Our disabled client had been receiving benefits from her disability insurance company and expecting them to continue, as her disability had not changed.  She was awarded Social Security disability benefits from the federal government, which generally sets a higher bar for awarding benefits.

When the disability insurance company learned of the Social Security award, it terminated her claim and began proceedings to sue her for overpayment.

Most disability insurance policies require claimants to have their Social Security benefits paid to the disability insurance company rather than going to the claimant. This usually occurs somewhat automatically, but in this case, Social Security benefits were sent directly to the claimant.

She contacted us after receiving a demand for $55,000, frantic about the aggressive and threatening calls coming from a collections agency and not knowing what to do.

She didn’t have the funds to repay to the insurer.  Her situation had left her with no choice but to use the money from Social Security and she didn’t have the wherewithal to pay the money – especially after her disability benefits were terminated.

We told her that in this case, she could be protected by the same law that put her and so many other claimants in a bad position – ERISA. This is the federal law used to govern employee benefits and adopted by disability insurance companies to maintain an iron grip on disability claims disputes.

ERISA allows the insurer to recover on equitable remedies only – which did NOT include the ability to sue for a general judgment, as might occur in a typical dispute. Instead, the insurer would only be able to secure equitable remedies, such as recoupment (recovery from its own funds) or an offset against future benefits.

Our position was that this dissipated money prevented a claim against our client, based on a decision from the Supreme Court of the United States in Montanile v. Bd. of Trs. of the Nat’l Elevator Indus. Ben. Plan, 136 S. Ct. 651 (2016).

The Court determined that the “other appropriate equitable relief” to which an insurer might be entitled would not permit the recovery of a legal remedy for once identifiable funds which have dissipated. However, as noted by the Supreme Court in Montanile, seeking to attach general assets was not permissible – as that would constitute a legal and NOT equitable claim.  Instead, there must be identifiable funds to pursue.

We convinced the insurer on the basis of this case and the numerous cases which have followed and further defined this issue favorably for claimants.  We prepared an affidavit to support our position. Equally important, we made it clear to our adversaries that our client did not have such identifiable funds and further money chases, no matter how aggressive, were not going to yield any results.

When Social Security grants benefits in a large lump sum, often the insurer is entitled to such money—but not always. If this is your situation, contact our firm to discuss how we might be able to assist you.

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