William J. Welsh, Appellee/cross-Appellant v. Burlington Northern, Inc., Employee Benefits Plan, Appellant/cross-Appellee
Docket: 94-1767, 94-2822
Court: Court of Appeals for the Eighth Circuit; May 4, 1995; Federal Appellate Court
William J. Welsh suffered a lower back injury at work in 1977, which led to a job change and a subsequent lawsuit against his employer under the Federal Employers' Liability Act (FELA). In 1984, he was awarded $500,000 in damages. In 1985, Welsh became totally disabled due to arachnoiditis, caused by a diagnostic dye injected into his spine. This condition resulted in severe symptoms, including bowel incontinence and intractable pain, with no effective treatment available.
The railroad's health insurance plan initially provided disability benefits linked to the arachnoiditis but ceased payments in mid-1987 after paying the FELA award, asserting that the award should offset the disability benefits owed under the contract. In late 1992, Welsh filed a lawsuit against the health insurance plan, arguing that it was improper to use the FELA award as a setoff. The federal district court ruled in Welsh's favor in late 1993, determining that the arachnoiditis was an independent cause of his disability, thus prohibiting the offset. The court granted judgment for Welsh but initially denied his attorney's fees. Later, it amended the judgment to allow deductions for certain retirement benefits from the disability payments and affirmed that Welsh would receive benefits until he either recovers or turns 65.
The health insurance plan appeals the summary judgment in favor of Mr. Welsh, claiming that there are genuine issues of material fact that should prevent the judgment and asserting that the law mandates a summary judgment for the plan instead. The plan argues against the district court's calculation of both past and future disability payments, contending that these calculations should have been determined by the plan. Mr. Welsh cross-appeals, arguing that excessive deductions were made for retirement benefits and also contests the denial of attorney's fees. The court affirms the district court's decisions on the calculations but reverses the denial of attorney's fees, remanding for further proceedings on that issue.
The disability benefits contract is governed by the Employee Retirement Income Security Act (ERISA), and the district court determined that the contract does not grant the health insurance plan discretion to interpret its terms, necessitating de novo judicial review of the plan's decisions regarding setoffs related to the Federal Employers Liability Act (FELA) award. The plan does not significantly contest this finding.
The short-term and long-term disability contracts collectively allow for reductions in benefits due to any compensation received under FELA or similar laws. The health insurance plan argues that it is entitled to offset any amounts awarded to Mr. Welsh from the FELA lawsuit, irrespective of whether the injuries are the same as those for which he receives long-term disability benefits. Furthermore, the plan contends that Mr. Welsh's arachnoiditis, for which he is drawing benefits, was part of the injuries compensated in the FELA case.
The plan claims there is a genuine issue regarding the cause of Mr. Welsh's arachnoiditis; however, the court finds this argument lacks relevance since the plan's assertion hinges on whether the condition was included in the FELA compensation. The only evidence cited by the plan does not demonstrate a genuine issue of material fact that would prevent summary judgment for Mr. Welsh.
The health insurance plan contends that the district court erred by categorizing Mr. Welsh's arachnoiditis as an independent cause of his disability, arguing instead that it is a consequence of his initial back injury. This assertion is based on the premise that Mr. Welsh's arachnoiditis arose from diagnostic materials related to his back injury, suggesting that legal precedents under the Federal Employers Liability Act (FELA) dictate that arachnoiditis should be treated as a consequence of the back injury. Consequently, the health insurance plan argues that Mr. Welsh's arachnoiditis cannot be deemed a separate injury under the disability benefits contract.
In response, Mr. Welsh argues that the FELA-based award's applicability to offset his disability benefits is governed entirely by FELA, focusing on the right to set off rather than the similarity of injuries. Specifically, he cites a provision in FELA that voids contracts which allow an employer to evade liability created by FELA but permits setoffs for any insurance or indemnity sums paid to the injured employee related to the injury in question. Mr. Welsh asserts that allowing the FELA award to offset his disability benefits would enable the railroad to avoid paying that judgment.
The circuit previously addressed a similar argument in Clark v. Burlington Northern, Inc., where the court upheld a setoff under comparable contract terms, determining that such terms did not absolve the railroad from liability. However, the current case differs because there is a dispute regarding whether Mr. Welsh's claims arise from the same basis in both the lawsuit and the disability benefits contract, suggesting that the precedent from Clark may not apply here.
Mr. Welsh argues that the FELA definition of a compensable injury should not lead to a setoff in his case, asserting that damages from his FELA lawsuit and disability benefits must compensate for the same circumstances. He distinguishes between his FELA claim, which addresses partial disability resulting in diminished earning capacity due to his inability to return to a high-paying job, and the disability benefits, which relate to total disability with a complete loss of earning capacity. He contends that this distinction holds true regardless of whether his arachnoiditis is considered the same injury as his back problems under FELA.
The court finds Mr. Welsh's argument persuasive, noting that the FELA setoff provision aims to prevent double liability for the same loss. The key inquiry is whether Mr. Welsh sought damages for total disability in his FELA lawsuit, where it is acknowledged he has been totally disabled since late 1985.
The court reviews testimony from various medical professionals, with one orthopedic surgeon indicating permanent damage but not total disability, while another suggested that Mr. Welsh could continue to work and lead a normal life. A neurosurgeon found no expectation of paralysis or significant functional limitations, and a neurologist confirmed Mr. Welsh could lead a normal life despite ongoing pain and activity limitations.
During the FELA trial, Mr. Welsh's attorney requested damages only for future loss of wages based on diminished earning capacity, specifically comparing earnings as a Wireman to those as a draftsman, rather than asserting a complete absence of earning capacity. Closing arguments also indicated that while future health issues were acknowledged, Mr. Welsh's future included the potential to maintain some employment, countering claims of total disability made by the railroad's lawyer.
The health insurance plan has not provided sufficient evidence to indicate a genuine issue of material fact regarding whether total disability was contested in Mr. Welsh's FELA lawsuit. Consequently, it is agreed that no damages for total disability were awarded in that trial, eliminating the possibility of double liability for the railroad and negating any grounds for a setoff under FELA. The health insurance plan, however, asserts a separate entitlement to a setoff based on the disability benefits contract, claiming that any amount awarded under FELA must offset disability payments, regardless of the injury basis. This interpretation is deemed unreasonable, as it could require a setoff for unrelated injuries, such as a FELA award for a foot injury against benefits for total incapacitation from a stroke.
In an alternative argument, the health insurance plan contends that since Mr. Welsh's arachnoiditis is linked to his back injury under FELA case law, the damages from the FELA lawsuit should offset disability payments for the arachnoiditis. Mr. Welsh acknowledges that he cannot pursue another FELA claim for the arachnoiditis due to res judicata but argues that setoff provisions aim to avoid double liability for the same loss, which differs from res judicata's focus on finality and judicial resource conservation. He maintains that while the back injury and arachnoiditis may be legally considered the same injury for res judicata, they resulted in different losses—diminished earning capacity from the back injury and total inability to work from the arachnoiditis. Thus, he contends there is no risk of double liability for the same loss, and the FELA award should not be used to offset disability benefits under the contract.
The disability benefits contract does not mandate that 'the same injury' be the basis for offsetting a FELA award against disability payments. Instead, the contract implies that for a FELA award to serve as a setoff, it must be for 'the same loss,' which can differ from 'the same injury.' A specific provision in the contract refers to payments being 'on account of such disability,' indicating a distinction between partial disability in Mr. Welsh's FELA case and total disability covered under the contract.
Disability payments are based on an employee's wages, and a setoff might be appropriate if the employee receives an award for lost wages due to total disability. However, in Mr. Welsh's case, total disability was not addressed in the FELA trial, so the contract does not permit a setoff. Furthermore, the railroad does not face double liability for Mr. Welsh's lost wages, as the FELA award encompassed damages for pain and suffering and future diminished earning capacity, while disability payments are calculated solely on his post-injury salary as a draftsman.
The district court's ruling that the health insurance plan cannot offset Mr. Welsh's disability benefits with his FELA award is affirmed. The health insurance plan contests the district court's judgment regarding past and future disability benefits owed to Mr. Welsh, seeking the chance to calculate these amounts considering potential setoffs like retirement and social security disability benefits. However, their motion only referred to retirement benefits. Mr. Welsh argues against remanding the case to the health insurance plan, stating that federal law allows the district court to determine the owed amounts and that the court already utilized calculations proposed by the health insurance plan in its judgment. The agreement is with Mr. Welsh's position.
A beneficiary of an ERISA plan has the right to sue for recovery of benefits, enforcement of rights, and clarification of future benefits as per 29 U.S.C. Sec. 1132(a)(1)(B). Courts have the authority to determine due benefits and award them, as established in Halpin v. W.W. Grainger, Inc. Additionally, when health plans do not make factual determinations in denying benefits, courts can make their own factual findings and introduce additional evidence if necessary, as supported by Casey v. Uddeholm Corp. The district court is not obligated to remand the case if it would be a mere formality, as noted in Wolfe v. J.C. Penney Company, Inc.
In this case, the health insurance plan suggested that the district court calculate payments due and proposed a method for the calculation. The court affirmed the judgment for past disability benefits and declared Mr. Welsh entitled to future benefits until he is 65 or remains disabled. The plan can still assess Mr. Welsh’s ongoing disability status and request documentation as needed.
The disability benefits contract stipulates a monthly payment amounting to 60% of the employee's basic salary, which for Mr. Welsh is calculated at $1,524 based on his salary of $2,540. The contract also states that this amount is subject to reduction by any primary payments received under the Railroad Retirement Act (RRA). Mr. Welsh contended that the district court erroneously included amounts related to his minor children in the setoff for retirement benefits, but this was rejected. The RRA provides retirement benefits to railroad employees with over 10 years of service, allowing totally disabled employees to receive these benefits without age restrictions, akin to social security disability benefits.
Social Security disability benefits define 'disability insurance benefit' through the 'primary insurance amount' under old-age benefits, calculated via earnings percentages from all employment. Mr. Welsh's tier I benefits amount to $764 per month, while his tier II benefits total $283 per month, leading to combined benefits of $1,047 monthly. However, Mr. Welsh is entitled to $1,146 in monthly retirement benefits due to a provision in the Railroad Retirement Act (RRA) that guarantees retirement benefits equivalent to those under Social Security, considering his minor children.
The disability benefits contract states that benefits related to dependents will not reduce the Long Term Disability benefit unless total benefits exceed 80% of basic monthly salary; Mr. Welsh’s total does not exceed this threshold. The key dispute involves whether the 'primary amount' referenced in the contract is the tier I amount ($764) or the combined tier I and tier II amounts ($1,047). The RRA and the disability benefits contract do not define 'primary amount,' but the reasonable interpretation is that it refers to the basic retirement benefits for railroad employees with over 10 years of service. This interpretation distinguishes basic benefits from supplemental benefits and aligns with the contract's requirement of payment 'under the [RRA].' Although under ordinary circumstances 'primary amount' could imply the sum of tier I and tier II benefits, Mr. Welsh's eligibility for additional benefits due to dependents complicates this calculation, raising the question of how to quantify the 'benefits due to the presence of dependents' for the purposes of the reduction.
Mr. Welsh's primary insurance amount under social security would be $764, with an additional $382 due to his minor children, totaling $1,146. He argues that since the Railroad Retirement Act (RRA) guarantees him equivalent benefits, he should exclude the $382 when calculating the offset for his disability benefits, resulting in a disability benefit of $760 per month. In contrast, the health insurance plan contends that his total retirement benefit under the RRA, which includes both tier I and tier II amounts, is $1,047, and that he should only exclude the difference attributable to his children, leading to a disability benefit of $477 per month, an amount supported by the district court. The court favored the health insurance plan's argument, asserting that Mr. Welsh's actual benefits are derived from the RRA, not social security, and affirmed the district court's disability benefit ruling.
Regarding attorney's fees under ERISA, the court emphasized the need for a liberal interpretation to protect employee rights. Mr. Welsh claimed the district court wrongfully denied his request for attorney's fees. The court outlined that when deciding on attorney fee awards, factors such as culpability, ability to pay, deterrent effect, benefit to other participants, and the merits of both parties' positions must be considered. A beneficiary typically should receive attorney fees unless "special circumstances" apply, which the losing party must prove. The absence of bad faith from the defendant does not constitute such a circumstance.
The district court denied Mr. Welsh's request for attorney's fees, concluding that the health insurance plan acted without bad faith, was likely able to pay fees, and that awarding fees would not deter future claims. The court also noted that Mr. Welsh's suit was for personal benefit and that the plan's position had merit. However, the appellate court found that these considerations were improperly evaluated, leading to an abuse of discretion in denying fees. The court emphasized that reasonable attorney's fees could deter health plans from opposing legitimate claims, particularly when the employee's chances of success are high. Furthermore, a decision clarifying contractual terms benefits all parties involved and provides guidance for future contract administration. The appellate court interpreted contract language regarding payment amounts and setoff provisions, noting these issues are not unique to Mr. Welsh, as they have arisen in prior instances. The health plan acknowledged that interpreting these provisions significantly impacts its obligations to participants. Ultimately, Mr. Welsh prevailed in all issues on appeal, justifying an award of attorney's fees. The appellate court reversed the denial of fees and remanded for further proceedings to determine the appropriate amount. A dissenting opinion argued that the plan was entitled to set off the FELA award against the disability benefits, advocating for the reversal of summary judgment in favor of Mr. Welsh.
Agreement exists with the majority opinion to reverse the district court's denial of attorney's fees for Welsh, advocating for a remand focused on the merits of the attorney's fee issue rather than merely the award amount. It is agreed that the standard of review for the plan's setoff decision is de novo. Unlike the majority, there is a belief that the relationship between the FELA lawsuit's injury (back injury) and Welsh's disability benefits (arachnoiditis) is irrelevant to the setoff issue. The disability plans explicitly state that benefits will be reduced by any amounts paid under the FELA, indicating no requirement for the injuries to be the same or related. The assertion that this interpretation is "completely irrational" is challenged, as the plans do not mandate that the setoff be based on the same injury. The distinction between "same loss" and "same injury" in the context of setoff is emphasized, as well as the language in the long-term disability plan referring to payments "on account of such disability" rather than "on account of such injury."
While it is acknowledged that the plans do not face double liability for future lost wages, this concern is seen as more pertinent to the FELA analysis rather than the setoff availability. The provisions clearly indicate that disability benefits are to be reduced by any FELA payment, irrespective of the nature of the FELA award. Thus, it is concluded that the disability plans authorize a setoff of FELA awards against both short-term and long-term disability benefits. This right to setoff is supported by precedent cases and is not prohibited by Section 5 of the FELA or ERISA.
Worker's compensation benefits may be set off against long-term disability benefits, as established in Alessi v. Raybestos-Manhattan, Inc., where the Supreme Court ruled that pension benefits can be reduced by worker's compensation awards and that ERISA does not prohibit such "integration" of benefits. The author agrees with the plan's position that a Federal Employers' Liability Act (FELA) award should offset disability benefits but refrains from addressing the specifics of calculating disability benefits or payments under the Railroad Retirement Act. The author also concurs with the majority that the district court's order denying attorney's fees should be reversed, although for different reasons. They argue that since the setoff issue should be reversed on its merits, the attorney's fees order should also be vacated and remanded for reconsideration based on the merits, acknowledging that a different outcome may affect the attorney's fees determination, referencing Nesom v. Brown. Root, USA, Inc. as a supporting case.
