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LTD Plan’s Failure to Define “Active” Employee Extends Eligibility to Employee Not Actually Working



Carlile v. Reliance Std. Life Ins. Co., 988 F.3d 1217 (10th Cir. 2021)

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A federal appeals court has ruled that a long-term disability claimant was eligible as an “active, full-time” employee even though, when his disability began, the employer had excused the claimant from reporting to work. The claimant had received a 90-day termination notice (in connection with a reduction in force) and was not required to report to work during the notice period, but he nonetheless chose to come into the office occasionally. During the notice period, the claimant was diagnosed with cancer and stopped reporting to work. He then submitted a claim for disability benefits. The insurer did not dispute that the claimant met the plan’s definition of disability but denied the claim because the claimant was not an active, full-time employee—according to the insurer, one actually working at least 30 hours per week—when the disability began. The trial court ruled in the claimant’s favor, holding that the plan was ambiguous as to the term “active,” and the insurer appealed.

Affirming the decision, the appeals court noted that the plan limited eligibility to active, full-time employees but failed to define “active,” creating an ambiguity that had to be construed against the insurer. The insurer asserted that the dictionary supported its interpretation that “active” means “actually working,” but the court cited other dictionary definitions suggesting that “active” could mean that someone is simply “currently employed.” The court also rejected the insurer’s argument that “active” is unambiguous when combined with the plan’s definition of “full-time” to mean working a minimum of 30 hours during a person’s regular work week. According to the court, a “regular work week” is established by employment terms and practices and is not an eligibility requirement that must be re-established with each passing month or for every week. The claimant had clearly satisfied this requirement before receiving the termination notice, and the plan terms did not require the claimant to work 30 hours in the week his disability began. The court cited other reasons the claimant would not reasonably expect his insurance coverage to terminate during the notice period: The termination had a delayed effective date; the employer had previously given the claimant a termination notice but then withdrawn it, continuing his employment; the claimant was paid for the notice period; and the employer considered the claimant a full-time employee. The court also affirmed the district court’s award of the claimant’s attorney fees.

EBIA Comment: Employee benefit plans typically are replete with definitions and yet, as this case illustrates, they sometimes leave crucial terms undefined. It should not be assumed that a similarity between terms (“active” vs. “actively at work”) will lead a court to conclude that the same meaning is intended for each, or that one is intended to explain the meaning of the other. Instead, it’s just as likely that the court will consider undefined terms to be ambiguous and construe them against the drafter. For more information, see EBIA’s ERISA Compliance manual at Section XXXVI.F (“Judicial Construction of Plan Terms”).

Contributing Editors: EBIA Staff.

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