Ninth Circuit Ruling Elevates Hidden Fine Print to Reduce ERISA Plan Benefit

If you were to poll the public on why lawyers or the legal system get a bad rap, the experience of getting surprised by something sneaky the other party buried in the fine print might rank high on the list. That was the outcome in Haddad v. SMG Long Term Disability Plan, decided February 10, 2023. There, the Ninth Circuit ruled that an ERISA plan could reduce a former employee’s benefit payments based on inconspicuous language hidden in the benefit plan documents.

Mr. Haddad, like many folks, had long-term disability coverage through his employer’s benefit plan. He became disabled and the plan paid him the benefits.

But the plan reduced his benefits. The insurance company administering the plan decided Mr. Haddad’s settlement with a third party amounted to “lost wages.” The terms of the benefit plan allowed disability benefits to be reduced if the disabled employee had been compensated for lost wages.

Mr. Haddad sued. He argued that the “lost wages” reduction was hidden in the benefit plan documents’ fine print. He pointed to earlier Ninth Circuit rulings that any limitations should be conspicuous and that employees shouldn’t “have to hunt for exclusions or limitations in the policy.”

The Ninth Circuit said this rule didn’t apply to Mr. Haddad. It ruled that reductions in benefit payments on the basis of an “offset” were different from reduced payments due to an “exclusion” or “limitation.” The opinion does not elaborate on whether the average non-lawyer would find the distinction meaningful.

The ruling is “unpublished”, meaning it shouldn’t be relied on as binding precedent for lower courts.