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Started By
Message
Long-Term Disability Overpayments
Posted on 2/9/09 at 11:49 am
Posted on 2/9/09 at 11:49 am
Someone I know received LTD payments from the insurance company for about 3 years.
Thereafter, this person received a retroactive lump sum Social Security Disability payment.
Now, (of course) the insurance company wants the entire SSD amount paid back to them because the insurance policy stated that LTD payments would be reduced by the amount of any SSD payments received.
Taxes have to be paid on the lump SSD payments. I think this person should amend the '06 and '07 tax returns to reflect SSD payments that are attributed to those years rather than including the entire lump sum for the '08 tax year. (In addition, wouldn't any overpayment re-paid to the insurance company be tax-deductable?)
Naturally, the amount demanded by the insurance company is for the gross lump sum and doesn't take into account taxes and deductions on it. And even then, they have mis-calculated the amount in their favor (on the very high end).
Meanwhile, they have suspended LTD payments (which I believe terminate in a few years anyway) until they "get theirs".....
I anticipate the insurance company sending collections after this person. It seems the worst that could happen is a state claim for breach of contract. There's no question that this person owes the insurance company money, but the amount is in dispute...
Does anyone here have experience with this type of situation? What's the best way to handle/negotiate this without getting a lawyer involved?
Thereafter, this person received a retroactive lump sum Social Security Disability payment.
Now, (of course) the insurance company wants the entire SSD amount paid back to them because the insurance policy stated that LTD payments would be reduced by the amount of any SSD payments received.
Taxes have to be paid on the lump SSD payments. I think this person should amend the '06 and '07 tax returns to reflect SSD payments that are attributed to those years rather than including the entire lump sum for the '08 tax year. (In addition, wouldn't any overpayment re-paid to the insurance company be tax-deductable?)
Naturally, the amount demanded by the insurance company is for the gross lump sum and doesn't take into account taxes and deductions on it. And even then, they have mis-calculated the amount in their favor (on the very high end).
Meanwhile, they have suspended LTD payments (which I believe terminate in a few years anyway) until they "get theirs".....
I anticipate the insurance company sending collections after this person. It seems the worst that could happen is a state claim for breach of contract. There's no question that this person owes the insurance company money, but the amount is in dispute...
Does anyone here have experience with this type of situation? What's the best way to handle/negotiate this without getting a lawyer involved?
This post was edited on 2/9/09 at 11:50 am
Posted on 2/9/09 at 12:00 pm to gizmoflak
Tell the insurance company the SSD is an Obama bonus and you'll be calling several loud democrats with bullhorns.
Posted on 2/9/09 at 12:31 pm to gizmoflak
I have handled a case similar to this before.
Assuming the company was paying out an amount greater than the monthly social security payments, the insurance company is entitled to receive the retroactive lump-sum payment. Your friend should have forwarded that payment to his/her insurance company.
If he no longer has the money or refuses to pay it, then the insurance company can recoup it by withholding present and future disability payments.
If ERISA governs your friend's insurance plan, which it probably does, it is unlikely that the insurance company will send collectors after your friend or file a lawsuit. As far as I could tell, ERISA does not provide the insurance company with any method of recovery other than witholding. Several Courts have upheld insurance companies' right to withhold payments to recoup unreturned retoactive lump sums received by the beneficiary.
The best I was able to do for my client was to negotiate a payment plan whereby the insurance company only withheld half of his monthly long-term disability payment. I made sure my client knew that he needed to meet with a tax advisor to amend his prior tax returns to account for the tax issues you raised.
As to your situation, I would recommend recalculating the amount the insurance company is seeking to reflect any deductions, e.g. attorney's fees paid in getting the retroactive payment. Then your friend should call the insurance company and attempt to negotiate a settlement that is amenable to his/her financial situation.
However, your friend needs to retain a lawyer or, if he/she cannot afford to pay, should contact a volunteer lawyer organization to review the specifics of his/her case.
Assuming the company was paying out an amount greater than the monthly social security payments, the insurance company is entitled to receive the retroactive lump-sum payment. Your friend should have forwarded that payment to his/her insurance company.
If he no longer has the money or refuses to pay it, then the insurance company can recoup it by withholding present and future disability payments.
If ERISA governs your friend's insurance plan, which it probably does, it is unlikely that the insurance company will send collectors after your friend or file a lawsuit. As far as I could tell, ERISA does not provide the insurance company with any method of recovery other than witholding. Several Courts have upheld insurance companies' right to withhold payments to recoup unreturned retoactive lump sums received by the beneficiary.
The best I was able to do for my client was to negotiate a payment plan whereby the insurance company only withheld half of his monthly long-term disability payment. I made sure my client knew that he needed to meet with a tax advisor to amend his prior tax returns to account for the tax issues you raised.
As to your situation, I would recommend recalculating the amount the insurance company is seeking to reflect any deductions, e.g. attorney's fees paid in getting the retroactive payment. Then your friend should call the insurance company and attempt to negotiate a settlement that is amenable to his/her financial situation.
However, your friend needs to retain a lawyer or, if he/she cannot afford to pay, should contact a volunteer lawyer organization to review the specifics of his/her case.
Posted on 2/9/09 at 1:40 pm to HermnDaMonstaJohson
quote:
As to your situation, I would recommend recalculating the amount the insurance company is seeking to reflect any deductions, e.g. attorney's fees paid in getting the retroactive payment. Then your friend should call the insurance company and attempt to negotiate a settlement that is amenable to his/her financial situation.
I think this is best --- present the insurance company with "our" numbers and negotiate
the lump sum is sitting in savings for the most part... but it's about 20k less than what the ins. co. is asking for
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