard of review was appropriate. See Estate of Joseph J. Malecki v. Anheuser-Busch Deferred
Income, Stock Purchase & Savings Plan, 2012 WL 2049457, at *10 (N.D. Ill. June 5, 2012).
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not mandate a different standard of review but instead will be considered as factors in
determining whether [the administrator’s] decision to discontinue benefits was arbitrary and
capricious.” Weitzenkamp v. Unum Life Ins. Co. of Am., 661 F.3d 323, 329 n.3 (7th Cir. 2011).
The court also noted, however, that the appellant had raised the issue for the first time in her
reply brief and had not cited any law in supporting her contention that de novo review should
apply. See id. The Seventh Circuit also declined to take a position on this issue in Pakovich v.
Broadspire Services, Inc., 535 F.3d 601, 606-07 (7th Cir. 2008), in which the question before the
court was whether it was proper for a district court to rule on an issue that a plan administrator
had not ever addressed, even at the initial stage. In Pakovich, the court found “instructive” a case
from the Eighth Circuit, Seman v. FMC Corp. Retirement Plan for Hourly Employees, 334 F.3d
728, 733 (8th Cir. 2003), and quoted a lengthy excerpt from Seman:
When a plan administrator fails to render any decision whatsoever on a
participant’s application for benefits, it leaves the courts with nothing to review
under any standard of review, so the matter must be sent back to the administrator
for a decision. When a plan administrator denies a participant’s initial application
for benefits and the review panel fails to act on the participant’s properly filed
appeal, the administrator’s decision is subject to judicial review, and the standard
of review will be de novo rather than for abuse of discretion if the review panel’s
inaction raises serious doubts about the administrator’s decision.
Pakovich, 535 F.3d at 606-07 (7th Cir. 2008) (quoting Seman, 334 F.3d at 733). The second
sentence of this excerpt directly addresses the issue presently before this Court. Yet the question
at issue here was not before the court and, moreover, the court only expressly “adopt[ed] the first
part of the Eighth Circuit’s rule.” Id. at 607. The Court therefore cannot conclude from Pakovich
that the Seventh Circuit definitely would follow the Eighth Circuit’s approach. See Loomis v.
Exelon Corp., 658 F.3d 667, 674 (7th Cir. 2011) (“Our court has never grappled directly with the
subject, and it is not appropriate to read oblique remarks as answering a question not squarely
posed.”).
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Most courts that have addressed the question have concluded that de novo review is
proper in at least some instances. In Rasenack ex rel. Tribolet v. AIG Life Insurance Co., 585
F.3d 1311, 1316 (10th Cir. 2009), the Tenth Circuit held “that when an administrator violates the
statutory deadlines incorporated into the plan, Firestone deference no longer applies,” but did not
address “whether a minor violation of the deadlines or other procedural irregularities would
entitle the claimant to de novo review.” The Eighth Circuit reached a similar conclusion in
Seman, but, unlike the Tenth Circuit, decided that the de novo standard only applies where “the
review panel’s inaction raises serious doubts about the administrator’s decision.” Seman, 334
F.3d at 733. A court within this district recently applied a de novo standard, after concluding that
de novo review was in accord with Department of Labor commentary, would “provide incentive
to plan administrators to ensure that claims are fully and properly considered,” and was “only
fair given that a claimant’s failure to file a timely request for review with a plan can foreclose
judicial review.” Estate of Joseph J. Malecki v. Anheuser-Busch Deferred Income, Stock
Purchase & Savings Plan, 2012 WL 2049457, at *10 (N.D. Ill. June 5, 2012). But at least one
other district court has determined that “unexplained failure to issue a decision on Plaintiff’s
appeal is a serious procedural irregularity” but is “not so flagrant or severe as to create a
‘substantive harm’ to Plaintiff such that de novo review is appropriate.” Hinz v. Hewlett Packard
Co. Disability Plan, 2011WL 1230046 (N.D. Cal. Mar. 30, 2011).
The Court is troubled by Defendant’s failure to exercise reasoned discretion with regard
to Plaintiff’s appeal. But the Court need not resolve definitively the question of whether the
absence of a decision on appeal warrants a return to the default de novo standard of review
contemplated by Firestone. Regardless of whether the Court independently decides the merits
under the misleadingly named de novo metric, see Krolnik v. Prudential Ins. Co. of Am., 570
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F.3d 841, 843 (7th Cir. 2009), or merely assesses whether Defendant acted arbitrarily and
capriciously, Defendant is entitled to summary judgment in this matter.
B.
Merits
1.
Right to Offset
The primary issue in this case is whether Defendant properly offset Plaintiff’s LTD
benefits in light of her $270,000 workers’ compensation settlement. At the heart of this dispute
is whether Plaintiff’s workers’ compensation settlement falls within the “other income benefits”
provision of the plan; Plaintiff concedes that “other income benefits” may be subtracted from the
standard LTD benefit under the terms of the plan. Plaintiff appears to have made a conscious
decision, with the assistance of counsel, to try to structure her seriatim settlement recoveries in
such a way as to avoid the definition of “other income benefits.”
The plan defines “other income benefits” as follows:
●
100% of any award provided under the Jones Act or the Maritime Doctrine of
Maintenance, Wages and Cure.
●
Disability or retirement benefits required or provided for under any law of a
government. Such law will be considered as it is constituted when the period of total
disability starts or as it may be changed after that. Examples are:
Temporary or permanent, partial or total, disability benefits under any workers’
compensation law or any other like law, which are meant to compensate the
worker for any one or more of the following: Loss of past and future wages,
impaired earning capacity, lessened ability to compete in the open labor market,
any degree of permanent impairment and any degree of loss of bodily function or
capacity.
Statutory disability benefits.
Benefits under the Federal Social Security Act, the Canada Pension Plan and the
Quebec Pension Plan.
Any payments provided by the Veterans Administration.
●
Disability or retirement benefits under the Federal Social Security Act.
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Other income benefits include those, due to your disability or retirement, which are
payable to you.
Aetna will determine other income benefits as follows:
Workers’ Compensation Benefit Payments in a Lump Sum:
That part of the lump sum payment that is for disability will be counted. This will be
done if it is or is not the result of a compromise, award or judgment. If there is no proof
acceptable to Aetna as to what that part is, 50% will be deemed to be for disability.
This amount will be broken down to a 60 month period. The 60 months will start on the
same date as the period for which the lump sum payment is made. If the lump sum
payment is not tied to a specific period, the 60 months will start on the date that the lump
sum payment is made.
Other Payments:
Payments In a Lump Sum (this includes periodic payments that could have been chosen
in a lump sum):
These will be broken down to 60 monthly periods.
Periodic Payments (this includes amounts which are the accumulation of past due
periodic payments):
These will be broken down to monthly periods.
Any Other Payments that date back to a prior date may be allocated on a retroactive
basis.
[24-3] at SOC000013-14; [18] ¶ 8.
Notwithstanding this provision, Plaintiff argues that Defendant had “no lawful right to
offset [her] LTD benefits with a portion of her workers’ compensation settlement.” [17] at 7; see
also [31-1] at 7. She maintains that she had a “reasonable belief” that she was not required to
inform Defendant of the $270,000 settlement with her employer, which she contends was
“transmuted” into a tort recovery by the terms of the respective settlement agreements and their
ostensible “interplay with the Illinois Workers’ Compensation Act.” [17] at 8.
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Plaintiff contends that she first signed a release in connection with the settlement of her
$825,000 tort claim. 2 That release provides that “[t]he sums paid pursuant to this Release
specifically include[] payment of any and all liens or claims, by whomsoever made, from any
other source.” That language, Plaintiff argues, “extinguished” her “workers’ compensation claim
against Accenture.” Id. Nonetheless, Plaintiff settled that claim for $270,000 on November 30,
2009, submitted the agreement for review by the Illinois Workers’ Compensation Commission,
and received the Commission’s approval on December 17, 2009. 3 In connection with the
workers’ compensation settlement, Plaintiff signed a rider that stated, “This settlement is
intended to include and compromise liability for temporary total disability compensation, as well
as all medical, surgical, hospital and rehabilitation expenses incurred or to be incurred, for all of
which the petitioner [Plaintiff] assumes responsibility. * * * [Plaintiff] has recovered in excess of
$800,000.00 in a settlement of related actions filed before the Circuit Court of Cook County.
[Accenture] waives its right to a recovery or reimbursement, if any, under Section 5(b) of the
[Illinois Workers’ Compensation] Act associated with the related third-party litigation.” [27-4] at
CF001432. The import of that agreement, Plaintiff contends, is that the lump sum workers’
compensation payment “was added to the sum paid by Illinois National [in the tort settlement],
and the lien Accenture had in the settlement between Plaintiff and Illinois National, by virtue of
Section 5(b) of the Illinois Workers’ Compensation Act, was wiped out. Thus, Plaintiff’s
workers’ compensation claim was extinguished; and her workers’ compensation settlement was
effectively transmuted into a partial payment of damages through a third-party tort suit.” [31-1]
at 8; see also [17] at 8.
2
Defendant made no attempt to offset Plaintiff’s LTD benefits by any portion of this settlement.
3
And presumably received and accepted a lump sum payment of $270,000. See, e.g., [17] at 8.
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This novel argument, for which Plaintiff has provided no legal authority, does not appear
to have any support in Illinois law. Section 5(b) of the Workers’ Compensation Act provides:
Where the injury or death for which compensation is payable under this Act was
caused under circumstances creating a legal liability for damages on the part of
some person other than his employer to pay damages, then legal proceedings may
be taken against such other person to recover damages notwithstanding such
employer’s payment of or liability to pay compensation under this Act. In such
case, however, if the action against such other person is brought by the injured
employee or his personal representative and judgment is obtained and paid, or
settlement is made with such other person, either with or without suit, then from
the amount received by such employee or personal representative there shall be
paid to the employer the amount of compensation paid or to be paid by him to
such employee or personal representative including amounts paid or to be paid
pursuant to paragraph (a) of Section 8 of this Act. * * * If the injured employee or
his personal representative agrees to receive compensation from the employer or
accept from the employer any payment on account of such compensation, or to
institute proceedings to recover the same, the employer may have or claim a lien
upon any award, judgment or fund out of which such employee might be
compensated from such third party. * * *
820 ILCS 305/5(b). As the Illinois Supreme Court has explained, the purpose of § 5(b) is to
allow “both the employer and the employee an opportunity to reach the true offender while
preventing the employee from obtaining a double recovery.” Gallagher v. Lenart, 874 N.E.2d
43, 61 (Ill. 2007) (quotation omitted). The statute is designed to be “fair to everyone concerned:
the employer, who, in a fault sense, is neutral, comes out even; the third person pays exactly the
damages he or she would normally pay * * *; and the employee gets a fuller reimbursement for
actual damages sustained than is possible under the compensation system alone.” Id. (quotation
omitted) (alteration in original). Thus, had Accenture not explicitly waived its rights to do so, §
5(b) would have afforded it the ability to recover from Plaintiff some portion of the tort
settlement. The tort settlement Plaintiff signed acknowledged Accenture’s potential lien in the
tort settlement and absolved settling party Illinois National from any responsibility should
Accenture assert its rights. It did not, as Plaintiff suggests by quoting without context only a
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single sentence from the release, provide for the “payment of any and all liens or claims by
whomsoever made, from any other source.” Instead, as the next sentence of the tort settlement
makes clear, it placed the onus of responding to any claims by Accenture (or any other lien
holder) on Plaintiff. Plaintiff agreed that she would, “in consideration of the payment herein
* * * make payment of any and all liens or claims growing out of the incident in question and
* * * hold harmless [Illinois National] from any such liens or claims and * * * defend and
indemnify [Illinois National], Releasees, insureds, their insurers and attorneys for any claims or
actions related to or arising out of same.” [27-4] at CF001461. The settlement did not by this
language “incorporate,” “transmute,” or “extinguish” any subsequent workers’ compensation
settlement.
Nor does any language in the settlement suggest that the signatories – which did not
include Defendant – intended the settlement to accomplish anything other than resolving
Plaintiff’s workers’ compensation claim against Accenture. The settlement is embodied on a
standardized form bearing the heading “Illinois Workers’ Compensation Commission Settlement
Contract Lump Sum Petition and Order.” The rider contemplates the existence of a singular,
stand-alone “claim” and does not purport to affect the rights of anyone not party to the agreement
or resolve any claim not mentioned. Perhaps most telling is Plaintiff’s submission of the
settlement agreement to the Illinois Workers’ Compensation Commission, which is tasked with
administering the Workers’ Compensation Act. See 820 ILCS 305/13. Had the $270,000
settlement truly been part and parcel of Plaintiff’s earlier tort settlement, it seems unlikely that
Plaintiff would have thought it necessary to get the approval of the Workers’ Compensation
Commission, and even more unlikely that the Commission would have had the jurisdiction to
approve a tort settlement.
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The Social Security Administration’s “Program Operations Manual System” is equally
unsupportive of the “transmutation” theory. To begin with, it is not clear that the provision cited
by Plaintiff, § DI 52001.090, remains in force. (The copy that Plaintiff provided to Defendant,
which Defendant submitted to the Court, see [27-4] at CF001462, says “Current through August
2003.”). Even if it is in force, however, § DI 52001.090 does not by its terms “provide[] that if an
employer’s lien for workers’ compensation benefits pursuant to Section 5(b) of the Illinois
Workers’ Compensation Act is extinguished, it is as if workers’ compensation had never been
paid.” [17] at 9. To the contrary, § DI 52001.090(B)(4) provides that where there is a third-party
suit and the claimant’s employer waives the right to have workers’ compensation payments
reimbursed, like Accenture did here, any offset of Social Security Disability benefits is “not
removed.” Plaintiff “does not contest that the POMS so provides, but disputes that [section
(B)(4)] is applicable here” because of the alleged “transmutation” of the workers’ compensation
settlement. [31-1] at 12. As explained above, there was no “transmutation” of any settlement.
Moreover, the Social Security Administration’s treatment of Plaintiff’s federal benefits does not
necessarily affect Defendant’s treatment of Plaintiff’s privately contracted-for benefits. See Deal
v. Prudential Ins. Co. of Am., 222 F. Supp. 2d 1067, 1071 n.3 (N.D. Ill. 2002) (explaining that
the Seventh Circuit “noted that standards used in adjudicating social security cases may be
instructive in ERISA cases * * * [but] said nothing about the instructiveness of applying Social
Security Regulations to ERISA cases”).
Defendant’s ability to offset the workers’ compensation settlement was countenanced in
the LTD policy and was not affected by either of Plaintiff’s settlement agreements or any
interaction that those agreements may have had with 820 ILCS 305/5. Plaintiff’s arguments do
not demonstrate otherwise, when examined under either a de novo or arbitrary and capricious
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standard, nor do they demonstrate the existence of any material factual issues for trial.
Defendant’s motion for summary judgment [28] is therefore granted as to its right to offset, and
Plaintiff’s [15] is denied.
2.
Amount of Offset
Plaintiff contends that even if Defendant had the right to offset her LTD benefits, “the
amount Aetna is offsetting is grossly excessive.” [31-1] at 13. Plaintiff takes issue particularly
with Defendant’s failure to take her attorneys’ fees and medical expenses into account, and
contends that Defendant is “entitled to an offset of $42,000 at most, which reflects 50% of
Plaintiff’s workers’ compensation settlement after the deduction of her attorneys’ fees and
medical expenses.” [17] at 12. Defendant retorts that Plaintiff has waived this issue by failing to
raise it during her ill-fated administrative appeal, and, even if the issue is properly before the
Court, Defendant properly followed the policy provisions in calculating the offset. [28-1] at 13.
The Court concludes that even if the issue has not been waived, Defendant’s computation of the
setoff was proper under either standard of review.
The pertinent provision of the LTD policy provides for two possible methods of
calculating what portion of a lump-sum workers’ compensation payment constitutes “other
income benefits.” The policy is clear that only the “part of the lump sum payment that is for
disability will be counted.” [24-3] at SOC000013. If the claimant submits information that
enables Defendant to assess what portion of the settlement is “for disability,” as opposed to
medical expenses, attorneys’ fees, or other purposes, the policy dictates that Defendant will make
the assessment on the basis of the materials that the claimant submits and count as “other income
benefits” only that portion of the recovery that is “for disability.” Id. If the claimant does not
submit “proof acceptable to Aetna” as to what portion of a lump sum payment is “for disability,”
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the policy provides that “50% will be deemed to be for disability.” Id. Thus, the claimant
decides in the first instance whether to marshal and submit materials for Defendant’s
consideration. Defendant then determines whether the “proof” is “acceptable” and, if so, counts
as “other income benefits” only that amount of the workers’ compensation payment that is “for
disability.” If Defendant deems the “proof” unacceptable, the default rule applies and Defendant
deems 50% of the workers’ compensation payment to be offsettable “other income benefits.”
Here, Plaintiff chose an all-or-nothing approach to the setoff issue, declining to submit to
Defendant, at least in the first instance, any “proof” showing what portion of the $270,000
settlement was “for disability.” (The copy of the settlement agreement that she submitted with
her initial appeal letter did not make clear how the payment was allocated, notwithstanding the
spaces for such information on the standardized form. See [24-3] at CF001431.) Plaintiff relied
entirely on her “transmutation” theory, arguing that the $270,000 payment was actually aimed at
resolving her tort claim. Defendant did not weigh in on this theory or its effect on the offset
calculation before Plaintiff filed this suit reiterating her transmutation theory and adding “proof”
of medical expenses totaling roughly $132,000. Plaintiff also contends that Defendant should
have reduced the offset to “take into consideration what Plaintiff would have paid in attorneys’
fees had she truly adjudicated a workers’ compensation claim, and had she not been represented
by her husband” – which Plaintiff submits amounts to the statutory maximum of 20% of her total
recovery. See [17] at 10; 820 ILCS 305/16a.
Looking at the issue de novo – that is, making an independent decision about how the
language of the LTD policy applies to the facts of this case, see Krolnik v. Prudential Ins. Co. of
Am., 570 F.3d 841, 843 (7th Cir. 2009) – the Court is not persuaded that the offset should be
calculated any differently. To begin with, even if Plaintiff could convincingly show that her
17
medical expenses and fees should be subtracted from the settlement payment before the setoff is
determined, the amount owed to Defendant would not be cut in half, as Plaintiff suggests. See
[17] at 12 (“Aetna is entitled to an offset of $42,000 at most, which reflects 50% of Plaintiff’s
workers’ compensation settlement after the deduction of her attorneys’ fees and medical
expenses.”). The 50% figure in the policy is an alternative method of computation to be used in
the absence of adequate information from a claimant, not an additional discount to be applied
even where satisfactory proof of the portion of the payment designated “for disability” has been
submitted. In addition, Plaintiff’s workers’ compensation clearly indicates that attorneys’ fees
were waived and constituted “-0-” of the settlement. [27-4] at CF001431. Having committed
herself to that position before the Illinois Workers’ Compensation Commission, which per its
website “operates the state court system for workers’ compensation cases,” Plaintiff cannot now
claim that any of the settlement, let alone the statutory maximum 20%, was “for” attorneys’ fees.
Cf. Wells v. Coker, --- F.3d ---, 2013 WL 500375, at *3 (7th Cir. Feb. 12, 2013) (“The doctrine
of judicial estoppel prevents a party from prevailing on an argument in an earlier matter and then
relying on a contradictory argument to prevail in a subsequent matter.”). Whether the decision by
Plaintiff and her counsel to waive attorneys’ fees was aimed at advancing her transmutation
theory, was simply a manifestation of counsel’s performance of pro bono legal services on
behalf of his spouse, or was motivated by something else entirely, there is no indication that
either Plaintiff or her counsel was duped, misled, or otherwise improperly induced into the
agreement. There likewise is no evidence of any windfall to Defendant analogous to that to
which the Third Circuit took exception in US Airways, Inc. v. McCutchen, 663 F.3d 671, 674 (3d
Cir. 2011): Plaintiff did not pay any legal fees in the first instance, and even with the 50% offset
is not “in a worse position than if [s]he had not pursued a third-party recovery at all.” Based on a
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de novo assessment, the Court concludes that $0 of the workers’ compensation settlement was
“for” attorneys’ fees.
Finally, the evidence submitted by Plaintiff in support of her claim that more than
$132,000 of the settlement was “for” medical expenses consists of a four-page document that is
by its own terms a “Partial * * * Summary,” essentially a list of medical service providers’
names, dates, and dollar amounts. See [18-5] at 3-6. Plaintiff has not provided any information
from which the Court can discern, for example, what services were rendered, whether Plaintiff
actually paid the amounts listed, whether Plaintiff received any reimbursement due to insurance
coverage, or whether the claimed expenses were even related to the accident. Just as some
minimal level of detail is required even when a party submits a bill of costs, see Northbrook
Excess & Surplus Ins. Co. v. Proctor & Gamble, 924 F.2d 633, 643 (7th Cir. 1991), so too is an
appropriate level of detail necessary where, as here, the amount at issue exceeds $100,000.
Based on the lack of detail in Plaintiff’s “proof,” the Court, like Defendant, is left with no way of
engaging in a meaningful de novo assessment of Plaintiff’s claimed medical expenses. In these
circumstances, the Court, like Defendant, concludes that the sensible place to turn is to the
default provision in the policy, pursuant to which the Court allocates 50% of the workers’
compensation settlement to Plaintiff’s disability. 4
The same result would obtain if the Court applied a deferential standard of review and
looked only to the administrative record that was before Defendant. Defendant had before it only
the settlement agreements and some statutory and regulatory provisions. It would not be arbitrary
or capricious to conclude that these materials did not constitute adequate “proof” as to what
4
As Defendant points out, accepting Plaintiff’s $132,000 figure for medical expenses, but declining any
credit for the waived attorneys’ fees and refusing to apply the 50% discount after subtracting the
(claimed) medical expenses actually would leave Plaintiff slightly worse off (by $3,000) than she is under
the Court’s (and Defendant’s) determination of the applicable offset.
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portion of the settlement was “for disability.” Nor would it be arbitrary and capricious to apply
the default provision and decide that “50% will be deemed to be for disability.” Accordingly, the
Court grants Defendant’s motion for summary judgment [28] and denies Plaintiff’s motion for
summary judgment [15].
IV.
Conclusion
For the reasons stated above, the Court denies Plaintiff’s motion for summary judgment
[15] and grants Defendant’s motion for summary judgment [28].
Dated: March 11, 2013
_____________________________
Robert M. Dow, Jr.
United States District Judge
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