Clawback Ruling Reversed and Remanded

The U.S. Court of Appeals for the Ninth Circuit ruled in favor of David Scott Elliot, who became permanently disabled and began receiving benefits in 1999, stating that the clawback amount demanded by the plan’s insurer was not calculated accurately. 

Under the Long-Term Disability Plan offered by Elliot, Leibl & Snyder, LLP, Elliot was eligible to receive the maximum benefit payable–$10,000 per month–exclusive of annual cost of living adjustments (COLA). COLA adjustments occurred annually on the anniversary date of Elliot’s benefit eligibility, December 20. The amount payable to Elliot in the subsequent year was determined by multiplying a COLA “factor” by the benefit then payable to Elliot.

Elliot applied for Social Security Disability (SSD) benefits from the Social Security Administration in March 2004. In June 2006, he received an award of SSD benefits retroactive to February 2003. The award totaled $72,954.50, for the period from February 2003 through April 2006. Following this lump-sum retroactive award from SSD, the plan’s insurer, Union Security Insurance Co., recalculated the benefits it had conferred upon Elliot from February 2003 onwards. This recalculation resulted in a permanent reduction of Elliot’s benefits going forward and the determination that USIC was entitled to clawback $79,384.15 in benefits paid to Elliot between 2003 and 2006. This $79,384.15 clawback was greater than the $72,954.50 retroactive SSD award Elliot had received.

In his lawsuit, Elliot did not dispute the fact that USIC was entitled to a clawback, but contested that the clawback was greater than his retroactive SSD award. Specifically, he took issue with the methodology by which USIC recalculated his benefits beginning in February 2003 to arrive at this greater clawback amount and the permanent reduction of his benefits going forward.

The ruling states: “We reverse and remand because USIC’s interpretation and application of its Plan is arbitrary and capricious and inconsistent with the Plan language. Specifically, by decreasing Elliot’s original $10,000 award, conferred in 1999-dollars, by the $1,811 SSD benefit conferred to Elliot in 2003-dollars, USIC mixed past and present dollar amounts in a single calculation, a computation which is mathematically unsound.”

The case is Elliot v. Elliot, Leibl, & Snyder LLP Long-Term Disability Plan, 9th Cir., No. 09-56730.