The majority of long-term disability plans offset for income that you receive from other sources. Most people are not aware of these offsets until faced with a significant reduction in income after they have suffered a disability and cannot earn a gainful wage. Many plans reduce long-term disability benefits based on a claimant’s receipt of Social Security Disability Income (“SSDI”) benefits. Not only that, but many plans also reduce a claimant’s long-term disability benefit based on what his or her dependent child receives in Dependent Social Security Disability benefits (“DSSD”).
Often, SSDI and DSSD benefits are paid retroactively. This retroactive payment causes an overpayment on a long-term disability benefit claim where the insurance previously paid an unreduced benefit. When this happens, the insurance company expects to be reimbursed. If a claimant does not reimburse the insurance company, it will exercise “self-help” and recoup the overpayment by withholding future long-term disability benefit payments. This creates a financial hardship for many claimants on a fixed income. Recently, a district court out of the Northern District of California, in the matter of Dao v. Liberty Life Assurance Co. of Boston, No. 14-CV-04749-SI (N.D. Cal. July 5, 2016), held that a disability policy’s offset and recoupment provisions do not violate Section 407 of the Social Security Act. What this means is that insurance companies may recoup an overpayment by withholding future disability benefit payments without violating the law.
If you have questions about disability plan offsets or have received a long-term disability claim denial, you should contact a knowledgeable ERISA attorney as soon as possible.