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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Benjamin McClure, 

Plaintiff, 

v. 

Country Life Insurance Company, et al., 

Defendants. 

No. CV-15-02597-PHX-DLR

ORDER 

 At issue is Plaintiff Benjamin McClure’s motion for partial summary judgment, 

which is fully briefed. (Docs. 205, 235, 263.) For the following reasons, the motion is 

denied.1

I. Background 

 McClure purchased a disability insurance policy (“Policy”) from Defendant 

Country Life Insurance Company (“Country Life”) in 1995. The Policy provides a 

monthly base benefit of $800 in the event McClure becomes disabled. McClure also 

purchased a supplemental Social Insurance Rider (“SIR”), which provides up to $700 per 

month in additional benefits subject to certain offsets, including payments received for 

Social Security Disability Insurance (“SSDI”) benefits. Specifically, the SIR provides, in 

relevant part: 

 

1

 The parties’ requests for oral argument are denied because the issues are 

adequately briefed and oral argument will not assist the Court in resolving the pending motion. See Fed. R. Civ. P. 78(b); LRCiv. 7.2(f). 
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This rider pays monthly benefits when the policy pays monthly benefits. An adjustment may be made for cost of living. The amount of the rider monthly benefit is the maximum monthly benefit of the rider less benefits from 

social insurance. Social insurance means: 

A. United States Social Security Disability Insurance . . .; 

. . . 

When you are eligible for benefits from social insurance, you must apply. This includes reapplication, rehearing or appeal as necessary. You must provide us proof of your application and the results. 

 McClure submitted a claim for disability benefits in January 2013 after sustaining 

a disabling head injury in November 2012. Country Life initially approved the claim and 

paid monthly base and SIR benefits from November 2012 until April 2014, when it 

terminated his claim. McClure brought this action against Country Life in December 

2015, alleging that it breached the parties’ insurance contract and administered his claim 

in bad faith. 

 In May 2016, during the pendency of this litigation, McClure was awarded SSDI 

benefits retroactive to December 2012. Later, in November 2016, Country Life 

concluded that McClure’s claim was compensable as of June 2014. Country Life has 

paid McClure base benefits retroactive to that date through the present, but has not paid 

SIR benefits, retroactive or otherwise, because McClure now is receiving SSDI benefits 

that offset the SIR benefit entirely. McClure moves the Court to find, as a matter of law, 

that Country Life is in breach of the insurance contract and owes him SIR benefits, both 

for the retroactive period and going forward. 

II. Legal Standard 

 Summary judgment is appropriate when there is no genuine dispute as to any 

material fact and, viewing those facts in a light most favorable to the nonmoving party, 

the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). Facts are 

material if they might affect the outcome of the case under governing law, and a dispute 

over those facts is genuine “if the evidence is such that a reasonable jury could return a 
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verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 

(1986). Summary judgment may also be entered “against a party who fails to make a 

showing sufficient to establish the existence of an element essential to that party’s case, 

and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 

477 U.S. 317, 322 (1986). 

III. Discussion 

McClure argues that Country Life owes him SIR benefits as a matter of law for 

four reasons: (1) the SIR does not include a reimbursement provision that permits 

Country Life to recoup SIR overpayments when SSDI benefits are awarded retroactively; 

(2) to the extent Country Life has a right to reimbursement, it has waived it by not 

seeking reimbursement for overpayments between December 2012 and April 2014; (3) 

allowing multiple insurers to offset disability benefits based on the same SSDI benefit 

violates public policy; and (4) applying the offset provision under the circumstances of 

this case runs counter to McClure’s reasonable expectations. The Court addresses each in 

turn. 

A. Lack of a Reimbursement Provision 

The SIR does not contain a reimbursement provision, but McClure’s argument on 

this point is misplaced because Country Life has not sought reimbursement for past 

overpayments. Rather, Country Life has offset McClure’s monthly SIR benefit at the 

time of payment by the amount of his monthly SSDI benefit, a practice expressly 

permitted by the SIR. 

 The SIR states that it pays monthly benefits when the Policy pays monthly base 

benefits, and that the amount of the SIR benefit “is the maximum monthly benefit of the 

rider less benefits from social insurance,” including SSDI. From December 2012 to April 

2014, Country Life paid base benefits. Country Life also paid the maximum SIR benefit 

because McClure was not receiving SSDI benefits during this time. Country Life 

terminated base benefits in April 2014 and, as a result, ceased making SIR payments. In 

May 2016, McClure was awarded SSDI benefits retroactive to December 2012. Later, in 
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November 2016, Country Life determined that McClure’s claim was compensable and 

began paying base benefits retroactive to June 2014. At the time these base benefits were 

paid, however, McClure had received SSDI benefits for that retroactive period. 

Accordingly, at the time of payment Country Life offset the retroactive SIR benefit by 

the retroactive SSDI benefit, reducing it to zero. 

 Though he argues the converse, it is McClure who is seeking to rewrite the 

insurance contract. McClure argues that his retroactive SIR benefits should not be offset 

by his retroactive SSDI benefits because, had Country Life not terminated his base 

benefits in April 2014, he would have continued to receive both base and SIR benefits 

until May 2016, when he was awarded SSDI benefits. Stated differently, had Country 

Life not terminated his base benefits in April 2014, it would have continued to overpay 

his SIR benefit until May 2016 and, because the SIR contains no reimbursement 

provision, Country Life would have been unable to recoup the past overpayments. The 

SIR expressly states, however, that the SIR benefit is paid whenever the Policy pays base 

benefits. It does not state that the SIR benefit is paid whenever Policy base benefits 

should have been paid. Because Country Life resumed paying base benefits in 

November 2016, whether the corresponding SIR benefits are subject to an SSDI offset is 

determined based on conditions known as of that date. 

 For these reasons, McClure’s reliance on Bush v. Metropolitan Life Insurance Co., 

656 F.2d 231 (6th Cir. 1981), is misplaced. Bush involved a disability insurance policy 

that contained both an offset and a reimbursement provision. Metropolitan Life 

Insurance (“Metro”) agreed to pay the insured, Bush, a monthly disability benefit, which 

would be reduced by any monthly SSDI benefits to which she is entitled. Id. at 232. In 

addition, the policy provided: 

If it is determined that any benefits paid . . . should not have been paid or should have been paid in a lesser amount, [Metro] shall be entitled to a refund of the amount of the 

overpayment. If the [Bush] fails to repay such amount . . . , [Metro] may recover the amount of the overpayment by making an appropriate deduction or deductions from any future benefit payment or payments payable to [Bush.] 
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Id. Bush sustained a personal injury in January 1974. Metro began paying Bush monthly 

disability benefits in January 1975, by which time she was totally disabled. Id. at 231-32. 

 In December 1975, however, Bush was awarded SSDI benefits retroactive to 

January 1974. Id. at 232. Beginning February 1976, Metro began reducing Bush’s 

monthly disability benefits by the amount she received in SSDI (notably, Bush did not 

challenge this offset). Id. Metro also notified Bush that it had overpaid disability 

benefits from January 1975 to January 1976 in the amount of the retroactive SSDI award 

for that period. Id. When Bush failed to refund the overpayments, Metro began reducing 

her prospective disability payments to recoup to previously overpaid amounts. Id. Bush 

responded with a lawsuit alleging that Metro breached the insurance contract by 

withholding from her ongoing disability benefits an amount equal to the SSDI benefits 

that were retroactively granted in order to recoup overpayments previously made. Id.

 The Sixth Circuit Court of Appeals found that the reimbursement provision 

relating to benefits that “should not have been paid or should have been in a lesser 

amount” was ambiguous. One plausible reading, advanced by Metro, was that this 

language included both “situations in which benefits are mistakenly paid according to 

conditions as understood by the parties at the time, but also situations in which later 

developments render the earlier payments incorrect.” Id. at 232-33. Under this 

interpretation, Metro’s withholdings would be consistent with the contract because later 

developments rendered the earlier payments incorrect. Another plausible reading, 

however, was “that recoupment is permitted only when the insurance company 

erroneously overpays according to conditions manifest at the time of payment.” Id. at 

233. Under this interpretation, Bush would prevail because she was not receiving SSDI 

benefits at the time Metro overpaid her. 

 Noting that Metro drafted the agreement, and following the traditional rule that 

“ambiguities are construed against the drafter,” the court construed the reimbursement 

provision in Bush’s favor and found that it was limited only to situations in which 

benefits are mistakenly paid according to conditions known to the parties at the time of 
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payment. Id. at 233-34. Because Bush was not receiving SSDI payments during the 

overpayment period, the court concluded that Metro had breached the insurance contract 

by recouping those overpayments from Bush’s ongoing disability benefits. Id. 

Bush is inapposite to McClure’s case. Unlike Metro, Country Life has not sought 

reimbursement for overpayments previously made. Indeed, it is undisputed that Country 

Life did not pay SIR benefits between April 2014 and November 2016. Instead, Country 

Life offset retroactive SIR benefits at the time they were to be paid by McClure’s 

retroactive SSDI benefits for that same period. Had Country Life withheld additional 

amounts to recoup the SIR benefits paid between from December 2012 to April 2014, 

McClure’s reliance on Bush might be on point. But because Country Life has never 

sought to recoup past overpayments, Bush does not speak to the circumstances at issue. 

 McClure’s reliance on Lessard v. Metropolitan Life Insurance Co., 568 A.2d 491 

(Me. 1989), likewise is misplaced. Like Bush, Lessard involved an insurer who sought to 

recoup past overpayments after the insureds were awarded retroactive SSDI benefits. “If 

a participant did not or could not reimburse the overpayment on request . . . Metropolitan 

would withhold current Plan benefits owed to the disabled participant and apply this 

amount to the outstanding overpayment balance.” Id. at 494. As already noted, however, 

Country Life has not withheld SIR benefits to compensate for overpayments previously 

made. It merely offset retroactive SIR benefits at the time they were to be paid by 

McClure’s SSDI benefits for that same period. The Court finds that Country Life’s 

application of the offset provision is consistent with the express terms of the SIR. 

B. Waiver 

McClure’s waiver argument likewise is premised on the fundamental 

misconception that Country Life is seeking reimbursement for past overpayments rather 

than offsetting SIR benefits at the time of payment. Under Arizona law, “[w]hen an 

insurer has knowledge of facts allegedly justifying a denial of coverage . . . , an 

unequivocal act . . . wholly inconsistent with a prior denial of coverage constitutes a 

waiver thereof.” McCollum v. Cont’l Cas. Co., 728 P.2d 1242, 1245 (Ariz. Ct. App. 
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1986). McClure argues that Country Life engaged in prior conduct wholly inconsistent 

with a right to reimbursement by failing to seek reimbursement for SIR overpayments 

between December 2012 and April 2014. To reiterate, however, Country Life has not 

withheld and is not currently withholding SIR benefits to recoup overpayments 

previously made to McClure. Country Life, therefore, is not seeking reimbursement. 

 In fact, Country Life’s treatment of the SIR overpayments from December 2012 

through April 2014 is consistent with its asserted right to offset SIR benefits at the time 

of payment. Because McClure had not yet been awarded SSDI benefits at the time 

Country Life paid the December 2012 through April 2014 SIR benefits, there was 

nothing to offset. Country Life then stopped paying benefits, and by the time Country 

Life resumed paying SIR benefits, including retroactive benefits for the period of June 

2014 through November 2016, McClure had received SSDI benefits for this period. 

Consistent with the SIR, Country Life offset benefits according to the circumstances as 

they existed at the time of payment. Country Life has not engaged in conduct 

inconsistent with its right to offset SIR benefits by SSDI benefits. The Court therefore 

finds no waiver. 

C. Public Policy 

 In addition to his Country Life policies, McClure has a group disability insurance 

policy through his prior employer, issued by Aetna Insurance Company (“Aetna”). The 

Aetna policy does not include a SIR, but it requires the insured to apply for SSDI as a 

precondition to receiving monthly disability benefits and to reimburse Aetna for 

overpayments from any retroactive SSDI award. 

 Unlike Country Life, Aetna has paid McClure’s claim continuously since 

November 2012. Accordingly, by the time McClure was awarded SSDI benefits 

retroactive to December 2012, Aetna had been paying monthly disability benefits for 

several years. McClure therefore was required to use his retroactive lump sum SSDI 

payment, totaling $122,522.80, to reimburse Aetna for the overpayments it made during 

that period. Aetna continues to pay McClure’s monthly benefit, but those ongoing 
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benefits are now offset by the amount of his SSDI benefit. 

 McClure argues that only one insurer should be able to offset disability benefits 

because he has received only one SSDI award. Because Aetna has already collected 

McClure’s retroactive SSDI benefits as reimbursement for past overpayments and 

continues to offset ongoing disability benefits, McClure contends that Country Life 

cannot enforce the SIR’s offset provision. The Court disagrees. 

 In 1800 Ocotillo, LLC v. WLB Group, Inc., the Arizona Supreme Court discussed 

the circumstances under which contract provisions may be deemed unenforceable for 

violating public policy: 

Contract provisions are unenforceable if they violate legislation or other identifiable public policy. “Legislation” as used here includes not only statutes but also constitutions, 

ordinances, and applicable regulations. In determining whether a provision is unenforceable, courts balance the 

interest in enforcing the provision against the public policy interest that opposes enforcement. Analysis of the weight of the public policy interest generally focuses on the extent to 

which enforcement of the term would be injurious to the public welfare. 

Courts, however, are hesitant to declare contractual 

provisions invalid on public policy grounds. Our law generally presumes, especially in commercial contexts, that 

private parties are best able to determine if particular contractual terms serve their interests. Society also broadly benefits from the prospect that bargains struck between competent parties will be enforced. Accordingly, absent legislation specifying that a contractual term is unenforceable, 

courts should rely on public policy to displace the private ordering of relationships only when the term is contrary to an otherwise identifiable public policy that clearly outweighs any interests in the term’s enforcement. 

196 P.3d 222, 224 (Ariz. 2008) (internal quotations and citations omitted). Notably, 

McClure cites no legislation or other authority suggesting that, as a matter of clearly 

identifiable public policy, an insurer cannot enforce an express offset provision simply 

because a separate insurer has enforced a similar provision in a separate contract. Nor is 

it clear to the Court that Country Life’s offset provision violates public policy but Aetna’s 

does not, simply because Aetna enforced its rights first. The Court therefore declines to 

find that the SIR’s offset provision unenforceable as a matter of public policy. 
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D. Reasonable Expectations 

 Lastly, McClure argues that the offset provision should not be enforced under the 

present circumstances because enforcement of the provision would run counter to his 

reasonable expectations when he entered into the insurance agreement. In the insurance 

context, courts have recognized a principle, known as the reasonable expectations 

doctrine, under which “[t]he objectively reasonable expectations of applicants and 

intended beneficiaries regarding the terms of insurance contracts will be honored even 

though painstaking study of the policy provisions would have negated those provisions.” 

Gregorio v. GEICO Gen. Ins. Co., 815 F. Supp. 2d 1097, 1101 (D. Ariz. 2011) (internal 

quotation and citation omitted). The reasonable expectations doctrine embodies a 

number of individual, yet related, concepts. Id. For example, the doctrine “embodies the 

proposition that policy language will be construed as a layman would understand it and 

not according to the interpretation of sophisticated underwriters.” Id. Further, 

[a]n important corollary of the expectations principle is that insurers ought not to be allowed to use qualifications and exceptions from coverage that are inconsistent with the 

reasonable expectations of a policyholder having an ordinary degree of familiarity with the type of coverage involved. This ought not to be allowed even though the insurer’s form is 

very explicit and unambiguous, because insurers know that 

ordinarily policyholders will not in fact read their policies. 

Id. 

 Arizona has adopted an expansive formulation of the reasonable expectations 

doctrine. Id. at 1105. Arizona courts will not enforce terms, 

1. Where the contract terms, although not ambiguous to the court, cannot be understood by the reasonably intelligent 

consumer who might check on his or her rights, the court will 

interpret them in light of the objective, reasonable expectations of the average insured; 

2. Where the insured did not receive full and adequate notice of the term in question, and the provision is either unusual or unexpected, or one that emasculates apparent coverage; 

3. Where some activity which can be reasonably attributed to 

the insurer would create an objective impression of coverage 

in the mind of a reasonable insured; 
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4. Where some activity reasonably attributable to the insurer has induced a particular insured reasonably to believe that he has coverage, although such coverage is expressly and 

unambiguously denied by the policy. 

Gordinier v. Aetna Cas. & Sur. Co., 742 P.2d 277, 283-84 (Ariz. 1987) (internal citations 

omitted). Stated differently, 

[t]he doctrine can be applied to unambiguous contracts. Moreover, an expectation of coverage that conflicts with terms in the policy that negate coverage included elsewhere in 

the contract can be created by an insurer’s actions. In turn, 

the doctrine allows individuals to obtain more comprehensive insurance coverage than was originally bargained for. 

Gregorio, 815 F. Supp. 2d at 1105. The doctrine cannot be used, however, “to add 

language to a policy to grant coverage not otherwise provided for.” Id. at 1106. That is, 

“a court can subtract terms from a policy,” but cannot add new ones. Id. at 1105-06. 

 Here, the offset provision is not ambiguous, nor is it written in a manner 

incomprehensible to a reasonable consumer. Moreover, McClure has offered no 

evidence that Country Life engaged in some activity that created an objective impression 

of coverage in McClure’s mind, or that induced him to reasonably believe that he had 

coverage. Instead, the Court understands McClure to be arguing that enforcement of the 

offset provision under the circumstances of this case would emasculate the benefit he 

reasonably expected to receive. On this point, the Court concludes that summary 

judgment is inappropriate for two reasons: McClure has offered no evidence that he did 

not receive full and adequate notice of the term in question, and reasonable minds could 

differ on whether McClure’s expectations were reasonable. 

 On one hand, Country Life persuasively argues that “SIRs provide an equivalent 

to social insurance benefits during the time it takes an insured to secure social insurance 

benefits, like SSDI.” That is, “SIRs fill a gap. [They] are not generally intended to be a 

permanent benefit, although if an insured does not receive other social insurance benefits, 

they may be.” Here, because McClure has received SSDI benefits, there is no gap for the 

SIR to fill. A reasonable jury therefore could conclude that enforcement of the offset 
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provision has not emasculated apparent coverage or produced an unexpected result. 

 On the other hand, McClure notes that the SIR did not serve its gap-filling 

function because Country Life terminated his benefits in April 2014 and did not resume 

payments until after McClure had been awarded SSDI. Stated differently, had Country 

Life not terminated benefits in April 2014, the SIR would have filled the gap in benefits 

until May 2016. Instead, McClure was left without his gap-filler. At least with respect to 

Country Life’s application of the offset provision to McClure’s retroactive SIR benefits, a 

reasonable jury could conclude that McClure has not received the gap-filling benefit he 

bargained for. This is especially true considering that McClure has accused Country Life 

of terminating his benefits in April 2014 in bad faith. Permitting Country Life to strictly 

enforce the offset provision to his retroactive benefits arguably would allow Country Life 

to benefit from its alleged bad faith conduct. For these reasons, the Court finds that 

summary judgment is inappropriate because reasonable minds could disagree as to 

whether enforcement of the SIR offset provision violates the reasonable expectations 

doctrine under the circumstances of this case. 

IT IS ORDERED that McClure’s Motion for Summary Judgment (Doc. 205) is 

DENIED. 

 Dated this 7th day of August, 2017. 

Douglas L. Rayes 

United States District Judge