Class Action

ERISA Class Action Defense Cases–Loughman v. Unum: New York Federal Court Grants Defense Summary Judgment Motion In ERISA Class Action Holding Policies Excluded Plainly Coverage During Elimination Period

By Michael J. Hassen

ERISA Class Action Alleging Failure to Pay Benefits Premised on Strained Reading of Long-Term Disability Insurance Policies and Defense Entitled to Partial Summary Judgment as to certain Class Action Claims New York Federal Court Holds

Plaintiffs filed a putative class action lawsuit against Unum Provident Corporation, Unum Life Insurance Company of America, First Unum Life Insurance Company and Colonial Life and Accident Insurance Company (collectively, “Unum”) alleging violations of ERISA (Employee Retirement Income Security Act). Loughman v. Unum Provident Corp., 530 F.Supp.2d 1121, 2008 WL 515916, *1 (S.D.N.Y. February 25, 2008). The policies underlying the class action are “substantially similar” and “provide for the payment of benefits only in the event that an employee suffers a long-term disability and, consequently, contain language establishing an elimination period.” Id. The second amended class action complaint alleged that Unum improperly terminated long-term disability (LTD) benefits and wrongfully withheld LTD benefits during “the so-called ‘elimination period’”; defense attorneys moved for partially summary judgment with respect certain class action claims on the ground that no LTD benefits are due during the elimination periods in the respective policies. Id. The district court agreed and dismissed the class action with prejudice.

The heart of the class action is as follows: plaintiffs sought disability benefits based on the argument that, while LTD benefits are not payable during the elimination period, the policies require that “once the elimination period has run, a policyholder is entitled to receive retroactive benefits for the prior 180 days of disability.” Loughman, at *2. As a matter of contract interpretation, the district court disagreed. After explaining that ambiguity in a contract may not be premised on a “strained” reading of its terms, see id., at *3, the court rejected plaintiffs’ interpretation of the policies because the class action claims “hinge on their selective reading of a provision of the Policies outside the context of the Policies as a whole,” id., at *4. The federal court explained at page *4 that “plaintiffs construe the phrase ‘[t]he benefit will be paid for the period of disability’ to mean that they are entitled to benefits for the entire period in which they are disabled, regardless of other language in the Policies limiting the period for which benefits must be paid.” But this superficial reading of the policy language ignores the balance of its terms.

Full post as published by Class Action Defense Blog on May 15, 2008 (boomark / email).