In the “prototypical” ERISA benefits case, a claimant sues a provider to obtain benefits asserted to have been wrongfully withheld. Occasionally, however, the dynamic is reversed, with the benefit provider going on the offensive and the claimant being the target. This happens, generally speaking, in one of three scenarios: (i) when a disability benefit provider is looking to recover or “recoup” benefits paid, because the recipient of the benefits subsequently received benefits from a different source (e.g., Social Security) that the provider is permitted (under the terms of the plan) to offset; (ii) when a claimant obtains a third-party recovery that covers (in whole or in part) medical expenses for which a benefit provider made payment; and (iii) when a benefit provider is trying to recover benefits that it claims to have paid in error.
In March 2013, the Second Circuit held in Thurber v. Aetna Life Ins. Co. that a disability insurer should be permitted to recoup benefits that are subject to an offset (category (i) above) notwithstanding the fact that when recoupment was first sought, the funds were no longer in the claimant’s possession (because they had, in the vernacular used by the court, “dissipated”). The decision contains an excellent synopsis of the Supreme Court’s treatment of recoupment cases over the years, and there is, at present, an application pending to have the Supreme Court review the “dissipation” issue on which the case is centered. More on that if the application is granted. Stay tuned.
Thurber v. Aetna Life Ins. Co., 712 F.3d 654 (2d Cir. 2013)