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Lamb v. Connecticut General Life Insurance Co.

decided: February 23, 1981.

ANNELIESE B. LAMB, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS SIMILARLY SITUATED, APPELLANT
v.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY, A CORPORATION OF THE STATE OF CONNECTICUT



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY C.A. No. 77-1290

Before Adams, Garth and Sloviter, Circuit Judges.

Author: Adams

Opinion OF THE COURT

This appeal presents two related questions: first, whether Section 207 of the Social Security Act, 42 U.S.C. § 407 (1976), prohibits the defendant, Connecticut General Life Insurance Company (CGLIC), from offsetting Social Security disability benefit increases received by the disabled plaintiff, Annaliese Lamb, against the benefits payable to the plaintiff under the terms of a group disability insurance policy; and second, whether the public policy expressed in Section 202 of the Social Security Act, 42 U.S.C. § 402 (1976), forbids the additional offset against Lamb's disability insurance benefits of Social Security benefits payable to her dependents. We conclude that neither of these offsets is unlawful under the Social Security Act, and therefore affirm the district court's grant of summary judgment to the defendant.

I.

In 1969, Lamb's employer, Overlook Hospital, purchased a group long-term disability policy from CGLIC that covered certain enrolled employees, including Lamb. The policy provided covered employees who became disabled with a monthly income payment equal to 70% of the monthly income they had earned while employed. Payments under the plan were reduced by "Other Income Benefits" payable to the disabled employee, including Social Security disability benefits, so that the total of insurance payments and "Other Income Benefits" always equalled 70% of the employee's previous monthly earnings.*fn1

Lamb became permanently disabled within the meaning of the CGLIC plan in January, 1971. On June 30, 1971 she was found to be eligible for Social Security disability benefits for both herself and her dependents. Consequently, CGLIC adjusted her monthly income benefits to reflect the Social Security benefits that she received for herself and her dependents. Thereafter, as Social Security benefits have increased to keep pace with the cost of living, CGLIC has reduced by an equivalent amount the Monthly Income Benefits it pays to Lamb. The result is that to date Lamb receives the same gross amount each month that she received in 1971.

Objecting to the way in which the CGLIC plan prevented her total income from rising with inflation, Lamb filed suit against CGLIC, charging that the insurance company fraudulently induced her to join the group plan through misrepresentations in the information it supplied to Lamb and the other employees. In addition, Lamb complained that the offset of Social Security disability benefit increases against the policy payments violated 42 U.S.C. § 407, which interdicts assignment, transfer, execution or other legal attachment of future Social Security benefits. Lamb also alleged that the reduction of CGLIC benefits in proportion to the amount of Social Security payments she received for her dependents under 42 U.S.C. § 402 violated the public policy underlying that section. Finally, she asserted claims for statutory penalties under the Welfare & Pension Plan Disclosure Act (WPPDA), 29 U.S.C. § 301 et seq., and the Employment Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq.

The district court recognized that neither WPPDA nor ERISA applies to this disability plan, and dismissed the final allegation asserted by Lamb. It also granted summary judgment to the defendant on the question of illegal offsets. Determining that the fraud counts were state law claims, and that he had discretion not to exercise pendent jurisdiction after disposing of all federal law claims, the district judge dismissed these counts without prejudice to the right of the plaintiff to bring an action in state court relating to the fraud claims. On this appeal, only the summary judgment award against Lamb on the offset counts is before this Court.

II.

Lamb first contends that the Social Security Act, 42 U.S.C. § 407 (1976),*fn2 prohibits CGLIC, as a matter of law, from deducting any increase in Social Security benefits payable to her from the amount paid to her under the insurance policy.

In so arguing, Lamb concedes that § 407 does not bar a "frozen" offset of Social Security benefits against amounts payable under private contracts. A frozen offset is one that is permanently fixed at the level of the recipient's initial Social Security benefits. Both state and federal law supports the validity of frozen offsets. See Hurd v. Illinois Bell Telephone Co., 136 F. Supp. 125, 142 (N.D.Ill.1955), aff'd, 234 F.2d 942 (7th Cir. 1956), cert. denied, 352 U.S. 918, 77 S. Ct. 216, 1 L. Ed. 2d 124 (1956); Killebrew v. Abbott Laboratories, 352 So.2d 332, 336 (La.Ct.App.1977), aff'd, 359 So.2d 1275, 1278 (La.Sup.Ct.1978); Williams v. Insurance Company of North America, 150 Mont. 292, 434 P.2d 395, 397 (1967); Voss v. Mutual of Omaha Insurance Co., 469 S.W.2d 602, 604 (Tex.Ct.Civ.App.1971). Cf. bBuczynski v. General Motors Corp., 616 F.2d 1238 (3d Cir. 1980), cert. granted, -- - U.S. -- , 101 S. Ct. 352, 66 L. Ed. 2d 213 (1980). In Buczynski, we held that anti-forfeiture language in ERISA, 29 U.S.C. § 1053(a), did not prohibit offsetting against pension benefits the amount a pensioner received under a New Jersey Workers Compensation statute.

Having conceded the validity of a frozen offset, however, Lamb maintains that an "unfrozen" offset, which decreases insurance payments as Social Security benefits are increased, violates the prohibition against assignment of future Social Security benefits, 42 U.S.C. § 407. She maintains that, since CGLIC reduces her insurance benefits whenever Social Security benefits are increased, it is CGLIC that enjoys the increases in Social Security benefits enacted by Congress, and not her. This, she asserts, is contrary to the intent of Congress.

Philpott v. Essex County Welfare Board, 409 U.S. 413, 93 S. Ct. 590, 34 L. Ed. 2d 608 (1973) and Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S. Ct. 802, 59 L. Ed. 2d 1 (1979), cited by appellant, do not support her argument. Both cases involved the transfer of Social Security payments to a third person through legal process. Here, Lamb's legal right to receive her Social Security payments and the increases is uncontested. She continues to receive those benefits, and has, in fact, at all times received combined benefits from the insurance policy and Social Security in excess of what she would receive from the ...


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