United States District Court Rules that CIGNA was correct to deny benefits to an employee who resigned from employment but was collecting accrued Paid Time Off at time of Injury.
In a recent opinion out of the United States District Court Middle District of Tennessee, a Court upheld Life Insurance Company of North America’s (LINA/CIGNA) decision to deny benefits to Claimant Edward Sanford.
Facts of the Case
Mr. Edward Sanford was previously employed as the Chief Executive Officer/Administrator for LifePoint Hospitals, Inc. Because of his employment, Mr. Sanford was covered under both a Short Term Disability (STD) Insurance Policy and a Long Term Disability (LTD) Insurance Policy. These policies were underwritten by Cigna/Lina.
By way of a letter dated October 4, 2010, Mr. Sanford informed his company that his employment would terminate in 30 days. On November 3, 2010, Mr. Sanford officially resigned and discontinued working. At the time of his resignation, Mr. Sanford had four weeks of accrued Paid Time Off. Thus, Mr. Sanford would continue to receive his regular pay through November 27, 2010 even though his working had stopped. From this pay his employer continued to deduct premiums for his various insurance policies including his disability policies, just as it had done for his previous payroll checks.
On the first Monday following his last day at work, Mr. Sanford fell while exiting a personal aircraft. Mr. Sanford fell approximately three feet to the ground and was ultimately diagnosed as having suffered a L5 burst fracture in his back, fractures at other levels of the lumbar spine, and multiple myeloma. Due to his injuries, Mr. Sanford applied for both STD and LTD benefits.
Unfortunately for Mr. Sanford, Cigna/LINA denied his claims because Mr. Sanford “received treatment for a diagnosis that began after (his) employment ended.” Mr. Sanford filed a timely appeal noting that he continued to pay premiums after his resignation and that he was receiving accrued Paid Time Off at the time he became disabled. Cigna was unmoved and denied his appeal. Cigna noted that the Senior Director of Compensation and Benefits at LifePoint Hospitals stated that Mr. Sanford’s last day of employment was 11/3. Furthermore, Cigna noted the CEO of LifePoint also specified that Mr. Sanford’s last day of employment was November 3rd. Finally, CIGNA possessed a copy of Mr. Sanford’s resignation letter which indicated his last day of employment would be November 3, 2010. CIGNA thus argued that November 3, 2010 was the last date Mr. Sanford was in “Active Service” and because his disability began on November 8, 2010, the terms of the Policy hold that he is ineligible for benefits as his insurance coverage ended when his Active Service ended on November 3, 2010.
Due to his multiple denials, Mr. Sanford brought an ERISA lawsuit to challenge CIGNA’s determinations.
Ruling of the Court
The Court ultimately ruled that CIGNA’s decision to deny benefit was rational because Mr. Sanford had voluntarily resigned from his job before the injury occurred and thus was not eligible for benefits. The Court noted the Policy specifies that insurance coverage terminates if one is not part of an “eligible class” or “is no longer in Active Service.” The Policy defines “eligible” employees as “all active, Full-time employees regularly working a minimum of 32 hours per week…”. Mr. Sanford attempted to argue that because he was on vacation and receiving accrued paid time off his coverage should continue as any employee who is on “vacation” is still considered to be an active employee. However, the Court noted that CIGNA’s determination was not arbitrary or capricious because it is acceptable to conclude that Mr. Sanford was “retired and had no plans to return to work.” The Court ultimately concluded that Mr. Sanford “was (1) no longer in Active Service because he was not performing his regular occupation on a full-time basis or on a scheduled vacation from which he intended to return; (2) a member of an eligible class regularly working any number of hours, be it full or part time; or (3) entitled to convoke Continuation of Insurance Provision.” The Court also wrote that “paying premiums does not equate to eligibility for coverage.”
It is worth noting that under a different policy or if there was a slight change in the factual scenario, there is a chance that Mr. Sanford may be eligible for benefits. Unfortunately, it appears that Mr. Sanford will never receive benefits under this policy. Although this case was not handled by Dell & Schaefer Chartered, it can serve as a learning tool for those thinking of making claim for benefits.
If you have an active claim or have been denied benefits by CIGNA/LINA or any disability insurance provider, please do not hesitate to speak with a Lawyer at Dell & Schaefer. Disability lawyers are available at your convenience to have a complimentary phone conference.