The facts relevant to the instant decision are recited herein. A detailed factual background is provided in McCauley v. First UNUM Life Ins. Co., 2006 WL 2854162 (S.D.N.Y. October 5, 2006), familiarity with which is assumed.
On October 4, 2006, this Court granted First UNUM Life Insurance Company ("First UNUM" or "Defendant") summary judgment, dismissing John E. McCauley's ("McCauley" or "Plaintiff") claims against his ERISA plan administrator, First UNUM, for wrongful denial of long-term disability benefits. See McCauley v. First UNUM Life Ins. Co., 2006 WL 2854162 (S.D.N.Y. October 5, 2006). On appeal, in light of the Supreme Court's decision in Glenn, Metro. Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008), the Second Circuit devised a new standard for determining the standard of review a court should apply to benefit determinations when a plan administrator has discretion to determine benefits and has a conflict of interest. See McCauley v. First UNUM Life Ins. Co., 551 F.3d 126 (2d Cir. 2008).
Reviewing First UNUM's benefit denial under the new standard, the Court of Appeals found that First UNUM's denial of McCauley's long term disability claim was "arbitrary and capricious" and vacated this Court's grant of summary judgment. Id. at 137. Based on its review, the Court of Appeals then determined that McCauley was entitled to summary judgment. Id. at 138. The cause was remanded for this Court to enter summary judgment in McCauley's favor and to calculate the benefits to which McCauley is entitled. Id. That is the limited task with which this Court concerns itself.
Under First UNUM policy 457111 ("the Policy"), issued to Sotheby's ("the Policyholder"), the material provisions are as follows. Covered employees that are disabled are eligible for "60% (benefit percentage) of basic monthly earnings not to exceed the maximum monthly benefit, less other income benefits." (Compl. Ex. 1, 3.) The maximum monthly benefit under the policy is $20,000. (Id.) McCauley is therefore entitled to a monthly disability payment equal to 60% of his salary prior to his disability ($11,000 per month) less any other income.
The Second Circuit determined that McCauley "is entitled to benefits and interest to run from September 18, 1995, the date on which First UNUM rejected his appeal." McCauley v. First UNUM Life Ins. Co., 551 F.3d 126, 138 (2d Cir. 2008). The Second Circuit did not indicate a terminus date; instead, the Policy terms govern the period for which McCauley is entitled to disability benefits. According to the Policy, "[t]he benefit will be paid for the period of disability if the insured gives to the Company proof of continued: 1. disability; and 2. regular attendance of a physician. The proof must be given upon request and at the insured's expense." (Compl. Ex. 1, 14.) "Disability benefits will cease on the earliest of: 1. the date the insured is no longer disabled; 2. the date the insured dies; 3. the end of the maximum benefit period; the date the insured's current earnings exceed 80% of his pre-disability earnings." (Id. at 17.) The Policy sets McCauley's maximum benefit period to age 65. (Id. at 3.)
So McCauley is entitled to disability benefits for the period from September 18, 1995 to date, so long as McCauley provides First UNUM with evidence that for that period he was continuously disabled and regularly attended to by a physician. (Id. at 14.) With the same limitations, McCauley's benefits would continue until his sixty fifth birthday, or June 9, 2011.
First UNUM argues that under the Policy's "recurrent disability provision," McCauley ceased to be eligible for disability benefits when, subsequent to becoming disabled, he became employed as company secretary of Schroder's Bermuda Ltd. ("Schroder's") for eight months.*fn1 The Policy indicates that if an insured returns to his regular occupation*fn2 and works full-time for more than six months, he is no longer entitled to disability benefits he had been receiving. (Id. at 16-17.) There is no dispute that after becoming disabled, McCauley worked for Schroder's from October 1995 to May 1996 (McCauley Aff. ¶ 21) and earned a salary of $125,000 per year (McCauley Dep. April 14, 2001 64:10-65: 6). First UNUM argues that this recurrent disability provision controls and cuts off McCauley's benefits, while McCauley argues that the provision should not apply because by denying his benefits without justification, First UNUM left McCauley no choice but to struggle to re-enter the workforce, despite his disability.
This Court is persuaded by McCauley's argument. The Second Circuit has already determined that McCauley was disabled as of September 15, 1995 and suffering "severe and debilitating health problems." McCauley v. First UNUM Life Ins. Co., 551 F.3d 126, 138 (2d Cir. 2008). McCauley testified that "the failure of First UNUM to pay the promised and contracted for benefits left me with no source of income... I had medical and life insurance coverage but could not pay my bills, including my mortgage." (McCauley Aff. ¶ 20.) It was in this context that McCauley sought employment at Schroder's. He described his tenure at Schroder's:
In October 1995, desperately short of cash, I accepted a position as Company Secretary with Schroder's Bermuda Ltd. I worked for Schroder's until May 1996, eight (8) months. The people at Schroder's were extremely understanding concerning my illness and extended every consideration to my physical limitations. Every day at work was agony for me. The physical pain and fear of my incontinence, etc., finally rendered me unable to continue to perform. By joint assessment, I left for medical reasons in May 1996. (McCauley Aff. ¶ 21.)
The Court is persuaded that it would be inequitable to permit First UNUM to benefit by application of the recurrent disability provision when it wrongfully denied McCauley's benefits and put him in a dire financial position where he had to attempt to work, even as he was disabled. Courts in this district have applied the doctrine of unconscionability to ERISA plans. See Burke v. PriceWaterhouseCoopers LLP Long Term Disability Plan, 537 F. Supp. 2d 546, 553 (S.D.N.Y. 2008) (citing Scheirer v. NMU Pension & Welfare Plan, 585 F. Supp. 76, 79 (S.D.N.Y. 1984) ("Absent a finding of unconscionability of the shorter statute of limitations provided for in the insurance policy, it would be anomalous for this Court to allow plaintiff to maintain an action to recover a benefit which was created by and exists solely because of the regulations of the Plan, while at the same time to deny effect to the conditions those same regulations place upon receipt of that benefit.")); Tucker Leasing Capital Corp. v. Pizzuti Dev., Inc., 1992 WL 554186, at *7 (E.D.N.Y. Jan. 7, 1992) ("Absent unequal bargaining power or unconscionability... a court will not rewrite a contract.")). In sum, if a court finds a plan provision to be unconscionable, it can deny effect to that provision, while allowing other provisions to remain intact.
Here, the Court finds that a literal reading of the recurrent disability provision that would allow First UNUM to wrongfully deny benefits to an insured, and then penalize him for attempting to earn some income, even as he is disabled and at potential peril to his health, would be ...