Most long-term disability benefit policies provide that the insurance carrier may recover overpayments made to the claimant for disability benefits. Overpayments occur most frequently when the claimant receives SSDI back benefits that cover the time period during which the LTD carrier paid long-term disability benefits in full rather than reducing for the SSDI amount. As a result, the LTD carrier may seek to recover an offset for the amount of SSDI benefits.

The Supreme Court has held consistently that under the Employee Retirement Income Security Act of 1974 (ERISA), a plan fiduciary may obtain only equitable relief against an LTD claimant to enforce the terms of an ERISA plan. To state a claim the LTD carrier must establish that it has an equitable lien with respect to the funds that it seeks. As a rule, an LTD plan's demand to be reimbursed for benefits wrongly paid out is not an equitable claim because the carrier wants money, not the return of the checks it issued.

When a claimant who was denied LTD benefits sues under ERISA, the insurance carrier defendant normally files a counterclaim against the claimant for any overpayment of benefits. Such a counterclaim may be brought only under federal common law and for breach of contract under state law. However, the United States Courts of Appeals for the Fourth, Fifth, Sixth, Eighth, and Ninth Circuits have each held that it is inappropriate to create a federal common law remedy of unjust enrichment in actions brought under ERISA. It may be successfully argued in these Circuits that the LTD carrier cannot bring a counterclaim for recovery of the benefit overpayment and have the counterclaim dismissed. This places the LTD claimant in a much better position to recover the full amount of denied LTD benefits.

Alan C. Olson practices disability law from his offices in New Berlin, Wisconsin, and throughout the United States. AOlson@GetMyLTDbenefits.com