Long-Term Disability Overpayments: Can Your Long-Term Disability Insurer Recover An Overpayment In Court?

Posted on Friday, April 8th, 2011 by Loyd Bourgeois    

As a Greater New Orleans disability attorney, I have had quite a few people approach me with the following scenario:

I applied for and was granted long-term disability benefits under my employee benefit plan.  I also applied for Social Security Disability.  While I was waiting for a Social Security Disability decision, the LTD insurance paid me my full benefit amount.  After a year or so of waiting, I was finally awarded SSDI.   At some point, when the LTD insurer discovered I was receiving SSDI, I received a letter stating – “We overpaid you by $____________ as a result of your receipt of Social Security Disability Benefits.  Please send us a check in this amount.”  What do I do?

Usually, the amount that the LTD insurance company is seeking to recover is substantial – $10,000 or more.  This is a difficult prospect for a disability claimant who is already struggling to survive on 60% or so of their earnings and dealing with medical expenses.

To make matters worse, disability claimants often get this letter in conjunction with a reduction in their disability benefit payment to the minimum due under their policy OR after the disability insurer has determined they no longer qualify for benefits.

So what are your options?

If you remain eligible for the long-term disability insurance benefits, you can ask that the insurer apply your currently due amounts to the overpayment.  While it is not ideal because you are losing out on much needed funds, you may often have ancillary benefits dependent upon you remaining on long-term disability insurance – such as medical, pension, or waiver of premium insurance.

If the long-term disability insurance company is demanding repayment either because you are no longer on benefit or because they claim you need to repay to stay on benefit, you may be able to say “Leave Me Alone” and mean it.

In the case of Cooperative Benefit Administrators, Inc. v. Ogden, 367 F.3d 323 (5th Cir. 2004), the United States Court of Appeal for the Fifth Circuit held that long-term disability insurers were not legally able to sue a claimant for recovery of an overpayment.  The court looked at the text of ERISA, the federal law that governs employee benefit plans, and found that the law did not provide insurers with a right to sue claimants for money.  The court also found that there was no federal common law right of recovery in such a case.  This case effectively shields claimants from suits by long-term disability insurance companies to recover overpayments, which are often tied to Social Security Disability awards.

It is important to make clear that this case only applies to decisions in the 5th Circuit – Texas, Louisiana and Mississippi.  The legal rules in your area may differ and allow such recovery.

This holding does not prevent the long-term disability insurance company for asking you for the money and taking it if you give it to them.  If you receive a letter demanding that you repay a substantial portion of money to the long-term disability insurance company because of an overpayment, you should seek legal counsel before sending off your check.