Labor & Employment – Insurance – Long-Term Disability – Benefit Amount — Physician

Fortier v. Principal Life. Ins. Co. (Lawyers Weekly No. 12-01-0075, 23 pp.) (Niemeyer, J.) No. 10-1441, Jan. 11, 2012; USDC at Raleigh, N.C. (Dever, J.) 4th Cir. Click here for the full-text opinion.

Holding: A physician who closed his practice when he became medically disabled cannot collect the maximum monthly disability payment he says he is owed under the practice’s long term disability policy, as the plan administrator was entitled to interpret plan language to allow deduction of the physician’s medical-practice start-up costs from his income to determine that the monthly disability payment could not exceed the physician’s monthly predisability earnings of $9,916; the 4th Circuit says although the plan language is “somewhat confusing” and “needlessly verbose,” the administrator’s interpretation was reasonable.

Dr. Kenneth Fortier closed his ob-gyn practice and applied for disability benefits from Principal Life Insurance Company, which had issued short-term and long-term group disability policies to the practice. The policies provided that an insured who is disabled is entitled to receive 60 percent of predisability earnings, capped at $1,500 per week for short-term benefits and $6,000 per month for long-term benefits. Those benefits, however, are reduced by the amount that all disability benefits (from both individual and group policies) exceed his predisability earnings. Principal Life determined Fortier was disabled under the policies, but that, in view of his receipt of $15,470 month in disability benefits on his individual disability policies issued by another company, he was not entitled to any further benefits under Principal Life group disability policies.

Dr. Fortier sued under ERISA, claiming Principal had misconstrued the policies in calculating his predisability earnings and with proper calculation, his predisability earnings were far greater, entitling him to the maximum benefits from Principal, despite his receipt of the $15,470 on his individual disability policies. He contends Principal, when calculating his predisability earnings, erroneously deduced from his gross predisability earnings extraordinary and one-time business expenses incurred by him in 2003-2004 in starting up his practice and in pursuing litigation with partners in his former medical practice. Without the reductions resulting from these extraordinary, one-time business expenses, Fortier’s predisability earnings were sufficiently large to entitle him to the maximum disability benefits from the group policies.

The district court entered judgment for Principal, concluding the administrator’s interpretation was reasonable. The administrator, who was given “complete discretion” to interpret the policies, had concluded that because Fortier claimed his extraordinary expenses as deductions on his federal income tax returns, he thereby represented that they were “ordinary and necessary” business expenses. Thus, those same expenses were also, in the language of the policies, “usual and customary” “incurred on a regular basis,” and “essential to the established business operation.” The district court held the administrator did not abuse her discretion.

We affirm. Even though we recognize the policy language defining those expenses that may be subtracted from gross income to arrive at predisability earnings is somewhat confusing and, to be sure, needlessly verbose, we conclude the administrator‘s interpretation was a reasonable one.

Judgment affirmed.

Dissent

Floyd, J.: I respectfully dissent. Principal Life ignores the plain, literal, natural, ordinary and unambiguous meaning of the language of the short term disability  and long term disability policies. Instead, it refers to language from the Internal Revenue Code to determine what the policies’ language actually means. Because this interpretation is unreasonable, we ought not affirm its decision. Because the interpretation is not reasonable, it is an abuse of discretion. We ought not put our imprimatur on it.