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Arnone v. Aetna Life Insurance Co.

United States Court of Appeals, Second Circuit

June 22, 2017

Salvatore Arnone, Plaintiff-Counter-Defendant-Appellant,
v.
Aetna Life Insurance Company, Defendant-Counter-Claimant-Appellee.

          Argued: August 15, 2016

         Appellant Salvatore Arnone, a New York resident, appeals from part of a June 30, 2015 judgment of the United States District Court for the Eastern District of New York (Feuerstein, J.), denying his motion for summary judgment and granting the summary judgment motion filed by Appellee Aetna Life Insurance Company, an insurer registered to do business in New York. After an accident, Arnone became disabled, entitling him to long-term disability benefits under a benefit plan created by his employer, administered and insured by Aetna, and governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (the "Plan"). Arnone began collecting disability benefits after the accident; he also sued in New Yo r k state court those allegedly responsible for his injuries and settled that suit. Following the settlement, Aetna reduced Arnone's Plan benefits, on the theory that the settlement payment duplicated sums otherwise due Arnone under the Plan. We conclude that Aetna's determination contravened New Yo r k General Obligations Law § 5-335, which provides, "When a person settles a claim . . . for personal injuries . . . it shall be conclusively presumed that the settlement does not include any compensation for . . . cost[s] . . . obligated to be paid or reimbursed by an insurer." N.Y. Gen. Oblig. Law § 5-335(a). We also conclude that neither ERISA nor the Plan's choice of law provision (which identifies Connecticut law as controlling the Plan's construction) blocks application of section 5-335. Thus, as to the issue of Arnone's entitlement to the past and ongoing benefits that Aetna has not paid on the ground that they are duplicative of Arnone's personal injury settlement, the District Court erred in granting Aetna's motion for summary judgment and denying Arnone's motion for summary judgment. Arnone is entitled to the unpaid benefits. For these reasons, the District Court's judgment is REVERSED IN PART, as to that issue, and the cause is REMANDED for the entry of a revised judgment consistent with this opinion.

         REVERSED IN PART and REMANDED.

          Franklin P. Solomon, Solomon Law Firm, LLC, Cherry Hill, NJ, for Salvatore Arnone.

          Michael H. Bernstein (Matthew P. Mazzola, on the brief), Sedgwick LLP, New York, NY, for Aetna Life Insurance Company.

          Before: Pooler, Lynch, and Carney, Circuit Judges.

          Susan L. Carney, Circuit Judge

         Section 5-335 of the New York General Obligations Law provides that personal injury settlements "shall be conclusively presumed" not to include "any compensation for the cost of health care services, loss of earnings or other economic loss[es]" that "have been or are obligated to be paid or reimbursed by an insurer." N.Y. Gen. Oblig. Law § 5-335(a). When section 5-335 is applied, it effectively bars an insurer from reducing the benefits owed to an insured by the amounts the insured receives from a personal injury settlement.[1] In this appeal, we consider whether section 5-335 applies to payments made in settlement of a personal injury suit brought in a New York court by a New York resident injured in New York, even though the governing benefit plan provides that the law of a state other than New York controls the plan's construction.

         In brief summary, appellant Salvatore Arnone, a New York resident, sustained serious injuries while working in New York at the site of a customer of his employer. He filed for, and received, long-term disability benefits related to the injury through his employer's benefit plan (the "Plan"), which was governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Aetna Life Insurance Company ("Aetna"), a Connecticut company and national insurer that is registered to do business in New York, is both the Plan's insurer and its claims administrator.

         Arnone brought a personal injury suit in New York state court against his employer's customer and settled the suit for $850, 000. In light of the settlement, Aetna reduced Arnone's disability benefits by a portion of the settlement proceeds. Taking the position that the settlement included compensation duplicative of Arnone's disability benefits and citing a Plan provision regarding offsetting payments from other sources, Aetna maintained that the Plan permitted it to reduce its benefit payment obligation.

         Arnone sued Aetna to recover the offset benefits. In moving for summary judgment, he invoked section 5-335. The District Court (Feuerstein, J.) denied Arnone's motion, reasoning that section 5-335 had no bearing on the amount of Arnone's benefit entitlement in light of the Plan's choice of law provision designating Connecticut law as controlling the Plan's construction. Arnone appeals this determination. Aetna defends the District Court's reasoning, and further argues that ERISA preempts section 5-335 as an impermissible state regulation of the Plan. Aetna also contends that Arnone forfeited his right to invoke section 5-335 in this lawsuit by failing to rely on it during Aetna's claims administration process.

         We conclude that, when applied, section 5-335 prohibits Aetna's reduction in Arnone's disability benefits. We further decide that neither ERISA's preemptive force nor the Plan's choice of law provision compels a different conclusion. We also reject Aetna's issue forfeiture argument. Thus, as to Arnone's entitlement to the past and ongoing benefits that Aetna has withheld on the ground that they are duplicative of Arnone's personal injury settlement, the District Court erred in granting Aetna's motion for summary judgment and denying Arnone's motion for summary judgment. Arnone is entitled to the unpaid benefits. For these reasons, the District Court's judgment is REVERSED IN PART, as to that issue, and the cause is REMANDED for the entry of a revised judgment consistent with this opinion.

         BACKGROUND

         The facts set forth here are undisputed. Arnone is a former account executive for Konica Minolta Business Solutions U.S.A., Inc. ("Konica") who worked out of Konica's office in Melville, New York. In June 2009, Arnone was working at the site of one of Konica's customers, Meopta U.S.A., Inc. ("Meopta"), in Hauppauge, New York, when he slipped in a puddle of water and fell about four feet, hitting his head, lower back, and neck on a cinder block wall. Arnone reported that, as a result of the fall, he experienced pain, limitations in the range of motion in his cervical and lumbar spine, radiculopathy, [2] and difficulty sitting or standing for prolonged periods. Several months after the fall, Arnone returned to work, but in December 2009 he stopped working-this time permanently-because of his injuries.

         Konica had established for its employees a group long-term disability plan (the "Plan") that qualified as an employee welfare benefit plan under ERISA. Konica had also purchased from Aetna a group insurance policy designed to allow Konica to fund benefits under the Plan and engaged Aetna as the Plan's claims administrator. Arnone was a Plan participant.

         Under ERISA, "benefits plans must be 'established and maintained pursuant to a written instrument.'" M & G Polymers USA, LLC v. Tackett, 135 S.Ct. 926, 933 (2015) (quoting 29 U.S.C. § 1102 (a)(1)). We understand the parties to agree that the written terms of the Plan comprise the insurance policy issued by Aetna to Konica, Joint App'x ("J.A.") 91-123, the "Booklet" apparently issued to employees as their "Certificate of Coverage, " J.A. 124-42, and the "Summary of Coverage" document accompanying it, J.A. 143-52. We accept the parties' characterization for present purposes. See, e.g., Gibbs ex rel. Estate of Gibbs v. CIGNA Corp., 440 F.3d 571, 573 (2d Cir. 2006) (determining that the terms of a plan were expressed in an employer's plan description and an insurer's policy materials); Ruiz v. Cont'l Cas. Co., 400 F.3d 986, 990-91 (7th Cir. 2005) (collecting cases and holding that an employer's disability insurance policy, together with certificates issued to employees, constituted ERISA plan documents).

         The Plan provides that the amount of a participant's long-term disability benefit payment is a function of, among other factors, the number that is 60 percent of the individual's "monthly predisability earnings, " reduced by "other income benefits" due from other sources. J.A. 125, 145. It defines "other income benefits" to include "[d]isability, retirement, or unemployment benefits required or provided for under any law of a government." J.A. 127. This category encompasses, for example:

disability benefits under any state or federal workers' compensation law or any other like law, which are meant to compensate the worker for any one or more of the following: loss of past and future wages; impaired earning capacity; lessened ability to compete in the open labor market; any degree of permanent impairment; and any degree of loss of bodily function or capacity.

J.A. 127-28. The list of "other income benefits" also includes "[d]isability payments which result from the act or omission of any person whose action caused [the Plan participant's] disability." J.A. 128. In contrast, the term "other income benefits" does not include disability benefits being received from particular enumerated sources before the date of disability under the Plan, or from "individual disability income policies" or "severance pay." J.A. 129.

         In August 2009, following his injury, Arnone filed a request for disability benefits with Aetna. In December, he submitted additional paperwork in support of his request. By letter dated March 12, 2010, Aetna approved Arnone's claim for disability benefits effective retroactively to December 2009 (when Arnone became eligible for benefits). It calculated 60 percent of his monthly pre-disability earnings to be $4, 881. (In discussing dollar amounts, we round to the nearest dollar.)

         Aetna reduced Arnone's disability benefits, however, in accordance with the Plan's "other income benefits" provision. By the time Aetna approved Arnone's claim, Arnone had already begun to receive New Yo r k workers' compensation benefits in the amount of $2, 383 per month. As of March 12, 2010, then, Aetna calculated that Arnone was due disability benefits of $2, 498 per month-$4, 881 (60 percent of his pre-disability earnings) less $2, 383 (his monthly workers' compensation benefits).

         An additional reduction for "other income benefits" followed. In April 2011, the Social Security Administration awarded Arnone Social Security Disability Income ("SSDI") benefits totaling $2, 414 per month. After offsetting these benefits as well, Aetna informed Arnone that he was due $114 per month under the Plan. This sum represented the Plan's guaranteed floor-its minimum monthly disability benefit for Plan participants.

         Meanwhile, in November 2009, Arnone filed a personal injury suit against Meopta in New Yo r k state court, seeking compensation for his injuries. Roughly three years later, in late 2012, Arnone settled that suit for a lump-sum payment of $850, 000. In return for the payment, he executed a sweeping general release of his claims against Meopta (the "Release").

         After Arnone executed the Release, Konica's workers' compensation insurance carrier exercised its statutory right to impose a lien against the proceeds of the settlement, requiring Arnone to reimburse the carrier for the workers' compensation benefits paid him. See N.Y. Workers' Comp. Law § 29(1); N.Y. Gen. Oblig. Law § 5- 335(c) (excepting workers' compensation benefits from the general rule that a personal injury settlement "shall be conclusively presumed" not to include "any compensation for the cost of health care services, loss of earnings or other economic loss[es]" that "have been or are obligated to be paid or reimbursed by an insurer"). Arnone then wrote to Aetna to obtain a redetermination of his disability benefits. He requested that Aetna pay him the sums Aetna had previously withheld as "other income benefits" on the understanding that Arnone was receiving those sums in the form of workers' compensation benefits.[3]

         In response, Aetna requested an "itemized list of liens that were paid out of [Arnone's] settlement for medical bills, income replacement, attorney fees, etc." J.A. 205. During the ensuing back-and-forth with Aetna, Arnone's counsel made no mention of New York General Obligations Law § 5-335, but represented (according to an Aetna employee's notes) that the remaining portion of the settlement was "all for pain and suffering" and that "no wage replacement was included" because "[a]ll wage replacement that was paid by [the workers' compensation] carrier was repaid to [the workers' compensation] carrier." J.A. 182. In April 2013, Aetna requested a copy of the settlement agreement, ...


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