Opinion ID: 1179758
Heading Depth: 1
Heading Rank: 2

Heading: recoupment of benefits

Text: The insurance company argues that its reimbursement agreement is enforceable, and that the trial court erred in finding the agreement violative of 42 U.S.C. § 407. The insurance company initially notes in its argument that its right to set-off against the monthly disability payments it had been paying was not contested by Hunt. Then in supporting its proposition that its reimbursement agreement is enforceable, the insurance company cites cases where the insurance companies involved were allowed to recoup previous payments by withholding monthly benefits otherwise due. The insurance company cites Stuart v. Metropolitan Life Ins. Co., 664 F.Supp. 619 (D.Me.1987), aff'd 849 F.2d 1534 (1st Cir. 1988), cert. denied 488 U.S. 968, 109 S.Ct. 496, 102 L.Ed.2d 533 (1988), where the beneficiaries sued their insurer to challenge the recoupment of benefits by the defendant insurance company in an amount equal to retroactive lump-sum social security payments received by each plaintiff. The insurance company was not suing for a judgment against the lump-sum payment. The trial court held that the actions of the insurance company was not a transfer within the meaning of the Social Security Act prohibiting transfer or assignment of social security benefits. Stuart is not on point. The insurance company was not the party suing. The insurance company next cites as support Poisson v. Allstate Life Ins. Co., 640 F.Supp. 147 (D.Me.1986), where, as in Stuart, the beneficiary of the disability benefits was suing the insurance company. When the beneficiary received a lump-sum payment from social security, the life insurance company informed her that if she did not reimburse them for overpaying on her insurance benefits, it would reduce future benefit payments under the policy. The insurance policy had provided for variable benefits dependent upon the amount of benefits the insured would receive from other programs. The beneficiary chose to pay the amount instead of having her benefits reduced, and then she sued arguing that the actions of the insurance company violated 42 U.S.C. § 407. The court in Poisson cited Hurd v. Illinois Bell Telephone Co., 136 F.Supp. 125 (N.D.Ill. 1955), aff'd 234 F.2d 942 (7th Cir.1956), cert. denied, 352 U.S. 918, 77 S.Ct. 216, 1 L.Ed.2d 124 (1956), which in turn cited congressional hearings concerning the effect of offset on social security benefits, noting the existence of the practice. Congress did not amend § 407. The court accepted the recommendation of the magistrate granting the insurance company's motion for partial judgment on the pleadings, and dismissed Poisson's complaint that the attempts of the insurance company to recoup disability benefits paid violated 42 U.S.C. § 407. Yet again, nothing is said concerning an insurance company's suit for a judgment on the overpayment. Poisson is not on point. The insurance company next cites Lessard v. Metropolitan Life Ins. Co., 568 A.2d 491 (Me.1989) to support its position. Like Stuart and Poisson, the beneficiaries under a group disability policy sued the insurer. After social security had awarded a retroactive benefit, if the insured did not or could not reimburse the overpayment of benefits by the insurer, the insurer would withhold current plan benefits owed to the disabled insured. While the Supreme Judicial Court of Maine held that the recoupment by the insurer from monthly benefit payments did not amount to an illegal assignment in violation of the Social Security Act, it found the group insurance contract to be ambiguous, and the court construed the contract in favor of the plaintiffs, that at the time the benefits were paid by the insurer, they were due. Therefore, recoupment was improper. Once again, the case does not involve an insurer seeking a judgment against an insured. Finally, the insurance company cites Madden v. ITT Long Term Disability Plan, 914 F.2d 1279 (9th Cir.1990), as support for its position that the insurance company is entitled to a lump sum repayment from Hunt. In referring to Madden, the insurance company argues that the Madden's insurer was seeking to recover a lump sum repayment from the plaintiff. The case does not support such a statement. Although the court holds that the insurer is entitled to the retroactive social security benefits Madden received for the period he also received insurance benefits, the facts do not reveal any judgment against Madden. No counterclaim by the insurer is mentioned. The case reveals that insurer's motion for summary judgment was granted, but there is no record that the trial court awarded a money judgment to the insurer. The support the Ninth Circuit Court of Appeals cites for upholding the recovery of retroactive social security awards is Stuart, where no money judgment against the insured was awarded by that court. The Madden court in its citation of Stuart observes that courts have upheld the recovery of retroactive social security awards by ERISA plans where such plans provide for the reduction of benefits by such awards, even when the Plan does not specifically provide for such retroactive reimbursement. Madden, 914 F.2d at 1287. So the only authority cited in Madden merely permitted reduction of benefits to recover on retroactive social security awards. Madden is not on point. [3] Although the cases cited by the insurance company provide support for recoupment through withholding benefits payable under the policy, the cases provide no support for a money judgment in favor of the insurance company. As noted earlier, the self-help remedy by the insurance company of withholding benefits from the insured is not contested by Hunt.