Disability Payment Suit Survives Challenge

March 5, 2003 (PLANSPONSOR.com) - A Minnesota company's policy of providing 26 weeks of income to disabled workers may constitute an ERISA regulated benefit plan, a federal judge ruled.

So a federal judge refused to throw out a lawsuit filed by the company’s former HR manager claiming she was wrongly denied those benefits, according to Washington-based legal publisher BNA.

If the ruling had gone the other way and the judge had found that the “wage and salary continuation” short-term disability policy from Progress Casting Group Inc. was a payroll practice instead of a federally regulated benefits plan, ERISA would not cover Mary Elizabeth Blank’s claims and her suit should have been dismissed, US District Judge Donovan Frank ruled.

Making Progress

Blank worked at Progress until May 2001. Progress Casting maintained a “wage and salary continuation practice” that provided up to 26 weeks of partial replacement income for full-time employees who were disabled due to accident, hospitalization, surgery, or sickness. UNUM Life Insurance Co. was claims administrator of the wage and salary continuation practice.

Employees were eligible for full health care and other benefits during the first 12 weeks they received pay under the practice. After the first 12 weeks expired, employees had to pick up the full cost of all health care benefits.

Blank filed an application for wage and salary continuation benefits with UNUM on May 31, 2001. Although UNUM approved Blank’s claim, Progress Casting refused to pay Blank’s benefits. Blank sued, alleging Progress Casting violated ERISA by refusing to pay her benefits.

Progress argued to Frank that the suit should be thrown out because its policy did not represent a benefit plan and, therefore, the court had no legal jurisdiction. Rejecting Progress Casting’s argument, Frank said it was not obvious that money paid to employees under the practice constituted “normal compensation” as contemplated by federal regulations.

The case is Blank v. Progress Casting Group Inc ., D. Minn., No. 02-4155 (DWF/SRN), 2/26/03.

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