Paul J. Wyatt v. UNUM Life Insurance Company of America

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1127
Paul J. Wyatt,
Plaintiff-Appellee,
v.
UNUM Life Insurance Company of America,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 8228--David H. Coar, Judge.
Argued May 30, 2000--Decided August 7, 2000
Before Posner, Coffey and Kanne, Circuit Judges.
Kanne, Circuit Judge. An insurance dispute
arising out of a tragic incident that left Paul
J. Wyatt unable to work requires that we decide
whether UNUM Life Insurance Co. of America
wrongly withheld benefits from Wyatt in violation
of federal law. The district court held that UNUM
was not entitled to offset the benefits it owed
Wyatt against benefits he had been receiving from
another insurance policy and issued summary
judgment in Wyatt’s favor. UNUM, believing that
its contract with Wyatt permitted such an offset,
appealed. Because the dispute concerns an
employee-benefit plan governed by the Employee
Retirement Income Security Act, 29 U.S.C. sec.
1001 et seq., jurisdiction rested in the district
court as a federal question under 28 U.S.C. sec.
1331. Agreeing that Wyatt’s policy with UNUM did
not permit the offset UNUM claimed, we affirm the
district court’s order.
I. History
The facts of this case are simple. Paul Wyatt
worked for many years for William Blair & Co.,
holding the position of partner in the firm. In
December 1992, while on a business trip, Wyatt
was robbed and beaten, leaving him permanently
disabled. At the time, Wyatt was covered by two
insurance policies, both of which were voluntary
and purchased by Wyatt. The UNUM policy provided

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long-term disability benefits calculated at 60
percent of the insured’s monthly earnings, less
"other income benefits" received from other
sources. The UNUM policy defined "other income
benefits" as:
1. The amount for which the insured is eligible
under:
a. Workers’ or Workmen’s Compensation Laws;
. . .
3. The amount of any disability income benefits
for which the insured is eligible under:
a. any group insurance plan.
. . .
Wyatt also chose to purchase coverage under a
Workers Compensation and Employers Liability
Policy issued by Federal Insurance. This policy
provided "voluntary compensation insurance"
identical to benefits under the workers
compensation law, although Wyatt was not subject
to the Illinois Workers’ Compensation Act, 820
Ill. Comp. Stat. 305/1 et seq. After his injury,
Wyatt applied for benefits under both policies.
He began receiving benefits from Federal in the
amount of $670 per week. Later, UNUM approved his
application for benefits under its policy,
subject to an offset of $670 per week that he was
getting from Federal.
On March 19, 1996, Wyatt reached a settlement
with third parties for his injuries in the amount
of $4 million. The Federal policy provided that
any recovery from a third party would offset the
amount of benefits Federal would pay.
Specifically, the Federal plan provided that
"[i]f the persons entitled to the benefits of
this insurance make a recovery from others, they
must reimburse us for the benefits we paid them."
Therefore, the parties agree that Federal did not
owe Wyatt anything under his policy until the $4
million is exhausted. Pursuant to this condition,
Wyatt reimbursed Federal for the amount of the
benefits Federal had paid to him between 1992 and
1996. Furthermore, Federal notified Wyatt that
future payments were "suspended until exhaustion
of Mr. Wyatt’s [$4 million] settlement."
Wyatt requested UNUM discontinue the $670 offset
against his benefits because he was no longer
eligible for benefits under the Federal policy.
UNUM responded that the offset remained
appropriate because Wyatt was still eligible for
the Federal benefits. The parties then disagreed
as to whether Federal’s benefits were properly

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considered workers compensation benefits as
defined by the UNUM policy. Wyatt contended that
the Federal benefits were not paid under
"Workers’ or Workmen’s Compensation Laws," since
those laws did not encompass Wyatt as a partner
in the firm. UNUM countered that, even so, the
Federal plan qualified as "any group insurance
plan," for which Wyatt was still eligible.
Wyatt filed a one-count complaint for
declaratory relief in the Circuit Court of Cook
County, Illinois, and UNUM removed the case to
federal district court. After cross-motions for
summary judgment, the district court held that
Wyatt was not eligible for benefits under the
Federal policy and ordered UNUM to pay Wyatt
$116,133.20 in retroactive benefits, prejudgment
interest and attorneys’ fees.
II. Analysis
On appeal, UNUM challenges the district court’s
finding that Wyatt was not eligible for benefits
under the Federal policy and the award of
attorneys’ fees. We review a district court’s
grant of summary judgment de novo. See Quinn v.
Blue Cross and Blue Shield Ass’n, 161 F.3d 472,
475 (7th Cir. 1998). Summary judgment is proper
when "the pleadings, depositions, answers to
interrogatories, and admissions on file, together
with the affidavits, if any, show that there is
no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a
matter of law." Fed. R. Civ. P. 56(c); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 247-48 (1986).
The district court, relying on Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989),
correctly ascertained its standard of review over
UNUM’s decision to deny benefits as de novo.
Firestone provides de novo review for all cases
related to the denial of benefits under ERISA,
"unless the benefit plan gives the administrator
or fiduciary discretionary authority to determine
eligibility for benefits or to construe the terms
of the plan." Id. at 115. In cases where the
administrator has discretionary authority, the
district court must review their decision under
the more deferential "arbitrary and capricious"
standard. See Cozzie v. Metropolitan Life Ins.
Co., 140 F.3d 1104, 1107 (7th Cir. 1998). The
issue presented here centers on whether Wyatt
remains eligible under the Federal plan, over
which UNUM has no discretionary authority.
Therefore, the district court correctly found
that de novo review was appropriate.
A. Wyatt’s Eligibility Under the Federal

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Policy
The question presented is whether Wyatt remained
"eligible" for benefits under the Federal plan
after he received the third-party settlement. It
is uncontested that Wyatt will not receive any
monetary payments from Federal until he exhausts
the $4 million settlement, which would take
roughly 5,970 weeks, or 115 years, from December
1992. In Federal’s terms, the payments are
"suspended" until that time.
UNUM contests strongly that one can still be
"eligible" for benefits that one will,
undisputedly, never receive, and that the
cessation of payments to Wyatt by Federal is
merely a "fiction" that we should disregard. In
this view, Federal is still making payments to
Wyatt, but Wyatt is immediately paying them back
the same amount. Rather than engage in this
routine every week, Federal and Wyatt agreed that
Federal would stop making payments at all. UNUM
asks us to look past this arrangement of
convenience, this "fiction," to the reality that
Wyatt is still eligible for payments from
Federal.
We think this is a strange understanding of the
word "eligible." We agree that Wyatt is still
covered by the policy, in that the policy has not
been cancelled or voided. This is a far cry from
saying he is eligible to receive payments.
According to one definition, eligible means
"entitled to something." Webster’s Third New
International Dictionary 736 (3d ed. 1986). The
Federal plan indicates that Wyatt must pay
Federal back for any money he received from third
parties. He therefore is not entitled to anything
from Federal since he must immediately give back
anything they paid him. The UNUM policy directs
us to the "amount of any disability income
benefits for which the insured is eligible."
(Emphasis added.) Reading "eligible" as
"entitled," it becomes obvious that the amount to
which Wyatt is entitled is zero. UNUM’s
interpretation that one can be eligible to
receive something that one has no right to
possess in any sense, is clearly wrong.
Federal’s use of the term "suspend" might
reflect Federal’s view that Wyatt remained
eligible, but only as to future payments.
Sometime, perhaps in the 22nd century, Wyatt
would again be entitled to a weekly benefit, so
it could not be said simply that Wyatt was, in
all circumstances, "ineligible" under the Federal
plan. Thus Federal suspended payments until he
again would be due to receive a payment that he
would not be bound to immediately give back,
rather than declare with finality that Wyatt is

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ineligible for benefits, either presently or in
the future.
UNUM points to three cases from other courts
that purportedly hold that, in the interest of
preventing double recoveries, insured parties
remain "eligible" for benefits they are required
to reimburse. See Sampson v. Mutual Benefit Life
Ins. Co., 863 F.2d 108 (1st Cir. 1988); Zeller v.
UNUM Life Ins. Co., 1997 WL 732420 (E.D. La.
1997); Snead v. UNUM Life Ins. Co., 824 F.Supp.
69 (E.D. Va. 1993), aff’d in part, remanded on
other grounds, 35 F.3d 556 (4th Cir. 1994).
Sampson involved facts similar to those of the
case at bar. 863 F.2d at 108-09. The plaintiff in
Sampson was covered by two policies: a workers
compensation policy and a long-term disability
policy. The long-term disability plan required an
offset of benefits paid by a workers compensation
plan, and the workers compensation policy
required reimbursement from third-party
settlements. After receiving a third-party
settlement and reimbursing the workers
compensation carrier, the plaintiff sued to
prevent the disability carrier from withholding
the offset amounts related to the period before
the third-party settlement. The First Circuit
held that to prevent the disability carrier from
withholding the offset would "violate the
principle underlying both the [disability]
policy’s offset provision and the reimbursement
provisions of the Massachusetts workers
compensation law, for it would allow Sampson to
recover twice for the same loss." Id. at 111.
In Snead, the injured worker retained the
workers compensation benefits, but also wanted to
keep the disability benefits despite UNUM’s
offset provision which required a reduction in
benefits for "any amount payable under any
Workmen’s Compensation Law, Occupational Disease
Law, or any other legislation of similar purpose
. . . ." 824 F.Supp. at 72. The court held that
public policy against double recoveries, as
expressed in the state’s workers compensation law
and the disability insurer’s offset provision,
counseled against allowing the injured worker to
recover from both the workers compensation and
disability insurance providers for the same
injury. 824 F.Supp. at 73 (quoting Sampson, 863
F.2d at 110-11).
These cases are distinguishable. First, Sampson,
and Snead in part, involved the disability
insurer’s right to an offset for benefits paid
before the third-party settlement. Wyatt does not
contest that UNUM is entitled to the $670 offset
for this period. Second, both involved workers
compensation benefits under state law, in which

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the expressed policy was to prevent double
recoveries. In such situations, workers
compensation carriers are entitled to liens
against any third-party settlements so that where
possible, the burden of payment would be borne by
tortfeasors rather than insurance carriers, which
helps to keep rates down for state-mandated
workers compensation insurance. By virtue of his
partnership status in the firm, Wyatt was exempt
from the state-required workers compensation
insurance. His insurance was voluntary and not
subject to the state requirements. Therefore, the
state’s policy interest is inapplicable.
Instead, the matter is simply one of contract
interpretation, and on this ground, UNUM’s policy
in this case differs significantly from UNUM’s
policy in Snead. In Snead, the relevant offset
provision looked to "amounts payable under any
Workmen’s Compensation Law," id. at 72, and the
court determined that UNUM should receive an
offset for the amounts the worker actually was
paid and retained. The court’s language makes
this clear:
The Court finds, as did the court in Sampson,
that the plain language of the policy provision
permits the insurance company to offset
disability benefits against workmen’s
compensation benefits previously paid to the
disabled employee. Thus, UNUM is entitled to
offset workmen’s compensation benefits paid to
Snead by Fireman’s Fund against disability
payments UNUM must pay to Snead.
824 F.Supp. at 73 (emphasis added). The court
focused on payments actually made to the injured
worker and allowed an offset for that amount. The
case did not involve offsets for payments that
would never be made. Even if we were to find that
a public policy against double recoveries applied
here, UNUM could show no double payments similar
to those in Snead or Sampson, and thus the policy
interest is not implicated by requiring UNUM to
make payments to Wyatt notwithstanding the third-
party settlement./1
Absent state or other law on the matter,
employees such as Wyatt are free to purchase on
the open market insurance coverage of their
choosing, including policies to protect them from
long-term disability. They may even purchase more
than one policy for the purpose of guaranteeing
higher recoveries. Those employees and the
insurance companies must agree to the terms of
those policies and are free to include provisions
preventing double recoveries involving third-
party settlements. UNUM can point to no provision
in its own policy regarding third-party
settlements, but instead attempts to piggyback on
the provision in Federal’s policy and the

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principle expressed by state legislatures to
prevent a double recovery. The plain language of
the policy does not allow for this result, nor do
any cases cited by the UNUM compel it. The offset
provision in UNUM’s contract does require a
reduction for payments under other group benefit
plans, but only to the extent that the insured is
actually entitled to those payments. In this
case, the employee, Wyatt, is entitled to no
payments from Federal, and therefore the offset
provision does not apply.
The district court here made an additional
point we find persuasive. Under UNUM’s reading of
its policy, Wyatt actually would be worse off for
purchasing the Federal policy then if he had not.
Had Wyatt not purchased insurance from Federal,
he would have received the $4 million settlement,
against which UNUM had no claim because its
policy did not contain a third-party settlement
clause. He would continue to receive the full
benefit under the UNUM policy, and there would be
no talk of a $670 per week offset. By purchasing
the Federal policy, UNUM argues that Wyatt cost
himself $670 per week. Wyatt would have been very
foolish to agree to this, and as the plain
language of the policies indicates otherwise, we
see no need to reach this irrational result.
B. Attorneys’ Fees
Finally, UNUM contests the district court’s
discretionary award of attorneys’ fees to Wyatt
as allowed by 29 U.S.C. sec. 1132(g)(1). The
district court found that UNUM’s position in
opposing Wyatt’s claim for benefits was not
"substantially justified." See Bittner v. Sadoff
& Rudoy Indus., 728 F.2d 820, 830 (7th Cir.
1984). We review for abuse of discretion a
district court’s award of attorneys’ fees. See
Filipowicz v. American Stores Benefit Plans
Comm., 56 F.3d 807, 816 (7th Cir. 1995).
In awarding attorneys’ fees to the prevailing
party, we ask "was the losing party’s position
substantially justified and taken in good faith,
or was that party simply out to harass its
opponent?" Hooper v. Demco, Inc., 37 F.3d 287,
294 (7th Cir. 1994) (quoting Meredith v. Navistar
Int’l Transp. Corp., 935 F.2d 124, 128 (7th Cir.
1991)). The district court held that the facts of
this case were so easily distinguishable from the
case law cited to support UNUM’s decision, and
the legal claim it made sufficiently weak, that
UNUM was unreasonable in opposing Wyatt’s claim.
Furthermore, UNUM could without difficulty
satisfy the award of $32,000 in attorneys’ fees,
which would serve to deter other companies from
opposing similar meritorious claims in the
future. Both are factors this Court considers in

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awarding fees under ERISA. See Quinn, 161 F.3d at
478. We find that the district court did not
abuse its discretion in awarding fees and costs
to Wyatt.
III. Conclusion
For the foregoing reasons, the district court’s
grant of summary judgment in favor of Wyatt is
Affirmed, and UNUM is ordered to pay the attorneys’
fees and costs associated with this case.
/1 Zeller, 1997 WL 732420, in addition to being
inapplicable for the same reasons as Sampson and
Snead, is an unpublished district court order and
should not have been cited in briefs or at oral
argument. See Circuit Rule 53(b)(2)(4). We
therefore will disregard it.

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