The long term disability carriers right to recover for Social Security over payments is a complicated one.
In Popski vs. Parrott (Florida 61 f 3d 1367, 1369 (11th Cir. 2006)), the 11th Circuit which has jurisdiction over cases in Florida, Alabama and Georgia, compared two plans that had the language for reimbursement under ERISA section 503(a)(3). Interestingly enough, of the first plan payment, “any amount recovered by Covered Person whether or not designated as payment for medical expenses” and “clarify that the covered person had to repay the claim to benefits paid on their behalf while recovering from a third party or an insurer”(1373).
The 11th Circuit found that this plain language allowed the plan to recover because the plan language addresses the findings in which recovery can be made (recovery from the third party or the insurer) and the portion due to the plan (benefits paid on behalf of the defendant). This plan sought to restore to the plan the funds in the plan holder’s possession.
The second plan didn’t have language that allowed for recovery because it didn’t even allow for the assertion of what’s called an equitable lien. The segregation of reimbursement provision allowed the plan the right to reimbursement “in full and in first priority” but didn’t specify the reimbursement having to be made out of any particular fund.
The court found that this was over broad because it failed to limit the recovery from the specific portion of the particular fund.
What does this all mean? What is means for the most part is that a long term disability carrier who overpays long term disability benefits when the policyholder gets a retroactive lump sum payment of Social Security benefits isn’t entitled to reimbursement of those funds. By law, the long term disability carrier isn’t allowed to “attach” your Social Security Disability benefits. The courts have found that it is not the Social Security benefits that need to be refunded, it’s the overpayment of the long term disability benefits which occurred when you got your lump sum overpayment. Regardless of what you call it, the reality is that if you have received a lump sum from the Social Security Disability Administration for retroactive payment, you have an overpayment of your long term disability benefits.
You, by contract, owe the long term disability carrier over payment as a result of the receipt of your Social Security benefits and, further, the long term disability carrier has the legal right to reduce your long term disability benefits by the receipt of Social Security Disability benefits even if you spent it, you are still going to be liable!
For example, in Herman vs. Metropolitan Life Insurance Company (2008 WL 5246319 (Middle District of Florida) December 16, 2008), the court found that Social Security funds were protected from execution level, attachment garnishment or other legal process. However, MetLife was still entitled to claim overpayment because it was seeking the amount of overpaid Ms. Herman in long term disability benefits rather than the Social Security funds.