Finch v. Unum Life Insurance Co. of America

Citations: 465 F. Supp. 2d 901; 2006 WL 3735373Docket: Civil 06-296 ADM/RLE

Court: District Court, D. Minnesota; December 18, 2006; Federal District Court

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Plaintiffs Natalie S. Finch and David L. Paul, representing themselves and others similarly situated, filed a lawsuit against Unum Life Insurance Company of America, alleging violations of the Employee Retirement Income Security Act (ERISA). Their claims include enforcement/clarification of rights under 29 U.S.C. § 1132(a)(1)(B), equitable relief under 29 U.S.C. § 1132(a)(3)(A) and (B)(i, ii), and breach of fiduciary duty under 29 U.S.C. §§ 1104 and 1109. The United States District Court for the District of Minnesota heard oral arguments on Unum's Motion to Dismiss on August 21, 2006, and subsequently requested additional briefing.

Both plaintiffs are disabled and receive long-term disability benefits through group insurance policies provided by Unum to their respective employers. Finch's coverage is through Catholic Health Initiatives in Colorado, while Paul's is through Infirmary Health System, Inc. in Alabama. The policies stipulate that Unum will deduct amounts received from Social Security disability benefits from the plaintiffs’ gross disability payments and reserves the right to recover any overpayments due to such benefits.

The policies also outline that Unum may estimate entitlement to deductible income benefits, allowing a reduction in payments based on those estimates if benefits are not yet awarded or are under appeal. Paul and Finch, along with their dependent children, were awarded Social Security disability benefits, which included monthly payments and lump sums for back benefits. Specifically, Paul was awarded $1,201 monthly starting November 2003, with back benefits totaling approximately $31,988, while Finch's benefits included $816 monthly starting March 2004, with back benefits of $16,764. Their children's awards also included significant past due benefits and monthly payments. The court ultimately granted Unum's Motion to Dismiss in part and denied it in part.

Unum notified Plaintiffs that their monthly long-term disability benefits would be reduced by the amount of Social Security Administration (SSA) benefits they received, claiming overpayments that required repayment. Paul was informed of an overpayment of $46,416.38, while Finch faced an overpayment of $26,090.66, with both being warned about further action if full repayment was not made by specified deadlines. Following the receipt of SSA benefits, Finch’s monthly benefits dropped from $1,417.42 to $235.42, and Paul’s from $1,787.76 to $178.78. Unum started applying their monthly benefits towards the alleged overpayments instead of issuing payments directly to them after the repayment deadlines passed.

Subsequently, Plaintiffs amended their claims, arguing that Unum violated ERISA by improperly calculating Paul’s overpayment, which included $5,300 in attorney's fees he never received; failing to provide amended tax documents; and demanding immediate repayment instead of allowing pro-rated payments. The legal standard for a motion to dismiss emphasizes that the plaintiff's allegations must be viewed favorably, allowing claims to proceed unless there is a clear bar to relief.

Paul contends that the inclusion of the $5,300 in his overpayment was incorrect and that Unum's refusal to adjust this amount warrants injunctive relief for a proper recalculation. Unum asserts that the claim lacks standing and that the inclusion of the attorney's fees was justified until Paul provided proof of payment, after which the overpayment amount was adjusted. Paul argues that Unum had prior knowledge of the attorney's fees but failed to amend the overpayment calculation despite his requests.

Paul has recently discovered that Unum may have credited $5,300 in attorney's fees against his overpayment amount. Despite this, he has sufficiently stated a claim regarding these fees to survive Unum's Motion to Dismiss. Paul has standing to assert this claim due to a concrete injury resulting from Unum's failure to credit the $5,300, which could lead to him repaying more than owed or having future benefits withheld.

The Court notes that Paragraph 114 of the Third Amended Complaint supports a claim under 29 U.S.C. § 1132(a)(1)(B), allowing a participant to enforce or clarify rights under a plan. Paul seeks to ensure his overpayment amount is accurately calculated, which could reduce his repayment obligation or allow him to resume monthly benefit payments sooner.

Additionally, the Plaintiffs argue that Unum cannot collect overpayments in a lump sum based on policy language and the recoupment doctrine. They cite policy language that discusses how lump sums from deductible income sources will be prorated, but this language pertains specifically to the calculation of benefits, not repayments to Unum. The relevant policy states that Unum has the right to recover overpayments and determines the repayment method, indicating that lump sum collections are permissible.

Regarding the recoupment doctrine, it allows a defendant to reduce a monetary claim based on a related claim against the plaintiff from the same contract. However, the Plaintiffs' argument that this doctrine limits Unum's recovery of overpayments is still under consideration.

Recoupment can only be used to reduce a liability owed to a party, not to recover damages. Plaintiffs misunderstand this doctrine, asserting that Unum is limited to withholding monthly benefits to recover overpayments, which is not accurate. The doctrine allows for other recovery methods, including demanding lump sum payments, which Unum is entitled to do without breaching fiduciary duties. Consequently, Plaintiffs' claim regarding Unum's demand for lump sum repayment is dismissed for lack of legal support.

On the issue of amended W-2 forms, Plaintiffs allege that Unum failed to provide these forms to reflect repaid income, claiming this indicates an overcalculation of repayment amounts. However, they do not specify a demand for relief related to unamended W-2 forms in their Complaint. Although they assert in their Opposition Memorandum that Unum was obligated to provide amended W-2s, Unum contends that the Complaint does not sufficiently plead this issue and that IRS regulations limit their ability to issue amended forms. Additionally, Unum argues it adequately notified Plaintiffs of the disability benefits recovered. The court finds that Plaintiffs have not stated a sufficient claim regarding notification of amended tax information and dismisses this claim as well.

In conclusion, Unum's Motion to Dismiss is granted for Plaintiff Natalie S. Finch and partially granted and denied for Plaintiff David L. Paul.

The primary issue remaining in the case is whether Plaintiff Paul received credit for $5,300 in attorney's fees. This factual question can be resolved through an accounting of the funds disbursed to him. The court will not consider the documentation provided by Unum in a motion to dismiss. If the parties cannot resolve the issue through record examination, a status conference with Magistrate Judge Raymond L. Erickson must be scheduled before any discovery can occur, with a deadline for contacting the judge set for January 18, 2007. If the parties reach a resolution prior to the conference, they are required to inform the Court. 

Additionally, although the Third Amended Complaint is labeled as a class action, no motion for class certification has been filed. Plaintiffs Paul and Finch hold identical claims, while Plaintiff Paul has an additional claim regarding attorney's fees wrongly included in his overpayment. Furthermore, undisputed documents not physically attached to the complaint but referenced within may be considered without changing the motion to dismiss into a summary judgment motion. Both parties have submitted affidavits with exhibits not included in the Third Amended Complaint; aside from the insurance policies, these exhibits were not relied upon, ensuring that Unum's Motion remains a motion to dismiss.