Maine Court Rules Employer May Offset Workers Comp by Disability Sum

An employer may use a payment to an injured worker under its group life and disability plan to offset its workers’ compensation benefit payment, the Maine Supreme Judicial Court has ruled.

The plaintiff had argued that because the disability payment was made under a group life policy, it was not subject to state law governing coordination of benefits. However the high court affirmed a Workers’ Compensation Board hearing officer’s ruling in favor of the employer in Jeanne Nichios v. S.D. Warren/Sappi et al.

The plaintiff, Jeanne Nichols, sustained a work-related injury to her cervical spine while working for S.D. Warren in 1999. S.D. Warren paid her total incapacity benefits starting in February of 2002, when she stopped working.

S.D. Warren provided a group insurance policy for its full-time employees that is described in the policy’s summary of coverage as being a “welfare plan.” S.D. Warren paid the full premium on the policy. In addition to a life insurance benefit that would be paid in the event of death, the policy contains certain non-life insurance features, including a “Permanent and Total Disability Feature (For Employees Who Become Disabled Before Age 60).” An employee is eligible for this benefit if disease or injury prevents her from working at her job or any other job for pay or profit.

On February 24, 2003, Nichols applied for benefits under the policy’s permanent and total disability feature. She was 53 years old at the time. She was determined eligible based on a finding that she was totally disabled under the policy criteria, and she received a lump sum payment of $58,000 on April 23, 2003. S.D. Warren continued to pay total incapacity benefits to Nichols.

In February 2005, S.D. Warren sought to offset its incapacity benefit payments under workers’ compensation by the $58,000 paid under the group disability. A workers compensation hearing officer granted the offset and Nichols appealed.

The issue for the court was whether the coordination of benefits provision in the state’s Workers’ Compensation Act authorizes a reduction of Nichols’s benefits by the disability payment made under group insurance policy.

Nichols contended that the disability payment she received was not a payment under a “disability insurance policy” as the law outlines because the group policy is primarily a life insurance policy designed to provide coverage in the event of death, not wage continuation during disability. The conversion option, she argued, does not change the nature of the underlying policy.

The court noted that the plain language of the statute authorizes an employer or insurer to coordinate workers’ compensation benefits with payments made pursuant to “a disability insurance policy provided by the employer. Neither the Workers’ Compensation Act nor the Maine Insurance Code contains a definition of “disability insurance policy.” According to Black’s Law Dictionary, disability insurance is commonly defined as “[c]overage purchased to protect a person from a loss of income during a period of incapacity for work.” Generally, disability insurance protects against the “inability of an individual to earn the salary or wages to which he or she was accustomed” due to poor health.

The group insurance policy in this case combines several types of insurance, including disability insurance, into a single policy. The court noted that classifying an insurance policy has become “problematic due to the advent of package policies that combine aspects of several discrete lines of insurance into a single policy.”

But, the court continued, the definitions of different types of insurance coverage are not mutually exclusive, and “the inclusion of such coverage within one definition shall not exclude it as to any other kind of insurance within the definition of which such coverage is likewise reasonably includable.”

The payment that Nichols received was payable upon disability and, even though paid in a lump sum, was designed to replace income in the event of her inability to work. Thus, Nichols received a disability insurance payment, according to the opinion

However, because the statute specifically provides for the coordination of benefits when a payment is made pursuant to “a disability insurance policy,” and the payment in this case was made pursuant to a policy providing multiple coverages, the court delved even deeper.

It sided with the hearing officer who reasoned that the group insurance policy in question is both a life insurance policy and a disability insurance policy and that the permanent disability benefit received by Nichols was under the disability component of that policy and, therefore, constituted a payment “under a disability insurance policy” within the meaning of the statute.

“There is no meaningful basis on which to distinguish the lump sum payment Nichols received as being something other than a payment pursuant to a disability insurance policy. We conclude that the plain meaning of the term “disability insurance policy” includes a payment pursuant to a disability feature in a policy that provides multiple coverages,” the opinion states in allowing S.D. Warren to take the offset.