On February 22, 2021, the United States Court of Appeals for the Tenth Circuit (the appellate court) ruled in Carlile v. Reliance Standard Life, et.al that an employee was entitled to long-term disability benefits, even though he was on notice of his termination and on short-term disability when he requested them. The employer provided the employee with a 90-day notice of termination (“notice period”) and did not require him to work during that time. The employee came to work during the notice period, but he was diagnosed with cancer. He requested and received a short-term disability benefit during the notice period. When the short-term disability was set to expire, the employee requested a long-term disability benefit. The carrier that provided benefits on behalf of the employer denied this request, because he was no longer an active employee, since he was under a notice of termination and not working over 30 hours per week, and therefore no longer eligible for benefits under the terms of the plan.
The employee took the carrier to court, alleging that it denied his claim for long-term disability in violation of ERISA. The trial court found that the term “active” in the plan documents was ambiguous and ruled in favor of the employee. The carrier appealed, asserting that the plan’s definition of “full-time,” that someone must work at least 30 hours during a regular work week, was sufficient to determine whether someone is “active” for this purpose.
However, the appellate court agreed with the trial court, pointing out that in the absence of a specific definition in the plan, the term “active” could be interpreted broadly enough to include employees who worked any number of hours, if they worked. In addition, the employee worked during the notice period, was paid for that work, and was considered a full-time employee during that time. Since the term “active” was not so defined as to exclude employees who did not work 30 hours a week, the appellate court determined that it was ambiguous and ruled in favor of the employee.
Since the ruling came from a federal appeals court, it is possible that the matter will be appealed to the Supreme Court, so this may not be the final word on the matter. However, employers should be aware of the danger of ambiguous terms in their plan documents and should consider consulting with counsel or plan document drafters in order to determine whether important terms are clear and unambiguous.
Source: NFP BenefitsPartners