Court: District Court, W.D. Washington; January 26, 2015; Federal District Court
Plaintiff's Motion for Summary Judgment is granted, while Defendant Unum Life Insurance Company's motions for summary judgment are denied. The case involves an offset in disability insurance benefits under Unum's policy for Dr. Hogan, a psychiatrist. Dr. Hogan applied for benefits under Unum's group disability insurance policy issued to her former employer, Group Health, and was found disabled as of January 5, 2007. Unum began payments after a 90-day elimination period. Concurrently, Dr. Hogan also received benefits from a privately purchased disability policy through the American Psychiatric Association (APA), amounting to $3,000 per month.
Unum's policy permits reductions in benefits based on "Deductible Sources of Income," which include benefits from other group insurance plans. Dr. Hogan informed Unum about her APA policy, and Unum initially paid her full benefits without deductions from 2007 to 2013. In March 2013, a new claims specialist questioned the nature of the APA policy, suspecting it might be a group policy and thus eligible for offset. After reviewing the APA policy, the claims specialist concluded it was indeed a group policy, leading Unum's Offset Consultant to confirm that benefits received under the APA policy would offset those payable under Unum’s policy.
On August 1, 2013, Ms. Gurganus notified Dr. Hogan that her Long Term Disability (LTD) benefits would be reduced due to disability income received from another group insurance policy, specifically the American Psychiatric Association (APA) policy. Beginning August 5, 2013, Dr. Hogan's monthly benefit was adjusted to reflect a $3,000 reduction, resulting in a gross benefit of $478.64. Unum requested documentation from Dr. Hogan to assess potential overpayment issues. By October 2013, Unum confirmed that the APA benefits would be deducted from future payments and informed Dr. Hogan's attorney of an ongoing overpayment situation dating back to 2007. On January 24, 2014, Unum acknowledged an overpayment of $177,878.71 but indicated it would only seek repayment of $45,348.43, waiving the remainder due to prior notice of the APA policy.
Dr. Hogan contested Unum’s classification of her APA policy as a group policy and argued that it should be regarded as a "franchise disability income plan," which is not subject to deduction under the Unum policy. Unum denied her appeal on May 2, 2014, reaffirming its stance on the policy classification. Dr. Hogan has not reimbursed the claimed overpayment, leading Unum to withhold her monthly benefits to offset the alleged overpayment. Legal proceedings commenced on June 10, 2014, with Dr. Hogan asserting that the APA policy's benefits should not offset her Unum benefits. Unum has counterclaimed for the alleged overpayment and legal fees. The court will determine if the APA policy qualifies as a "franchise disability income plan," affecting its offset status concerning Unum benefits.
Defendant's motion to strike Exhibits 3-7 from Plaintiff's counsel's declaration in support of summary judgment is denied. The Defendant contends that these exhibits, filed in various cases in different courts, lack proper authentication as Plaintiff’s counsel did not represent any parties involved. However, the Court affirms its ability to take judicial notice of public records and documents from other court proceedings that are relevant to the case, citing Ninth Circuit precedents.
The primary issue before the Court is whether the APA Policy qualifies as a "franchise disability income plan," which would exempt its benefits from offsetting Unum benefits. The terms "franchise insurance" and "franchise disability income plan" are acknowledged as synonymous, yet both the Ninth Circuit and the Court have not specifically defined "franchise insurance." The Court references Couch on Insurance, a recognized treatise, which differentiates between group insurance—where a single policy covers a group entity—and franchise insurance, which issues individual policies to group members, thus increasing administrative burdens. This distinction is further supported by additional legal sources, acknowledging franchise insurance as a hybrid of group and individual coverage.
The Third Circuit has extensively analyzed the distinctions between true group insurance and franchise insurance. In *Fleisher v. Standard Insurance Company*, the court categorized the policy in question as franchise insurance. Dr. Robert Fleisher challenged Standard Insurance's reduction of his long-term disability benefits due to payments from another insurer, North American Company for Life and Health Insurance. He contested Standard's classification of the North American Policy as “group insurance coverage,” arguing that the payments should not be considered “Deductible Income.” The appellate court upheld the District Court's view that "group insurance" encompasses both true group insurance and franchise insurance.
True group insurance typically involves automatic enrollment of employees under a master policy, where the master policyholder manages premium payments and claims. Conversely, franchise insurance allows members to enroll voluntarily, pay premiums directly to the insurer, and file claims independently, while insurers may waive underwriting requirements. The court found the North American Policy shared characteristics with franchise insurance, noting it was issued through the AAE group, allowing individual applications and direct interaction with the insurer regarding coverage and payments.
Despite Fleisher's claim that the policy exhibited traits of individual insurance, the court concluded it was reasonably classified as a franchise policy. Additionally, in *Hummel v. Continental Casualty Insurance Company*, the Nevada District Court addressed similar issues to determine the appropriate statutory provisions, referencing the Nevada Supreme Court's approval to reclassify group policies as franchise policies when necessary.
Following approval, Mr. Daniels received a certificate confirming coverage under a group term life insurance policy, with the master policy held by United Missouri Bank of Kansas City, N.A., as trustee for the Veterans Group Insurance Trust. A dispute over the nature of the coverage prompted the state court to assess whether the policy constituted true group coverage or “franchise insurance.” The trial court initially ruled in favor of the insurer, deeming it group coverage. However, the supreme court reversed this decision, classifying the policy as franchise insurance due to the diversity of the veteran group, which contrasted with the more homogeneous groups typically associated with true group policies (e.g., employees of a single employer or members of a recognized professional organization). The court emphasized the absence of an employer-like buffer to prevent insurer overreach, concluding that Erica’s insurance was more akin to franchise insurance due to her status as an account holder rather than an employee.
The court's analysis found parallels between Erica's insurance and the insurance discussed in Daniels, reinforcing the determination that her coverage did not fit standard group insurance criteria. The case cited, Hummel, supported this conclusion, as it highlighted distinctions between franchise insurance and typical group policies. The court noted that Dr. Hogan's policy, linked to the APA, was similar as she enrolled directly, paid premiums herself, and received a Certificate of Insurance identifying her as the insured. These factors led the court to categorize the APA Policy as franchise insurance.
The defendant referenced Gutta v. Standard Select Trust Ins. Plans to argue against this classification; however, the court found this precedent inapplicable, as it involved different circumstances regarding disability benefits eligibility rather than insurance classification.
In a legal proceeding concerning franchise versus group insurance, the Seventh Circuit Court of Appeals did not address the franchise insurance issue but focused on whether the insurance policy was classified as "any group insurance." The Gutta case established that franchise insurance involves individual contracts between the insured and insurer, while group insurance is characterized by a single policy for an entire organization, where members receive certificates of coverage. Dr. Gutta received a "Certificate of Insurance" from Sentry Life, which indicated coverage under a group policy issued to the AMA, suggesting it was a group policy. Although the Seventh Circuit acknowledged complexities in distinguishing between group and franchise insurance, it ultimately categorized the Sentry Life policy as group insurance due to its provisions and the ability to convert to an individual policy under certain conditions.
The Court determined that the policy held by Dr. Hogan differed significantly from Dr. Gutta's and possessed characteristics of franchise insurance, leading to the conclusion that benefits under the APA Policy could not offset benefits under the Unum Policy. Consequently, the Court denied the Defendant's counterclaim regarding alleged overpayments and granted Dr. Hogan full benefits that had been withheld. The Court also denied the Defendant's motions for summary judgment and closed the matter.
