ERISA Class Action Alleging Failure to Pay Benefits Premised on Strained Reading of Long-Term Disability Insurance Policies and Defense Entitled to Partial Summary Judgment as to certain Class Action Claims New York Federal Court Holds
Plaintiffs filed a putative class action lawsuit against Unum Provident Corporation, Unum Life Insurance Company of America, First Unum Life Insurance Company and Colonial Life and Accident Insurance Company (collectively, “Unum”) alleging violations of ERISA (Employee Retirement Income Security Act). Loughman v. Unum Provident Corp., 530 F.Supp.2d 1121, 2008 WL 515916, *1 (S.D.N.Y. February 25, 2008). The policies underlying the class action are “substantially similar” and “provide for the payment of benefits only in the event that an employee suffers a long-term disability and, consequently, contain language establishing an elimination period.” Id. The second amended class action complaint alleged that Unum improperly terminated long-term disability (LTD) benefits and wrongfully withheld LTD benefits during “the so-called ‘elimination period’”; defense attorneys moved for partially summary judgment with respect certain class action claims on the ground that no LTD benefits are due during the elimination periods in the respective policies. Id. The district court agreed and dismissed the class action with prejudice.
The heart of the class action is as follows: plaintiffs sought disability benefits based on the argument that, while LTD benefits are not payable during the elimination period, the policies require that “once the elimination period has run, a policyholder is entitled to receive retroactive benefits for the prior 180 days of disability.” Loughman, at *2. As a matter of contract interpretation, the district court disagreed. After explaining that ambiguity in a contract may not be premised on a “strained” reading of its terms, see id., at *3, the court rejected plaintiffs’ interpretation of the policies because the class action claims “hinge on their selective reading of a provision of the Policies outside the context of the Policies as a whole,” id., at *4. The federal court explained at page *4 that “plaintiffs construe the phrase ‘[t]he benefit will be paid for the period of disability’ to mean that they are entitled to benefits for the entire period in which they are disabled, regardless of other language in the Policies limiting the period for which benefits must be paid.” But this superficial reading of the policy language ignores the balance of its terms.
“It is a fundamental rule of contract construction that specific terms and exact terms are given greater weight than general language…. Indeed, even where there is no true conflict between two provisions, specific words will limit the meaning of general words if it appears from the whole agreement that the parties’ purpose was directed solely toward the matter to which the specific words or clause relate.” [Citation.] Thus, read together, the Policies’ various provisions clearly state that: (1) an elimination period must run before benefits begin to accrue; (2) after that period, plaintiffs are entitled to payment for the time that they can prove they remain disabled (subject to limitations on maximum benefits); and (3) no benefits are payable for the elimination period itself. Significantly, the elimination period is not called a “deferral” or “qualification” period, and the language defining it does not state that it is a period “during which no benefit is payable.”Rather, the use of the word “elimination” FN6 and the characterization of the period as one “for which no benefit is payable” [citation], clearly indicates that no benefits accrue during that period. Read as a whole, the Policies can have no other reasonable meaning.
Id. The court also rejected plaintiffs’ claim that defendants were collaterally estopped from denying policy benefits during the elimination period based on a New York district court opinion, see id., at *5-*6. Accordingly, the district court granted the motion for partial summary judgment, id., at *7.