ERISA Plan Cannot Recover Overpayments Resulting From The Plan’s Own Mistake

Most employee benefit plans (e.g., employer-sponsored health or disability insurance) allow the plan to recover excess overpayments it provides the insured.  This typically occurs where the plan provides benefits that are duplicated by another source of funding.  For instance, most long-term disability plans provide that benefit payments are offset by amounts the insured receives from a Social Security Disability claim.  These provisions are generally enforceable.

The Ninth Circuit Court of Appeals recently refused to uphold the plan’s right to repayment where the overpayment was due to the plan’s own error.  In its unpublished decision in Mrkonjic v. Delta Family-Care and Survivorship Plan, the court held Delta’s employee benefit plan could not recover overpayments from Myrkonjic caused by Delta’s improper denial of Myrkonjic’s initial claim for benefits.

Myrkonjic became disabled following a work injury and applied for long-term disability (“LTD”) benefits from his employer Delta’s employee benefit plan.  Delta denied Myrkonjic’s claim.  During the ensuing thirteen-year lawsuit over Myrkonjic’s right to LTD benefits, Myrkonjic took early retirement under Delta’s retirement plan in order to provide a source of income during the period he could not work and was not receiving LTD payments.

After years of litigation, Delta agreed Myrkonjic was entitled to LTD benefits.  But Delta subtracted from Myrkonjic’s LTD payments amounts Delta had paid him in early retirement benefits, relying on language in the governing plan documents permitting Delta to make an offset accounting for duplicative benefits.  Delta’s calculation of Myrkonjic’s offsets differed from the manner in which Delta typically calculated offsets: “Normally…If the offsets exceed the benefit, the claimant receives nothing but does not owe excess offsets back to the Plans.  The Plans concede that they calculated Myrkonjic’s LTD benefits inconsistently with their normal method.”

The Ninth Circuit determined Delta’s offset calculation was improper.  Noting “Myrkonjic would up in federal court in the first place” and “was forced to elect early retirement” “because the Plans improperly refused to approve his LED application”, the court ruled the Plans should have resolved the offset “so as to leave Myrkonjic no worse off from their mistakes.”