Petition — Lamb v. Connecticut General Life Insurance
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Office- An Court, U.S.
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JUN 22 1981
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LER.
CLERA
80-2162
No.
|
IN THE
Supreme Cuurt of the United States
OCTOBER TERM, 1980
ANNELIESE B. LAMB, individually and on behalf of all
other persons similarly situated,
Petitioner,
v.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
ROBERT H. JAFFE
JAFFE & SCHLESINGER, P.A.
8 Mountain Avenue
Springfield, New Jersey 07081
(201) 467-2246
Attorney for Petitioner
BuRTON A. SCHWALB
CHARLES R. DONNENFELD
STEVEN SARFATTI
SCHWALB, DONNENFELD, BRAY
& SILBERT
A Professional Corporation
1333 New Hampshire Avenue, N.W.
Suite 350
Washington, D.C. 20036
(202) 857-0970
Of Counsel
WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001
QUESTIONS PRESENTED
1. Whether a private group disability insurance policy
which, after a worker’s permanent disability, reduces
insurance payments from the insurer by the amount of
increases in social security disability benefits effects
an “assignment” or “transfer” of those benefit increases
in violation of Section 207 of the Social Security Act,
42 U.S.C. § 407.
2. Whether a private group disability insurance policy
which, after a worker’s permanent disability, reduces
insurance payments by the amount of dependent children’s
social security benefits received by the worker as repre-
senative of his or her dependent children deprives those
children of benefits guaranteed to them under Section 202
(d)1 of the Social Security Act, 42 U.S.C. § 402(d)1,
and implementing regulations, 20 C.F.R. § 404.1601
et seq.
(i)
ii
PARTIES TO THE PROCEEDINGS
Plaintiff-Appellant-Petitioner is Anneliese B. Lamb.
Defendant-Appellee-Respondent is Connecticut General
Life Insurance Company.
TABLE OF CONTENTS
QUESTIONS PRESENTED
PARTIES TO THE PROCEEDINGS
STATEMENT OF JURISDICTION
STATUTES AND REGULATIONS INVOLVED ........
STATEMENT OF THE CASE
A. Introduction
B. Proceedings Below
C. Statement of Facts
REASONS FOR GRANTING THE WRIT ............ 3
A. The Decision of the Third Circuit Raises Ques-
tions of First Impression and Paramount Im-
portance Concerning the Entitlement of Dis-
abled Social Security Recipients and Their De-
pendent Children to Legislated Benefits Under
the Social Security Act 2
B. The Decision of the Third Circuit is Incompat-
ible With Prior Decisions of This Court
CONCLUSION
APPENDICES:
A. Opinion of the United States Court of Appeals
for the Third Circuit (February 23, 1981)
B. Opinion of the District Court (March 4, 1980) ;
Order for Summary Judgment on Amended
Complaint (March 5, 1980); Order Granting
Summary Judgment and Granting Leave to
File Amended Complaint (July 31, 1978);
Transcript of Hearing on Defendant’s Motion
for Summary Judgment (June 12, 1978)
(iii)
eo fF d ND —
11
la
iv
TABLE OF CONTENTS—Continued
Page
C. Judgment of the United States Court of Ap-
peals for the Third Circuit (February 23,
1981) 58a
D. Affidavit of Robert H. Jaffe (March 23, 1978) ;
Plaintiff’s Interrogatories (September 1, 1977)
and Defendant’s Answers (December 5, 1977) ;
Group Long Term Disability Benefits Insur-
ance Policy 59a
E. Relevant Statutory Provisions and Regula-
tions llla
*
TABLE OF AUTHORITIES
Cases Page
Barr. v. United States, 324 U.S. 83 (1945) 1
Califano v. Boles, 443 U.S. 282 (19799997
Califano v. Goldfarb, 430 U.S. 199 (1977) ..............
Califano v. Jobst, 484 U.S. 47 (1977) ... ..................
Califano v. Webster, 480 U.S. 313 (1977)
Califano v. Yamasaki, 442 U.S. 682 (197999
Cook v. Commercial Casualty Insurance Co., 160
00 0 0 0 0 &
F. 2d 490 (4th Cir. 1947) 13
duPont de-Bie v. Vredenburgh, 490 F.2d 1057
(4th Cir. 1974) 13
Eisenlohr v. Ehrich, 296 F. 816 (3d Cir. 1924),
cert. denied, 265 U.S. 584 (19250) 12
Flemming v. Nestor, 363 U.S. 603 (1960) 8
Garvey v. Worchester Housing Authority, 629 F. 2d
691 (Ist Cir. 1980) 10
Hackensack Trust Co. v. Ackerman, 47 A.2d 832
,, 12
Hisquierdo v. Hisquierdo, 439 U.S. 572 (1979). 11, 13, 14
Houston v. Ormes, 252 U.S. 469 (1970) .................. 15
Jiminez v. Weinberger, 417 U.S. 628 (1974) 8
Johnson v. Harder, 383 F. Supp. 174 (D.Conn.
1974), affirmed per curiam, 512 F.2d 1188 (2d
Cir.), cert. denied, 423 U.S. 876 (1975) ............ 10
Martin v. National Surety Company, 300 U.S. 588
(1937) 15
Mathews v. De Castro, 429 U.S. 181 (1976) 8
Mathews v. Eldridge, 424 U.S. 319 (1976) 8
Mathews v. Lucas, 427 U.S. 495 (1976) 8
National Bank of Commerce v. Downie, 218 U.S.
854 (1910) 15
Norton v. Mathews, 427 U.S. 524 (1976) 8
Porter v. Aetna Casualty & Surety Co., 370 U.S.
659 (1962) 12
Philpott v. Essex County Welfare Board, 409 U.S.
418 (1973) 6, 13, 14
Richardson v. Belcher, 404 U.S. 78 (197177 8
Richardson v. Perales, 402 U.S. 389 (1971) ........ 8
Richardson v. Wright, 405 U.S. 208 (1972 8
Segal v. Rochelle, 382 U.S. 375 (1966) .................... 15
vi
TABLE OF AUTHORITIES—Continued
Page
Stokeley Bros. & Co. v. Conklin, 26 A.2d 147 (N.J.
Eq. 1942) 18
St. Paul Fire & Marine Insurance Co. v. Barry,
438 U.S. 531 (1978) 12
Weinberger v. Salfi, 422 U.S. 749 (1975) .............. 8
Weinberger v. Wiesenfield, 420 U.S. 686 (1975) 8
Wolters Village Management Co. v. Merchants &
P National Bank, 223 F.2d 798 (5th Cir. 1955).. 18
Statutes and Regulations
Federal Statutes
een... 15
22 U.S.C. 5 1004 (e) 15
31 U.S.C. § 208 15
85 U.S.C. § 261 15
42 U.S.C. § 402(d)1 ..passim
„„ ee passim
42 U.S.C. § 415 (i) 9
42 U.S.C. § 424 10
42 U.S. C. § 1478 15
45 U.S.C. § 281m 18, 15
Act of December 31, 1978, Pub. L. No. 98-288, 87
Stat. 948 5,9
Act of July 9, 1978, Pub. L. No. 98-66, 87 Stat.
158 5,9
Act of July 1, 1972, Pub. L. No. 92-886, 86 Stat.
406 5,9
State Statutes
Cal. Ins. Code § 10127.1 (West Supp. 1981) .......... 14
Conn. Gen. Stat. Ann. § 88-1741 (Supp. 1980) 14
Ga. Code Ann. § 56-3409b (Supp. 1980) 14
Hawaii Rev. Stat. § 481-521(c) (1976) ꝗ 14
Ill. Ann. Stat. ch. 73, § 976.1 (Smith-Hurd Supp.
1980) 14
vii
TABLE OF AUTHORITIES—Continued
Page
Md. Code Ann. Art. 48A §§ 240H, 447G (1979). 14
Minn. Stat. Ann. § 62A. 18 (Supp. 1981) ............... 14
Pa. Stat. Ann. tit. 40, § 754.1 (Purdon Supp.
1980) 14
S. D. Comp. Laws Ann. § 58-18-11.1 (1978) .......... 14
Federal Regulations
20 C.F.R. § 404.1608 10
Miscellaneous
S. Rep. No. 404, 89th Cong., Ist Sess. ...................... 11
H.R. Rep. No. 1215, 92nd Cong., 2nd Sess. (1972).. 9
H.R. Rep. No. 627, 98rd Cong., Ist Sess. (1973) 9
118 Cong. Rec. 28286 et seg. (1972) 9
119 Cong. Rec. 36952 et seg. (1973) 9
Department of Health and Human Services, Social
Security Administration, Social Security Bul-
letin (April, 1981) 7
Social Security Administration Office of Manage-
ment and Administration, The Year in Review,
The Administration of Social Security Programs
1977 (July, 1978) 7
IN THE
Supreme Court of the United States
OCTOBER TERM, 1980
No.
ANNELIESE B. LAMB, individually and on behalf of all
other persons similarly situated,
. Petitioner,
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
OPINIONS BELOW
The opinion of the Third Circuit is reported at 643
F.2d 108 (8d Cir. 1981) (advanced sheet) and is re-
produced at App. la. The opinion of the District Court
granting summary judgment on the amended complaint
is not officially reported; the opinion and final judgment
are reproduced at App. lla and 50a, respectively. No
written opinion was filed by the District Court in grant-
ing defendant’s motion for summary judgment on the
original complaint. The Court’s oral ruling and order
granting summary judgment with leave to file an
amended complaint are reproduced at App. 51a and 53a,
respectively.
STATEMENT OF JURISDICTION
The judgment of the United States Court of Appeals
for the Third Circuit was entered on February 23, 1981.
Within 90 days of that date, on May 22, 1981, Circuit
Justice Brennan extended to June 23, 1981 the time in
which to file this petition for a writ of certiorari. The
jurisdiction of this Court is invoked pursuant to 28
U.S.C. § 1254(1).
STATUTES AND REGULATIONS INVOLVED .
This case involves the following statutes and regula-
tions:
42 U.S.C. § 402 (d) 1
42 U.S.C. § 407
20 C.F.R. §§ 404.1601, 1603, 1605, 1607
These provisions are set forth at App. 111a.
STATEMENT OF THE CASE
A. Introduction
This Petition seeks review of a judgment of the Third
Circuit Court of Appeals allowing private disability in-
surers to deduct Social Security disability benefits from
insurance proceeds otherwise payable to disabled workers
under contributory long-term disability insurance policies.
The practical effects of these deductions is to deprive
disabled policy beneficiaries of cost-of-living increases in
primary disability benefits that would otherwise come to
them under Section 207 of the Social Security Act
(“SSA”), 42 U.S.C. § 407, and to deprive their de-
pendent children of benefits provided for their use under
142 U.S.C. § 407 provides as follows:
The right of any person to any future payment under this
subchapter shall not be transferable or assignable, at law or in
equity, and none of the moneys paid or payable or rights
existing under this subchapter shall be subject to execution,
levy, attachment, garnishment, or other legal process, or to the
VC (Emphasis
Section 202(d)1 of the statute, 42 U.S.C. § 402(d)1,?
and implementing regulations.
B. Proceedings Below
On June 29, 1977, petitioner Lamb instituted suit in
the United States District Court for the District of New
Jersey seeking damages and injunctive relief against re-
spondent Connecticut General Life Insurance Company.
Petitioner, a permanently disabled worker, brought suit
for* herself and as a test case for other disabled workers.
Her complaint and amended complaint alleged that re-
spondent’s practice of deducting federal benefits from
insurance proceeds it was required to pay violated both
state and federal law, including Sections 207 and 202
(d)1 of SSA. Respondent admitted the practice, but
denied liability.“
Prior to the completion of discovery, respondent moved
for summary judgment on the federal counts of the com-
plaint. That motion was granted on July 31, 1978, with
leave given to file an amended complaint. After the
filing of the amendment, but still prior to the completion
of discovery, respondent moved for summary judgment
on the amended federal counts. On March 3, 1980, the
District Court granted respondent’s motion for summary
judgment on the federal claims and dismissed the pendent
state law claims for lack of subject matter jurisdiction.
The United States Court of Appeals for the Third Circuit
affirmed in a decision issued February 23, 1981.
2 42 U.S.C. § 402 (d) 1 states in relevant part:
Every child . . of an individual entitled to. . . disability in-
surance benefits . . shall be entitled to a child's insurance
benefit.
The complaint also asserted three additional state law counts
under pendent jurisdiction relating to misrepresentation in the
sale of respondent’s policies and other misconduct actionable under
state law.
4
C. Statement of Facts
Prior to becoming permanently disabled in 1970, peti-
tioner was employed as a hospital dietieian.“ In October,
1969, her employer purchased a long-term employee dis-
ability policy from respondent. The policy became effec-
tive upon the enrollment of a specified number of peti-
tioner’s co-workers.’ The plan was voluntary and contri-
butory, with employees paying 75 per cent of the pre-
miums by payroll deduction.“ The premiums were
calculated on the basis of the full amount of an em-
ployee’s anticipated monthly income benefit. The insurer
did not consider amounts that would be received from
collateral sources such as Social Security or workmen’s
compensation in calculating the premiums.’
The plan provided that, upon disability, the employee
would receive income benefits of 70 per cent of monthly
earnings, to a maximum of $1,500. The plan also pro-
vided that monthly benefits would be reduced by “Other
Income Benefits,” including:
(1) any periodic cash payment provided on account
of the Employee’s disability. . . (b) by the Federal
Social Security Act, including benefits payable to
the Employee’s dependents on account of the Em-
ployee’s disability .. .; and
(2) any Federal Old Age Benefits provided under
the Federal Social Security Act. (App. at 92a.)
App. at 12a; Lamb Deposition (December 12, 1978) at 6.
5 App. at 2a, 12a; Jenson Affidavit (March 2, 1978) at 2.
* App. at 68a; Respondent’s Answer to Verified Class Action
Complaint (September 2, 1977), at 8; Spina Deposition (Janu-
ary 3, 1979) at 29.
7 App. at 64a. The facts developed in the trial court did not
disclose the precise method by which the premiums were calculated
by respondent since, as reflected in respondent’s interrogatory
answers, relevant documentation maintained by respondent had
been destroyed. App. at 72a.
5
Petitioner became eligible for insurance benefits be-
cause of disability in January, 1971. App. at 3a. In
addition, petitioner qualified for primary disability and
dependent children’s benefits under the Social Security
program. App. at 3a. In 1971, petitioner’s monthly
Social Security benefits initially were $199.30 ($130.80
in primary disability benefits and $68.50 in dependent
children’s benefits).* Since then, these federal benefits
have been periodically increased under legislation de-
signed to adjust Social Security benefits to the rising
cost of living.“ By June 1980, petitioner’s total Social
Security benefits had risen to $476.00.
None of these benefits, however, has gone towards
fulfilling the purpose intended by Congress. Instead,
respondent has received the economic benefit of all in-
creases in petitioner’s primary disability benefits as well
as all benefits received by her on account or her de-
pendent children. Because respondent has deducted these
payments from petitioner’s insurance proceeds, peti-
tioner’s total monthly income from these sources has
remai d constant since 1971, while the benefits paid to
her dir :tly by respondent have continuously declined.’
8 Respondent’s Answer to First Amended Complaint (September
29, 1978), at J 19.
E. g., Act of December 31, 1973, Pub. L. No. 93-233, 87 Stat.
948; Act of July 9, 1973, Pub. L. No. 93-66, 87 Stat. 153; Act of
July 1, 1972, Pub. L. No. 92-336, 86 Stat. 406.
10 Pet. oner’s Social Security Act claims only contest the offset
of post-disability increases in her disability benefits and of the
benefits paid to her on account of her dependent children. Peti-
tioner does not challenge respondent’s right to offset the dollar
amount of primary disability benefits to which she became entitled
upon first qualifying for Social Security—only the subsequent in-
creases in those benefits.
REASONS FOR GRANTING THE WRIT
This Petition raises important questions of federal law
which have not been, but should be, settled by this Court.
Petitioner asserts that the first clause of Section 207 of
SSA, 42 U.S.C. § 407, prohibits the transfer or assign-
ment, at law or in equity, to an insurance company of
the right of Social Security recipients to future increases
in their primary disability benefits once they have quali-
fied for benefits both under SSA and under private dis-
ability insurance plans. Petitioner also asserts. that the
public policy underlying Sections 207 and 202(d)1 of
SSA, 42 U.S.C. §§ 407, 402 (d) 1, prohibits the deduction
from disability insurance proceeds of Social Security
child’s insurance benefits paid to disabled persons as
representative payees of their dependent children.
These issues are as novel and significant as those
resolved by the Court in Philpott v. Essex County Wel-
fare Board, 409 U.S. 418 (1978), which interpreted the
second clause of Section 207 to prohibit creditors from
reaching monies paid or payable, or rights existing, under
SSA. Because no decision by this Court has heretofore
interpreted the first clause of Section 207, this Petition
provides an opportunity, nearly 50 years after SSA’s
passage, for the Court to delineate the reach of the stat-
ute’s spendthrift provisions—an interpretation which will
affect literally millions of participants in group long
term disability insurance plans.
A, The Decision of the Third Circuit Raises Questions
of First Impression and Paramount Importance Con-
cerning the Entitlement of Disabled Social Security
Recipients and Their Dependent Children to ee
Benefits Under the Social Security Act
The decision of the Third Circuit in this case denies
to the disabled and their dependents the safety net of
public benefits that Congress has jealously guarded
7
against encroachment over more than four decades of
Social Security policy-making. The decision below inter-
prets the Social Security Act in a manner that this Court
has never previously countenanced and that endangers
the economic well-being of a nationally significant class
of Social Security beneficiaries."
As an exercise in government administration, the So-
cial Security program is of unparalleled scope. For
example, in 1977, the year in which petitioner brought
suit, approximately 150 million claims were filed and
more than 34 million persons received benefits under the
old-age, survivors and disability insurance program.”
Nearly five million of these persons were disabled workers
and dependents in current-payment status during 1977.“
The aggregate benefits paid to the disabled and their
dependents during 1977 exceeded 10 billion dollars.“
As the Court has observed, “[gliven this magnitude,
the number of times these SSA claims have reached this
11 Information developed before the District Court showed that
as of June 1978, there were approximately 10,000 disabled persons
insured by respondent in current-payment status and that there
were approximately 12,000 other disabled insureds who were for-
merly in payee status but who had reached the age of 65, died or
whose insurance benefits otherwise were terminated. Lamb Af-
fidavit (June 5, 1978), at 4. The record developed below also
showed that some 498,000 workers were insured under respondent’s
disability insurance policies. Id. While it is impossible to calculate
the precise number of these persons and persons similarly situated
insured by other carriers who may be affected by the disposition
of this case, that number is national in scope.
12 Social Security Administration Office of Management and
Administration, The Year in Review, The Administration of So-
cial Security Programs 1977, at ii (July 1978).
18 Department of Health and Human Services, Social Security
Administration, Social Security Bulletin, at 41 (April 1981).
14 Id. at 50.
10 Id.
Court warrants little surprise.” Califano v. Boles, 443
U.S. 282, 283 (1979). Time and again, the Court has
intervened to ensure that program beneficiaries receive
the benefits to which they are entitled by law.““ These
decisions reflect this Court’s special sensitivity to the
congressional intent to afford protection to families
against the economic hardships occasioned by old-age,
death and disability.
The Third Circuit’s decision breaks faith with the
nation’s disabled workers and deprives them of the bene-
fit of increases in Social Security payments which they
depend on to maintain their life standard and which
Congress has determined are necessary to cope with the
increasing cost of living. According to the Third Circuit,
16 See, e.g., Califano v. Jobst, 484 U.S. 47 (1977) (termination
of dependent child’s benefits upon his marriage); Califano v.
Webster, 480 U.S. 318 (1977) (gender-based differences in benefit
computation) ; Califano v. Goldfarb, 430 U.S. 199 (1977) (gender-
based differences in defining dependent of deceased wage earner) ;
Mathews v. De Castro, 429 U.S. 181 (1976) (denial of “wife's
insurance benefits” to divorced women); Norton v. Mathews, 427
U.S. 524 (1976) (illegitimate children denied presumption of
dependency); Mathews v. Lucas, 427 U.S. 495 (1976) (same);
Weinberger v. Salfi, 422 U.S. 749 (1975) (duration-of-relationship
requirements of receipt of mother’s or child’s insurance benefits) ;
Weinberger v. Wiesenfeld, 420 U.S. 686 (1975) (gender-based de-
nial of survivor’s benefits to widows) ; Jimenez v. Weinberger, 417
U.S. 628 (1974) (denial of disability insurance benefits to illegit-
imate children born after date of wage earner’s disability) ; Rich-
ardson v. Belcher, 404 U.S. 78 (1971) (reduction in Social Security
benefits to reflect state workmen’s compensation benefits); Flem-
ming v. Nestor, 368 U.S. 608 (1960) (termination of insurance
benefits to aliens upon deportation). See also Califano v. Yamasaki,
442 U.S. 682 (1979) (necessity for oral hearing prior to recoup-
ment in overpayment matters); Mathews v. Eldridge, 424 U.S.
819 (1976) (necessity for evidentiary hearing before termination
of disability insurance benefits); Richardson v. Wright, 405 U.S.
208 (1972) (procedures used in suspending or terminating dis-
ability benefits); Richardson v. Perales, 402 U.S. 389 (1971) (re-
quirement of “substantial evidence” to support denial of benefits).
these increases may effectively be appropriated by dis-
ability insurance carriers to reduce insurance benefits
otherwise payable by them to disabled recipients.
Significant sums are involved. Since 1972, Congress
has repeatedly legislated increases in the level of benefits
due Social Security disability recipients.’ In 1972, bene-
fits were adjusted upward by 20 percent. In 1973,
Congress increased benefits payable in 1974 by 11 per
cent. Further increases have resulted from application
of the formula enacted by Congress to index benefits to
the rising cost of living.
Between 1971 and 1980, the petitioner alone became
entitled to more than $10,000 in increased payments
which were lost to her because of respondent’s practice
of deducting these increases from her insurance proceeds.
The Third Circuit acknowledged the “inequity” of this
shift in economic benefits (App. 12a), but refused to
apply the anti-assignment and transfer provisions of Sec-
on 207 as the instrument for remedying it.
Furthermore, the decision below impairs Congress’ in-
tent in legislating Social Security benefits for the use and
benefit of dependent children of disabled workers. Sec-
tion 202(d)1 of SSA, 42 U.S.C. § 402(d)1, provides that
„el very child... of an individual entitled to... dis-
ability insurance benefits . . shall be entitled to a child’s
17 The legislative history of these measures makes clear Congress’
intent that legislated increases in program benefits go to maintain
the living standard of program beneficiaries against escalations
in the cost of living. See, e. ., H.R. Rep. No. 627, 93rd Cong.,
Ist Sess. 3-5, 23-25 (1973); H.R. Rep. No. 1215, 92nd Cong., 2nd
Sess. 21 (1972); 119 Cong. Rec. 36952 et seg. (1973); 118 Cong.
Rec. 23286 et seq. (1972).
18 Act of July 1, 1972, Pub. L. No. 92-336, 86 Stat. 406.
19 Act of December 31, 1973, Pub. L. No. 93-233, 87 Stat. 948;
Act of July 9, 1973, Pub. L. No. 93-66, 87 Stat. 153.
2 42 U.S.C. § 415(i).
10
insurance benefit.” Implementing regulations provide
that dependent children’s benefits are received “only for
the use and benefit of such [dependent] beneficiary” (20
C. F. R. § 404.1603), and are “to be conserved for the
child, most often to pay for education.” Garvey v.
Worchester Housing Authority, 629 F.2d 691, 692 (1st
Cir. 1980). Under the Third Circuit’s view, however,
the economic benefit of these payments is misdirected to
private insurers.”
In this regard, the decision below conflicts with the
rationale of Johnson v. Harder, 383 F. Supp. 174 (D.
Conn. 1974), affirmed per curiam, 512 F.2d 1188 (2d
Cir.), cert. denied, 423 U.S. 876 (1975). In that case,
state welfare officials relied on a state regulation to
offset against plaintiff’s welfare payments Social Security
benefits received by plaintiff for the “use and benefit” of
her dependent children. The court enjoined enforcement
of the regulation on the ground that the Social Security
Act and regulations prohibited the application of plain-
tiff’s dependent’s benefits to reduce welfare payments to
which she was otherwise entitled. The same reasoning
calls into question the deduction of petitioner’s depend-
ents’ benefits here.
In denying petitioner the benefit of her Social Security
entitlements, the court below echoed the familiar refrain
that if Congress had intended to prohibit the reduction
of Social Security benefits by private disability insurance
carriers, it could have so provided. Actually Congress
did strike the balance in favor of program recipients.
Section 224a of SSA, 42 U.S.C. 424a, carves out an
21 In reaching this result, the Third Circuit misread Garvey,
failing to recognize that the holding in that case represented
only an exception to the general rule prohibiting the deduction of
dependent children benefits from other public and private insurance
benefits payable to permanently disabled persons, which exception
was based on a countervailing federal policy reflected in HUD
regulations covering the same subject matter.
11
exception for the deduction of worker’s compensation
benefits from Social Security disability payments. This
provision was added to SSA in 1965 in order to prevent
“excessive combined benefits.” S. Rep. No. 404, 89th
Cong., Ist Sess. at 100. But workmen’s compensation
awards are the only offset authorized under Section 224a.
Reductions for private disability insurance and even
monetary recoveries in civil tort suits are not permitted—
even though workmen’s compensation programs are also
financed privately and serve precisely the same function
as other forms of disability insurance and tort damage
suits.
The intent of Section 224a is to allow disabled workers,
except those receiving workmen’s compensation benefits,
to realize the combined benefit of what they are due
under Social Security and what they are entitled to under
private disability insurance. Congress may, of course,
find that the distinction it has drawn is undesirable. If
so, it may engraft onto the statute additional exceptions
allowing for the offset of other forms of disability in-
surance. For the present, however, the offset of benefits
accomplished by respondent in this case and sanctioned
by the court below “promises to diminish that portion
of the benefit Congress has said should go to the...
worker alone, and threatens to penalize one whom Con-
gress has sought to protect.” Hisquierdo v. Hisquierdo,
439 U.S. 572, 590 (1979).
B. The Decision of the Third Circuit is Incompatible
With Prior Decisions of This Court
Wholly aside from the importance and novelty of the
questions presented, the decision below merits considera-
tion in this forum because it is incompatible with prior
decisions of this Court interpreting the scope and opera-
tion of 42 U.S.C. § 407 and similar anti-assignment stat-
utes. Section 407 forbids assignment or transfer of
12
future Social Security benefits and the use of legal
process to reach them. The purpose of the provision is
“to protect funds granted by the Congress for the main-
tenance and support of the beneficiaries thereof.” Porter
v. Aetna Casualty & Surety Co., 370 U.S. 159, 162 (1962)
(veterans’ benefits). The prohibition is unqualified and
unambiguous.
In the face of the statute’s absolute prohibition, the
Third Circuit drew a distinction between what it termed
“theoretical” assignments of Social Security benefits
(which are permitted) and actual assignments (which
are forbidden). App. at 7a. This distinction is not found
in the statute and serves only to cloud legislative intent
and to deflect federal policy away from the intended
goal.
The Third Circuit’s interpretation of Section 207 im-
parts to the terms “assignment” and “transfer” a mean-
ing that unduly restricts the statute. Such statutory
terms are to be read in the light of customary under-
standing at the time of enactment unless the contempo-
raneous legislative discussion suggests a special meaning.
St. Paul Fire & Marine Insurance Co. v. Barry, 438 U.S.
531, 545-46 (1978). The terms used in Section 207 were
understood at the time Congress enacted SSA and pre-
clude the diversion of program benefits sanctioned by the
court below.” Indeed, the statute’s purpose of preventing
22 The assignment of petitioner’s Social Security benefits sanc-
tioned below is “equitable” in nature. The express terms of Sec-
tion 207 (“at law or in equity”) prohibit such assignments, which
both the Third Circuit and New Jersey courts have defined as
“the actual or constructive appropriation” of not only . . choses
in action and of contingent interests and expectancies, but ‘also of
things which have no present actual or potential existence, but
rest in mere possibility. EKisenlohr v. Ehrich, 296 F. 816,
819-20 (3d Cir.) (quoting Story’s Equity Jurisprudence), cert.
denied, 265 U.S. 584 (1927); Hackensack Trust Co. v. Ackerman,
47 A.2d 882, 838 (N.J. Eq. 1946) (equitable assignment evidenced
13
dissipation of benefits invites the broadest construction.
And the Third Circuit should not have been misled by
the absence of contemporaneous legislative discussion on
the particular issue, because “if Congress has made a
choice of language which fairly brings a given situation
within a statute, it is unimportant that the particular
application may not have been contemplated by the legis-
lators.” Barr v. United States, 324 U.S. 83, 90 (1945).
This Court recently confirmed the broad construction
to be given Section 207 in Philpott v. Essex County Wel-
fare Board, 409 U.S. 413 (1973). There, the Court found
“(t]he language is all-inclusive,” and the prohibition
“broad enough to include all claimants, including a
State.” Id. at 415, 417. In answering a claim that the
State be allowed to offset local benefits by the amount of
the federal grant, the Court stated:
We see no reason to base an implied exemption from
12107 on that ground. We see no reason why a
state, performing its statutory duty to take care of
the needy, should be in a preferred position as com-
pared with any other creditor. (Id. at 416).
This perspective was reinforced in Hisquierdo v.
Hisquierdo, 439 U.S. 572 (1979), which involved parallel
anti-assignment provisions in the Railroad Retirement
Act, 45 U.S.C. § 231m.” There again, the Court cau-
by “an assignment even though of a future interest, as in after
acquired property); Stokeley Bros. & Co. v. Conklin, 26 A.2d 147,
152 (N. J. Eq. 1942) (“The fund need not be actually in being
if it exists potentially”). See also duPont de-Bie v. Vredenburgh,
490 F.2d 1057, 1060 (4th Cir. 1974); Wolters Village Management
Co. v. Merchants & P. Nat'l Bank, 223 F.2d 793, 798 (5th Cir.
1955) ; Cook v. Commercial Cas. Ins. Co., 160 F.2d 490, 493 (4th
Cir. 1947).
28 In language similar to Section 207 of SSA, 45 U.S.C. § 231m
provides in relevant part:
Notwithstanding any other law of the United States or of
any State, territory or the District of Columbia, no annuity
14
tioned against “discard[ing] the settled view that anti-
assignment statutes have substantive meaning.” Id. at
586. The Court found that these provisions were de-
signed not only to “ensur[e] that the benefits actually
reach the beneficiary,” but also to keep “the vagaries of
state law from disrupting the national scheme, and guar-
ante[e] a national uniformity that enhances the effec-
tiveness of congressional policy.” Id. at 584.
Contrary to this Court’s teaching in Philpott and
Hisquierdo, the decision below places the parochial in-
terests of state contract law above national policy, and
undermines Section 207’s guarantee that program benefits
reach their intended beneficiaries unencumbered by the
claims of third parties. The Third Circuit’s decision also
undermines the goal of national uniformity referred to
in Hisquierdo. At present, in some jurisdictions, state
legislation restricts the deduction of program payments
that disability carriers can make from the insurance
benefits due disabled workers,“ so that disabled recipients
receive the full economic benefit of their Social Security
entitlements. In other jurisdictions, however, the benefit
or supplemental annuity shall be assignable, . . . nor shall the
payment thereof be anticipated.
The two statutes also share the same goal of “‘mak[ing] it
sure that the annuitant gets the pension.“ 439 U.S. at 576 n.7.
Moreover, the Railroad Retirement Act “was amended several times
to make it conform more closely to the existing Social Security
Act.” Id. at 574 n.3. Other similarities between the two statutes
were noted by the Court. Id. at 575 n.6, 584.
* F. g., Cal. Ins. Code § 10127.1 (West Supp. 1981); Conn. Gen.
Stat. Ann. § 38-1741; (Supp. 1980); Ga. Code Ann. § 56-3409b
(Supp. 1980); Hawaii Rev. Stat. f 431-521 (e) (Supp. 1979);
Ill. Ann. Stat. ch. 73, § 967.1 (Smith-Hurd Supp. 1980) ; Md. Code
Ann. art. 48a §§ 240H, 477G (1979); Minn. Stat. Ann. § 62A.18
(Supp. 1981); Pa. Stat. Ann. tit. 40, f 754.1 (Purdon Supp. 1980);
8.D. Comp. Laws Ann. § 58-18-11.1 (1978).
15
of these payments inures to private insurers. The deci-
sion below preserves this patchwork system of distribut-
ing federal benefits.
Finally, the Third Circuit’s holding in this case de-
tracts from this Court’s decisions interpreting analogous
anti-assignment statutes to void, as between private
parties, the voluntary transfer of claims against the
government.“ These cases read the anti-assignment pro-
visions as invalidating such transfers, except where the
government has paid the claim or, for other reasons, is
no longer substantially interested in the matter. Segal v.
Rochelle, supra, 382 U.S. at 384; Martin v. National
Surety Co., supra, 300 U.S. at 594-97. The transfer and
assignment sanctioned in this case involves claims to
benefits which remain periodically payable to petitioner
over time, and which the government pays under a pro-
gram designed expressly to protect petitioner and her
dependents from the hardship entailed by her disability.
In summary, neither the language and policy of SSA,
nor the prior decisions of this Court, support the Third
Circuit’s judgment that private insurers may deduct
Social Security disability benefit increases and dependent
children’s benefits from the proceeds owed to Social Secu-
rity recipients under private disability insurance policies.
This Court should review the decision below in order to
26 Section 207 of SSA is one of a number of federal statutes
that regulate the assignment of federally conferred benefits. E. g.,
16 U.S. C. §590h(g) (conservation benefits); 22 U.S.C. § 1004(c)
(foreign service officer retirement benefits); 31 U.S.C. § 203 (claims
against United States); 35 U.S.C. §261 (patents); 42 U.S.C.
§1473 (farm loans); 45 U.S.C. 5 23im (railroad retirement
benefits). .
20 Segal v. Rochelle, 382 U.S. 875 (1966); Martin v. Nat’l Surety
Co., 300 U.S. 588 (1937); Houston v. Ormes, 252 U.S. 469 (1920);
Nat'l Bank of Commerce v. Downie, 218 U.S. 345 (1910).
16
ensure that the economic benefit of these Social Security
entitlements reaches their intended beneficiaries.*"
27 Seen in context, this petition presents for review the latest
in a related trilogy 6f decisions by the Third Circuit denying pen-
sion and disability insurance benefits to the retired and permanently
disabled. The first two of these decisions, Alessi v. Raybestos-
Manhattan, Inc., 616 F.2d 1288 (8d Cir. 1980), probable juris-
diction noted, No. 79-1948 (U.S. November 8, 1980), affirmed, 49
U.S.L.W. 4508 (1981); Buczynski v. General Motors Corporation,
616 F.2d 1288 (8d Cir. 1980), cert. granted, No. 80-198 (U.S.
November 3, 1980), affirmed, 49 U.S.L.W. 4508 (1981) [hereinafter
cited as “Alessi-Buczynski’’], recently affirmed by this Court, sanc-
tioned under ERISA the practice of private employers in reducing
vested pension benefits owed to retired workers under federally
regulated pension plans by the amount of subsequent workmen’s
compensation awards. Review of the decision below is appropriate
because the Court’s decision in the first two cases in the series
leaves uncertain the legality of the related practice upheld in the
case at bar.
This Court’s analysis in Alessi-Buczynski contrasts with that
used by the Court below to validate the integration of Social Secu-
rity benefits and insurance proceeds. Alessi-Buczynski involved
statutory provisions which neither expressly precluded nor au-
thorized the integration of workmen’s compensation benefits and
vested pension benefits. In interpreting ERISA to validate the
offset of such benefits, the Court had explicit Congressional ap-
proval of the practice of integrating pension benefits and retirees’
collateral sources of income. 49 U.S.L.W. at 4506. The Court also
relied on IRS rulings, which predated passage of ERISA and
which Congress knew permitted the integration of pension benefits
and workmen’s compensation awards. Id. at 4507. The absence
of evidence of legislative intent of the type that governed in
Alessi-Buczynski leaves uncertain the analogous practice of inte-
grating federal and private disability benefits.
17
CONCLUSION
For the foregoing reasons, this Petition for a Writ of
Certiorari should be granted.
Respectfully submitted,
ROBERT H. JAFFE
JAFFE & SCHLESINGER, P. A.
8 Mountain Avenue
Springfield, New Jersey 07081
(201) 467-2246
Attorney for Petitioner
BURTON A. SCHWALB
CHARLES R. DONNENFELD
STEVEN SARFATTI
SCHWALB, DONNENFELD, BRAY
& SILBERT
A Professional Corporation
1888 New Hampshire Avenue, N.W.
Suite 850
Washington, D.C. 20086
(202) 857-0970
Of Counsel
APPENDICES
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 80-1528
ANNELIESE B. LAMB, individually and on behalf
of all other persons similarly situated,
A
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
Argued December 4, 1980
Before: ADAMS, GARTH and SLOVITER, Circuit Judges
(Filed February 23, 1981)
RosBerT H. JAFFE, P. A. (Argued)
Springfield, New Jersey 07081
Attorney for Appellant
RoBERT H. JAFFE
Howarb G. SCHLESINGER
On the Brief
McCarter & English
Newark, New Jersey 07102
EUGENE M. HARING (Argued)
Of Counsel
RICHARD M. EITTREIM
Davin R. Korr
On the Brief
Attorneys for Appellee
2a
OPINION OF THE COURT
ADAMS, Circuit Judge.
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 Gen-
eral 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 dis-
ability 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 off-
set 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, pur-
chased a group long-term disability policy from CGLIC
that covered certain enrolled employees, including Lamb.
The policy provided covered employees who became dis-
abled 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 In-
come Benefits” payable to the disabled employee, includ-
ing Social Security disability benefits, so that the total
of insurance payments and “Other Income Benefits” al-
ways equalled 70% of the employee’s previous monthly
earnings.“
1 The insurance policy between Overlook and CGLIC, and the Cer-
tificate of Insurance received by Lamb, contained the following
pertinent provisions:
[Footnote continued on page 3a]
3a
Lamb became permanently disabled within the mean-
ing of the CGLIC plan in January, 1971. On June 30,
1971 she was found to be eligible for Social Security dis-
ability benefits for both herself and her dependents.
Consequently, CGLIC adjusted her monthly income bene-
fits 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 pre-
vented 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
1 [Continued ]
The amount of Monthly Income otherwise payable for any
monthly period will be reduced by the amount of all Other
Income Benefits .. for the same monthly period.
* * *
Other Income Benefits include:
(1) any periodic cash payments provided on account of em-
ployee’s disability ;
* * *
(b) by the Federal Social Security Act, including benefits
payable to the employee's dependents on account of
the employee’s disability ;
The employer could have selected another plan that did not offset
Social Security benefits in this fashion. Because CGLIC considered
“Other Income Benefits“ in its actuarial calculations, however, the
premium under this other option would have been significantly
higher.
4a
U.S.C. § 407, which interdicts assignment, transfer, ex-
ecution or other legal attachment of future Social Secu-
rity 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 penal-
ties under the Welfare & Pension Plan Disclosure Act
(WPPDA), 29 U.S.C. § 50 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 exer-
cise pendent jurisdiction after disposing of all federal
law claims, the district judge dismissed these counts with-
out 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),? prohibits CGLIC, as a matter of
law, from deducting any increase in Social Security bene-
fits payable to her from the amount paid to her under
the insurance policy.
2 42 U.S.C. § 407, reads, in pertinent part:
The right of any person to any future social security pay-
ment... shall not be transferable or assignable, at law or in
equity, and none of the moneys paid or payable or rights
existing under this title shall be subject to execution, levy,
attachment, garnishment, or other legal process, or to the
operation of any bankruptcy or insolvency law.
(Emphasis added).
5a
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 recipi-
ent’s initial Social Security benefits. Both state and fed-
eral law supports the validity of frozen offsets. See Hurd
v. Illinois Bell Telephone Co., 136 F. Supp. 125, 142
(N.D. III. 1955), aff'd, 234 F.2d 942 (7th Cir. 1956),
cert. denied, 352 U.S. 918 (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. 492,
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. Buczyinski v. General Motors Corp., 616 F.2d
1238 (3d Cir. 1980), cert. granted, 49 U.S.L.W. 3322
(Nov. 4, 1980) (No. 80-193). In Buczyinski, we held
that anti-forfeiture language in ERISA, 29 U.S.C.
§ 1058(a), did not prohibit offsetting against pension
benefits the amount of a pensioner received under a New
Jersey Workers Compensation statute.
Having conceded the validity of a frozen offset, how-
ever, Lamb maintains that an “unfrozen” offset, which
decreases insurance payments as Social Security benefits
are increased, violates the prohibition against assign-
ment 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
(1973) and Hisquierdo v. Hisquierdo, 439 U.S. 572
(1979), cited by appellant, do not support her argu-
ment. Both cases involved the transfer of Social Security
payments to a third person through legal process. Here,
6a
Lamb’s legal right to receive her Social Security pay-
ments 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 re-
ceive from the Social Security program alone. Thus,
neither Philpott nor Hisquierdo control the question of
the validity, under sections 402 and 407, of an unfrozen
offset.
In recent years, there have been a number of state and
federal legislative determinations to prohibit unfrozen
offsets under various benefit programs, because such off-
sets deprive insured individuals of any real benefit from
the cost of living increases in Social Security mandated
by Congress. For example, unfrozen offsets against
qualified pension plans are forbidden under ERISA, see
26 U.S.C. § 401(a) (15), as well as under the Railroad
Retirement Act, see 29 U.S.C. 5 1056 (b). In addition,
many states have adopted statutes or regulations dealing
with the integration of Social Security benefits and health
and accident policies that pay disability benefits.“ New
Jersey, however, has not yet prohibited unfrozen offsets.
Congress, in 1978, considered 8.3017, which would
have prohibited unfrozen offsets of Social Security bene-
fits. Congress has not yet passed the bill, however, and,
in the absence of a legislative mandate to the contrary,
it does not appear that an unfrozen offset violates the
letter or spirit of the Social Security Act.
This conclusion is supported by Hurd v. Illinois Bell
Telephone Co., 136 F. Supp. 125 (N. D. III. 1955) aff'd
224 F. 2d 942 (7th Cir. 1956). In Hurd, the employer
offset one-half of a worker's federal old-age insurance
benefits against the amount of pensions paid to retired
See Dist. Ct. Op., Appendix B; App. at 637a for a compilation
of the statutes and regulations of some jurisdictions.
7a
employees. The effect of this unfrozen offset arrange-
ment was that while the total benefits received from
both Social Security and the pension inereased with any
Social Security benefit increase, a participant realized
the benefit of only one-half of the federal increase. The
district court concluded that the shift in the economic
benefit of a Social Security increase from the recipient to
the company did not constitute a “transfer” prohibited
by § 407 of the Act. Reasoning that § 407 was directed at
traditional types of assignments, whereby a recipient re-
linquished a portion of the federal benefits, the court
found the fact that the workers received their full Social
Security allotment to be dispositive. As the district court
noted, § 407 “was never intended to freeze a worker’s
private pension at a particular level. It was concerned
only with guaranteeing that the worker would actually
receive for his own use the amount due him under
the Social Security Act.” 136 F. Supp. at 142. Finally,
the court cited legislative history which indicated that
Congress anticipated that private companies would in-
tegrate Social Security benefits with the amounts paid
under private insurance programs.
The reasoning of the district court in Hurd appears
to have considerable force. Here, the fact is that Lamb
receives her full entitlement from the Social Security
program. She has not transferred any portion of her
federal benefits to the insurance company. Since § 407
does not address itself to the level of benefits that a pri-
vate insurance program must pay to augment federal
programs, we cannot say that the CGLIC insurance con-
tract runs afoul of the anti-transfer provision of the
Social Security Act.
Although it may appear inequitable that CGLIC is,
in a theoretical sense, receiving the benefit of cost-of-
living increases under the Social Security Act by dimin-
ishing the amounts it pays, Congress, rather than the
8a
courts, should attend to this problem. Lamb may also
seek to attack the harsh affect of the insurance contract
by asserting state law claims founded on misrepresenta-
tion or unconscionability of the contract. Federal law,
however, currently does not prohibit unfrozen offsets
against Social Security benefits that do not impact the
level of funds the insured receives from the federal
government.
III
The insurance policy offsets not only Lamb’s own
Social Security benefits, but also the Social Security
benefits she receives for the support of her dependents.
Lamb argues that this latter provision violates the policy
underlying the section of Social Security Act providing
disability benefits to dependent children, 42 U.S.C.
§ 402 (d) (1).*
To support her position, Lamb relies primarily upon
Coughlin v. CGLIC, 330 A.2d 159 (Del. Super. 1974).
In Coughlin, the court held, as a matter of state law, that
the language of the disability insurance policy did not
require the offset of payments made to the plaintiff’s
children against the benefits payable to plaintiffs under
the policy. Because Coughlin did not involve federal law,
however, it has no bearing on Lamb’s argument, which
is predicated on the Social Security Act.
The district court held that the offset of payments
received by Lamb’s dependents on accounts of her dis-
ability does not transgress the policy undergirding the
Social Security Act, 42 U.S.C. § 402. There is nothing
in § 402 (d) (1) to suggest that it prevents an employer
from bargaining for an insurance contract to cover its
employees that offsets Social Security benefits received
4 42 U.S.C. f 402(d) (1) provides, in part:
Every child . . of an individual entitled to. . disability in-
surance benefits . shall be entitled to a child’s insurance
benefit.
9a
for the support of dependents against the disability pay-
ments to be made under the policy. Similar to § 407,
§ 402(d) (1) is not addressed to the level of payment
that must be maintained by a private insurance company.
Thus, we cannot disagree with the conclusion of the dis-
trict court.
Support for the conclusion reached by the district court
may be found in Dowell v. Aetna Life Insurance Co.,
468 F.2d 802 (4th Cir. 1972), cert. denied, 410 US.
931 (1973), as well as in the recent decision of the First
Circuit in Garvey v. Worchester Housing Authority, 629
F.2d 691 (1st Cir. 1980). In Dowell, the court upheld
the validity of a contract offsetting Social Security dis-
ability benefits made to the plaintiff’s wife and children
against contractual disability insurance benefits paid to
the plaintiff. 468 F.2d at 804-05. In Garvey, a nation-
wide class of residents of public housing sought declara-
tory and injunctive relief to prevent the Department of
Housing and Urban Development from considering the
Social Security benefits of minors as family income, for
the purpose of computing rent levels for such public hous-
ing. The court affirmed the validity of HUD’s practice
of including minors’ benefits when computing family in-
come. These cases demonstrate that total family income,
including dependents’ Social Security allotments, rather
than just individual income, may be considered when
calculating benefit levels under public or private support
programs.
For the foregoing reasons, we find that the terms of
the Social Security Act prohibit neither of the offsets au-
thorized by the CGLIC group disability plan. Although
the Social Security Act as is now stands mandates this
conclusion, the result appears somewhat incompatible
with the overall intent of Congress in voting to augment
the level of benefits. The purpose behind these cost of
living increases is to alleviate the harsh impact of infla-
tion on the elderly and the disabled. Yet, by virtue of the
10a
CGLIC policy, Lamb’s income has remained fixed de-
spite a dramatic rise in the cost of living since 1971.
Lamb’s predicament evokes sympathy. But courts
are constrained to apply the law as adopted by the legis-
lature, within the limits set by the Constitution, and
Congress has not yet acted to ban unfrozen offsets of so-
cial security benefits. It is the province of Congress,
rather than the courts, to change existing law when so-
cial or economic conditions demand adaptation. Accord-
ingly, we can only urge Congress to devote prompt
attention to the unfortunate impact on disabled Social
Security recipients of insurance arrangements such as
the CGLIC disability plan.
The judgment of the district court will be affirmed.
A True Copy:
Teste:
Clerk of the United States
Court of Appeals
for the Third Circuit
lla
APPENDIX B
Opinion Filed March 4, 1980
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Civil 77-1290
ANNELIESE B. LAMB,
vs.
CONNECTICUT GENERAL LIFE INSURANCE Co.,
Defendant.
Plaintiff,
Appearances:
Hebert H. Jaffe, Esq.
(Springfield) for plaintiff
Eugene M. Haring, Esq.
(McCarter & English, Esqs., Newark) for defendant
OPINION
BIUNNO, District Judge.
This case comes before the court on defendant’s motion
for summary judgment addressed to the Amended Com-
plaint, and plaintiff’s cross-motion for partial summary
judgment in her favor on the Third Count of the
Amended Complaint. For reasons to be stated, defend-
ant’s motion will be granted in part, i.e., insofar as the
Amended Complaint attempts to advance federal claims
(to be described) ; and as to any subsumed State claims,
the remainder of the Amended Complaint will be dis-
missed for lack of jurisdiction under F.R.Civ.P.12(h) (3)
on the court’s own motion. Plaintiff’s cross-motion for
partial summary judgment on Count 3 will be denied.’
1The judgment in favor of defendant is on the merits of its
motion and is with prejudice. The dismissal of the State law
claims is for lack of jurisdiction, is not on the merits, and plain-
tiff is free to press such claims in any State court of competent
12a
The nature of the claim, as well as the applicable law,
requires a review of the factual background and the
steps taken in the case.
It appears not to be in dispute that plaintiff Lamb
was employed as a dietician at Overlook Hospital in New
Jersey at a time when Overlook negotiated with Con-
necticut General Life Insurance Co. (CGLIC) a proposed
group policy to provide benefits for long-term disability
to those employees who wished to participate.“ Overlook
distributed literature about the proposal to its employees,
and meetings were held at which Overlook personnel ex-
plained the proposal. Each employee was also provided
jurisdiction. Since nothing remains to be decided here, the judg-
ment is final.
In neither the original nor the amended complaint is there a
claim of diversity jurisdiction, although pendent jurisdiction is
asserted. There being no basis for any federal claim, the court
exercises its discretion to dismiss the pendent state claims.
2The discovery record shows without dispute that Overlook,
through an insurance broker, negotiated with CGLIC to resolve
the selection of various types of coverage, benefits and terms of
the group policy. Overlook then proposed the arrangement to the
employees in the group, who numbered 93, and of which 70 de-
cided to participate. No evidence was adduced to show that
CGLIC ever dealt with any Overlook participant before the policy
was written. The majority rule is that the group policyholder
acts for itself and on behalf of the members of the group; it is
not the agent of the insurance carrier. New Jersey adheres to
the majority rule. Mariotti v. Metropolitan, ete., (22 N. J. L.
360 (E & A, 1939); Boseman v. CGLIC, 301 U.S. 196 (1937).
See, also, Keane v. Aetna Life Ins. Co., 22 N. J. Super. 296
(App., 1952) where suit was against both the insurer and the
employer, the latter having failed to pay premiums and to notify
the employee of the termination of coverage or of a potential right
to convert his group coverage to individual. Because of certain
fact issues, a summary judgment below was set aside and no later
report indicates the final outcome.
See, also, New Jersey State Bar Examination, February 28,
1980, Question 3.
13a
with a sheet indicating the premium contribution and the
level of benefits as calculated at that time, and each em-
ployee was provided with a form on which to indicate the
desire to participate. Lamb, and enough other employees
having indicated a desire to participate, the group policy
was written by CGLIC and issued to Overlook, while
certificates of coverage were issued to participating
employees.“
Thereafter, and while covered, Lamb became disabled
as defined by the contract, and applied for benefits, which
were approved after the conti vet waiting period.
In this same period, it appears that Lamb also ap-
plied for disability benefits under the Social Security Act
and that she was found to have an impairment qualifying
as a “disability” as defined by law, and the statutory
benefits were granted.“
The CGLIC contract expressly provided for an “offset”
for benefits from collateral sources. The amount of the
monthly income benefits begins as 70% of the employee’s
monthly “Basic Earnings” (i. e., the rate of pay excluding
overtime, bonus or additional compensation based on the
normal work week of not more than 40 hours), subject
to a ceiling of $1,500. per month in benefits. The monthly
The record shows, including discussion at argument of the
motions, that the certificate was as explicit as the master policy
in the respects at issue.
*No record was made of the certificate of award of Social
Security disability benefits, or of agency notices to remove a de-
pendent child who became disqualified by age, or other like changes.
However, none of these data are disputed. After the waiting pe-
riod on the claim, the first check sent on June 15, 1971 was for a
lump sum going back to the first date when payment was due,
and the accompanying letter made clear that this would be adjusted
when the exact amounts of the offset were known. Additional pay-
ment was sent June .80, 1971, to adjust, and then monthly
thereafter.
14a
income benefits are adjusted, this being a reduction by
the amount of “Other Income Benefits”, a defined term,
except that in any event minimum benefits of $50. per
month will be paid regardless of the offset otherwise
applicable.
“Other Income Benefits” is defined as including any
periodic cash payments “provided on account of the em-
ployee’s disability”, under five specific subdivisions, as
well as payments of Federal Old Age Benefits provided
under the Federal Social Security Act. [emphasis added]
The five categories of collateral source payments pro-
vided on account of the employee’s disability are:
(a) under any group insurance coverage;
(b) by the Federal Social Security Act, including
benefits payable to the insured’s dependents on ac-
count of the employee’s disability;
(c) by any state or federal government disability
or retirement plan;
(d) under any pension plan with respect to which
the employer contributes or makes payroll deduc-
tions;
(e) under or on account of any workmen’s com-
pensation or similar law;
any one or more of which became payable on or after
the commencement of the disability for which the
This offset is limited to federal disability benefits paid to
dependents on account of” the disability of the covered individual.
While the statutory provisions are quite complex, it is clear that
certain dependents may be entitled to disability benefits due to
their own disability through the social security coverage of the
worker. Among these there is provision for such benefits to an
unmarried child, 18 or over, who was severely disabled before
age 22 and who continues to be disabled. The record is clear
that no benefits “on account of” a dependent child’s own dis-
ability is involved here.
15a
“Monthly Income” benefit is provided under the group
policy.
Lamb’s benefits under the group policy, calculated at
70% of her “basic earnings”, were adjusted by deducting
the amount provided each month by the Social Security
Administration as primary benefits and as dependent’s
benefits, on account of Lamb’s disability, and there is no
dispute that CGLIC has regularly paid, and is paying,
the difference. Also, from time to time, the Congress has
increased these benefits payable on account of Lamb’s
disability, and the adjustment has been made by a reduc-
tion or offset against the 70% level by the increased
amounts so provided by that collateral source.
The court notes, in passing, that so far as the group
policy is concerned, the point will sooner or later be
reached, as to each dependent child, when federal benefits
will be reduced. As that occurs, the amount of the offset
will be reduced and the net or adjusted monthly amount
payable by CGLIC will inerease.“
Also, it is noted in passing that under explicit provi-
sion of the Social Security Act, the Congress reserved
authority to reduce or eliminate benefits, and may Wr
the entire Act."
Judicial notice is also taken that in the current session,
both Houses have passed a bill that, if enacted, would
* Exhibit P-9 marked at Lamb’s deposition de bene esse of
December 12, 1978, indicates that the dependent child “Chris”
was terminated by Social Security in March, 1976. While no list
of names or ages was provided, the other children either have
been or will be terminated by Social Security as they reach age
18 (or age 22 if full time students) and the CGLIC payment will
increase accordingly.
7 See 42 U.S.C. § 1804, referred to by the Supreme Court in
Hisquierdo, ootnote 6. It expressed the same view as to the
Railroad Retirement Act.
16a
reduce the amounts payable as disability benefits under
the Social Security Act to eligible claimants who become
disabled hereafter. Senate amendments differ from the
House bill, and it will need to go to conference. What,
if anything, will be passed and enacted is naturally un-
predictable at this time. See H.R. 3236 and legislative
history thereof.
In any event, the claim is cast in several forms, each
of which is aimed at the offset or integration provision
in the group policy: *
1. no offset for disability benefits may be made be-
cause of a provision in the Social Security Act fore-
closing assignments, executions, and the like;
2. benefits provided as dependency benefits may not
be offset because they belong to the dependents and
not to Lamb;
8. increases in benefits to provide cost-of-living ad-
justments may not be offset because to do so would
defeat the Congressional intent to moderate the im-
pact of inflation.
The original complaint as filed claimed jurisdiction
for the First Count under 28 USC § 1337 (civil actions
arising under any Act of Congress regulating commerce)
or 28 USC § 1331 (federal question). The federal ques-
tions were said to arise under the Social Security Act, 42
USC § 301, et seq., and under the Welfare and Pension
Plan Disclosure Act of 1958, 29 USC § 301, et seq. The
claim asserted was one of conversion and unjust enrich-
At the argument of the motions, plaintiff recognized that there
was no bar to offset, at least as to federal law, so long as the offset
were “frozen”. Thus, the real issue narrows down to offsets of
social security increases. See Tr. 2/26/79 (filed, 4/16/79), p. 38
1.283 to p. 40, 1.11. However, the opinion reviews all three theories
or claims.
17a
ment by reason of deducting, from the contract benefit
amount as initially integrated with Social Security dis-
ability benefits at the level then established, later in-
creases in those Social Security disability benefits.
Jurisdiction was also asserted for the Second Count
under ERISA, 29 USC § 1182, as a civil action by a
participant or beneficiary against an administrator or
fiduciary of an employee welfare benefit plan when in-
junctive relief is sought in addition to the monetary claim
for benefits. This count was advanced on the theory that
if full integration with social security—as contrasted
with “frozen” integration—was allowable initially, then
when ERISA was enacted September 2, 1974, the offset
became “frozen” at the level then existing, and later in-
creases could not be integrated or offset.
The original complaint was the subject of a motion for
summary judgment which was granted in favor of de-
fendant and against plaintiff on a showing that both the
group policy and certificate, which dated back to late
1969, contained clear and express language for full inte-
gration with Social Security on an “unfrozen” basis, i.e.,
that the contract provided for payment of excess over
and above whatever the Social Security disability benefits
amounted to, up to a combined total equal to 70% of
basic earnings when Lamb became eligible for policy
benefits, and that no public policy was contravened there-
by. There was also an undisputed showing that the group
insurance policy was terminated in early 1972, more than
two years before ERISA was enacted, and that ERISA
had no application to the case.“
The premium rate was raised in 1971, after the disabling event
to Lamb, and Overlook chose to cancel the policy as of January 9,
1972, after Lamb was in payee status. See Tr. 2/26/79, p.33,
1.8 to 17; Exh. D-1 at Lamb deposition of 12/12/78. The record is
silent on the question whether Overlook replaced the terminated
policy with another one, as a means for providing benefits under
18a
The motion for summary judgment was granted with
leave to file an amended complaint, and in due course
that was done. A motion for summary judgment directed
to the entire amended complaint was filed by defendant,
and a cross-motion for summary judgment on the Third
Count of the Amended Complaint was filed by plaintiff.
One of the issues argued on these motions was whether
the ruling on the original complaint is res judicata on
the amended complaint. Because the court is of the
opinion that the motions are best addressed afresh, with-
out confining its analysis and ruling in any way, the res
judicata j ct is not dealt with here.
A careful analysis of all the claims asserted, and all
the undisputed facts gathered and presented through dis-
covery and by affidavit, shows that there is no federal
claim of any kind, and that if there be any claim at all,
it is a state claim over which this court has no jurisdic-
tion. Thus, the disposition on the pending motions is that
summary judgment will be entered in favor of defendant
and against plaintiff on all claims grounded on federal
law, and insofar as any claim is asserted under state law,
the complaint will be dismissed for lack of jurisdiction.
This disposition leaves plaintiff free to advance whatever
state law claim she may have in a state court of com-
petent jurisdiction since the ruling on this aspect of the
case is not on the merits.
Two aspects of federal law on which the claim is
grounded are clearly inapplicable. These are discussed
separately.
its “Plan”. The point is not significant, however, because Lamb
was already in payee status when the policy was terminated, and
at that time ERISA had not been enacted. Whether or not ERISA
governs any later “Plan” of Overlook is irrelevant to Lamb’s
claims here.
19a
The first involves the Welfare and Pension Plans Dis-
closure Act, enacted August 28, 1958 and amended
March 20, 1962 (WPPDA), 29 USC § 301-309. This law
was repealed by The Employee Retirement Security Act
(ERISA), enacted September 2, 1974, in the following
language:
“The Welfare and Pension Plans Disclosure Act is
repealed except that such Act shall continue to apply
to any conduct and events which occurred before the
effective date of this part.” ERISA, Title I, Subtitle
B, Part I, § 111 (a) (1), 29 USC § 1031 (a) (1); and
the effective date of “this part“ was January 1,
1975, 29 USC § 1031 (b) (1).
The Disclosure Act (WPPDA), was just that and no
more. It was not a regulatory statute but a disclosure
statute, and by design endeavored to leave regulatory
responsibility to the States. Neither it nor any other
combination of federal laws preempted employee welfare
or pension plans. See, Malone v. White Motor Corp., 435
US. 497 (1978).
As is well-known, with the anticipated enactment of
ERISA, many employee welfare and pension plans were
terminated and new ones put in force, or the earlier
plans were amended, to comply with ERISA. The Minne-
sota statute involved in Malone was eventually ruled in-
valid as violating the Contract Clause, U.S. Const. Art. I.,
sec. 10, cl. 1, White v. Malone, 599 F.2d 283 (CA 8,
10 There are special provisions for a different effective date
depending on factors not applicable here, none of which would
reach back to 1972 when the policy was cancelled, or to 1971 when
Lamb went on payee status, nor beyond December 31, 1974. As
discussed later, the Overlook “plan”, for which the CGLIC policy
was obtained to provide disability benefits, was never covered by
WPPDA at all, thus making the extension provision entirely
inapplicable.
1979) as the result of the decision in Allied, etc. v.
Spannus, 438 U.S.234 (1978).
The only private civil claim created by WPPDA is
found in 29 USC § 308 (b) and (e). These provisions
subject the administrator of a plan who fails or refuses
to make publication of a description of the plan or an
annual report, within 30 days of a request therefor by a
participant or beneficiary of the plan, to possible liability
in the amount of $50. a day from the date of the failure
or refusal. The requesting person may sue in any court
of competent jurisdiction. The administrator may be
liable in that amount “in the court’s discretion”, and the
court may also allow a reasonable attorney’s fee in its
discretion. Such a claim was regarded as a claim for
compensation, and not for a forfeiture, fine or penalty, in
Hales v. Winn-Dixie Stores, 500 F.2d 836 (CA 4, 1974).
The compensation, allowance of which is discretionary, is
for failure or refusal to disclose and has no relation to
a claim for benefits, which is what is involved here.
The second obstacle to any reliance on WPPDA is that
the administrator“ of the plan involved was Overlook
Hospital, the employer, not CGLIC, the insurer issuing
the policy to the employer as the method for providing
the benefits. This is clear from the facts not in dispute,
which show that the employer, Overlook, applied for the
group policy, and presented to its own employees the
opportunity to participate. The policy was issued to
Overlook. Overlook, as the employer, gathered the em-
ployees’ contributions by payroll deduction, added its own
contribution, and remitted the premiums to CGLIC.
Under the statutory definition, Overlook was both the
“employer” (29 USC § 302(4)) and the “administrator”
(29 USC § 304 (b)). It was responsible for the ultimate
control, disposition or management of the money received
or contributed, to wit, the employee payroll deductions
and its own contribution, the total of which it was obliged
21a
to remit as premiums paid to CGLIC. See Wirtz v. Gulf
Oil Corp., 239 F.2d 483 (D. Pa., 1965); Hales v. Winn-
Diæie Stores, 500 F. 2d 836 (CA 4, 1974).
The third and ultimately fatal obstacle to a elaim of
any kind under WPPDA is that although Overlook’s plan
or program to provide a disability benefits arrangement
to its employees, is an “employee welfare benefit plan”,
as defined by 29 USC § 302(1), the coverage section, 29
USC § 303 (a), expressly excludes from WPPDA an em-
ployee welfare benefit plan if
“such plan is administered by . . . organizations de-
scribed in section Is] 501 (e) (3). . . of [the In-
ternal Revenue] Code [of 1954]”. 29 USC § 303 (b)
(3).
A stipulation furnished by the parties establishes that
Overlook Hospital was a section 501 (e) (3) organization
and its name continues to appear in the “Cumulative
List“, issued by the Internal Revenue Service. Thus, this
employee welfare benefit plan was never covered by
WPPDA, that law never applied to it, and its continuance
in force as to any conduct and events occurring before
the effective date of Title I, Subtitle B, Part I of ERISA,
has no application whatever to this case.
So far as ERISA itself is concerned, its enactment was
on September 2, 1974, by which time the group policy in
this case had long been terminated, Lamb was no longer
an employee of Overlook and so does not come within
either ERISA or any later plan which may have been
put into effect by Overlook after the termination of the
CGLIC group policy.
It must be realized that policies of “group” insurance
are written for many kinds of groups other than those
coming within an employee welfare benefit plan, or an
employee pension benefit plan, whether under WPPDA
or ERISA. Employees of an employer, or employees
22a
who are members of an employee organization (such
as a labor union) are but one of many kinds of “groups”.
Commonly, these groups are composed of persons who
are members of some kind of organization without any
relation to employee status. There are associations of
retired persons. Their members are groups. There are
holders of all kinds of credit cards. Such holders are
groups. There are borrowers on mortgage or personal
loans. Such borrowers, in respect to their common lend-
ing institutions, are groups. There are trade associa-
tions. Their members are groups. There are professional
organizations, national, state, regional and local. Their
members are groups.
All of these groups may negotiate group policies of
all kinds with one or another insurer and offer participa-
tion to the members of the group. Throughout any year
there is hardly a member of any “group” who does not
receive in the mail some kind of application for group
insurance, whether it be life, accident and health, dis-
ability, travel, hospital and medical, or the like.
None of these forms of group insurance as such, of
whatever kind, have any relation to WPPDA or ERISA.
They represent a method for providing insurance which,
in many cases, can be obtained at rates below those for
individual policies. This is not always the case because
in some instances, where experience rating is applied
to the group, the group premium for a member may be
higher than it would be for an individual policy. This
occurs most commonly with hospital, medical or dental
plans, and least of all with group life, based on what is
generally known.”
11 Another valuable feature of group insurance offerings, re-
gardless of the kind of coverage or risk, is that much or all of
the applicant’s relevant prior history is usually waived, thus
making the applicant eligible in cases where he might not be
for an individual policy. The degree of waiver will usually vary
with the size of the population considered for underwriting pur-
poses, and with the size and characteristics of the group.
23a
The group policy written by CGLIC to Overlook for
the benefit of those of its employees who chose to partic-
ipate, is of the same kind as the countless other group
insurance policies written over the years which are not
within the scope of WPPDA or ERISA, both of which
cover only those plans defined by statute, some of which
may have a group insurance policy of some kind as a
method for providing the benefits called for by the plan.
It is worth noting, too, that welfare benefit plans and
pension benefit plans are separately defined by WPPDA
and carry different requirements.
A “welfare benefit plan” is one established to provide
medical, surgical, hospital care or benefits, or benefits
in the event of sickness, accident, disability, death or
unemployment. 29 USC § 302 (1).
A “pension benefit plan”, on the other hand, is one
established to provide retirement benefits, including a
profit-sharing plan which provides benefits at or after
retirement.
Either kind of plan may provide the benefits through
the purchase of insurance or otherwise. A pension plan
may also provide benefits through the purchase of an
annuity. The statute says so.
The disability group policy involved here would be a
method of providing welfare benefits if the plan estab-
lished by Overlook were covered by WPPDA. For a
“welfare benefit” plan, if it were covered, Overlook
would be obliged to publish (1) a description of the
12 The variety of “plans” is very broad. Aside from WPPDA's
initial division into “welfare” or “pension” plans, which merely
recognized historical development (and which is continued under
ERISA), there are many other variations. Some of these are
discussed in the legislative history of WPPDA cited in Appendix
A, as well as the countless arrangements for groups not within
either WPPDA or ERISA.
24a
plan, and (2) an annual financial report. 29 USC §§ 304
(a); 305; 306; 307. Where benefits for a plan are pro-
vided by an insurance carrier, or by a service or other
organization, the information to be supplied in the an-
nual report of the administrator differs, depending on
whether the plan is a “welfare” or a “pension” plan.“
For a welfare plan, the annual report is to include
the information specified by 29 USC § 306 (d). For a
pension plan, the information in the annual report is
specified by 29 USC § 306 (d) (2). The detail required
for pension plans includes actuarial assumptions, while
that for welfare plans does not.
This distinction is noted because much is made in the
pleadings, discovery and argument about actuarial as-
sumptions underlying the premium, but even if there
were a plan covered by WPPDA, which there is not, that
information is not called for in the case of a welfare
plan, but only for a pension plan. Having employed the
term in another subdivision of the same section, Con-
gress can hardly be assumed to have intended that it
apply to both kinds of plan.
So far as the Amended Complaint is concerned, it
claims jurisdiction under 28 USC § 1887 (civil actions
arising out of any Act regulating commerce), by virtue
of alleged violation of WPPDA and ERISA. Jurisdiction
is also claimed by virtue of the Federal Declaratory
Judgments Act, 28 USC §§ 2201 and 2202 and F. R. Civ.
P.57, but it has long been settled that these are not
18 Various amendments and supplements to WPPDA were made
in 1962. One of these was to require bonding of the “administra-
tor” etc. of the “plan”. 29 USC § 808d. Also, 18 USC § 1954 was
added. The record is silent on the question whether Overlook com-
plied with the bonding requirement or obtained an exemption from
the Secretary of Labor. Of course, if the “plan” was not covered
by WPPDA, these requirements would not apply.
25a
jurisdictional statutes or rules. Pendent jurisdiction is
also claimed, if appropriate.“
As in the case of the original complaint, a copy of
the amended complaint was served on the Secretary of
Labor and the Secretary of the Treasury under § 502 (h)
of ERISA, 29 USC § 1182(h) but neither has intervened.
The first count of the Amended Complaint, although
alleging fraud and concealment on the part of CGLIC
on the theory that materials distributed by Overlook to
describe the principal terms of the proposed group cover-
age (added to existing life insurance, pension and an-
nuity programs, major medical and Blue Cross/Blue
Shield coverage) did not spell out that the deductions
from integration with other sources specified would in-
clude the totals received therefrom including any future
increases. Since a system of full integration contravenes
no federal law, this count is a state law claim.”
The second count asserts the same claim on the as-
sumption that if there was no malicious, fraudulent,
wilful and deliberate course of conduct or scheme, then
the alleged statements and omissions constitute the tort
of negligent misrepresentation. This, too, is a state law
claim.
The third count focuses on the deductions of allowances
under Social Security for Lamb’s dependents on account
The amended complaint is permeated with allegations of “prin-
ciples of federal common law.” So far as the State law claims
are concerned, a federal common law was developed on the basis
of Swift v. Tyson, 41 U.S. 1 (1842) but that era ended with
Erie R. v. Tompkins, 304 U.S. 64 (1987).
1% Where the Internal Revenue Code is not complied with, there
may be federal tax consequences, of course. But those conse-
quences do not influence the private claims asserted here and can-
not change the policy terms. See, e. g., Rothlein v. Armour & Co.,
377 F. Supp. 506, at p. 512, item [10].
26a
of her disability. It is neither alleged nor suggested
that any dependent of Lamb is himself or herself dis-
abled within the meaning of the Act so as to be entitled
to benefits, through Lamb’s status as a covered person,
for the dependent’s own disability.“
On this count, the claim is that by 42 USC § 402(d)
(1) the dependent benefits belong to the dependents
(though paid to Lamb) and may not be assigned by
Lamb. This claim involves a federal issue to that
extent.
The fourth count focuses on the theory that 42 USC
§ 407 forbids transfer or assignment of any “future
payments”, as well as executing any levy, attachment,
garnishment or other legal process, etc., as to any
amounts payable. This provision is said to allow integra-
tion by deducting primary benefits of Lamb's (but not
dependency benefits) in the amount of the benefits to
which Lamb was entitled after the contractual 6-month
waiting period, but not to allow integration of increases
thereafter granted under So¢ial Security. The ensuing
allegations assert that this bar is a matter of public
policy under WPPDA and ERISA, and to that extent
involves a federal issue, though it is intermingled with
plainly state law claims.
The fifth count asserts a claim of $100 per day for
the alleged failure of CGLIC to furnish information,
allegedly required to be furnished by it under WPPDA,
29 USC § 306 (d), and under ERISA, 29 USC § 1023 (e),
the request having been made September 1, 1977. The
claim is said to be authorized to be brought in this
court under both statutes, 29 USC § 306 (b) and (e)
(WPPDA) and §1182(c) and (e) (ERISA), against
the “administrator” of a plan governed by those
statutes. The $100 per day rate, it is observed, is set by
10 See footnote 5, supra.
27a
ERISA, but was $50. per day under WPPDA. It is
further claimed that 29 USC § 308 b (WPPDA) re-
quired the administrator to retain specified records for
not less than 5 years, and that by 29 USC § 1027
(ERISA) this period was enlarged to 6 years. The
information sought was the computer program employed
in 1969 to calculate the premium on this group policy,
and CGLIC replied that it had been destroyed. This, too,
is a federal issue. *
All five counts of the Amended Complaint are as-
serted not only on behalf of Lamb, but also on behalf
of all others similarly situated.
The putative class (par. 32 of the first count) is
identified as:
“All persons since October, 1969 who are now or
have been beneficiaries of the CGLIC Group Dis-
ability Plan sold by defendant CGLIC through em-
ployers or employee organizations and represented
to provide long-term disability benefits in lieu of or
as supplemental to employee welfare benefit plans
and who after having been disabled and therefore
qualified to receive monthly income benefits under
said Plan, have had such benefits reduced by the
amount of increases in social security disability
benefits payable to them and their dependents pur-
suant to amendments to or administrative action
under the Federal Social Security Act for the pur-
pose of offsetting cost of living increases.”
It is alleged that there are some 10,000 persons now
in payee status under one or another CGLIC group
disability policy, and that there were 12,000 persons in
such status after September, 1972, who have since been
17 At argument, it was recognized that the Fifth Count could
stand since Overlook, not CGLIC, was the “administrator”
the “plan”. See Tr. 2/26/79, p.54, 1.19 to p.56, 1.17.
2
28a
terminated due to death, reaching the age of 65 or for
other reasons.
In view of the disposition here that Lamb has no
federal claim, and that there is no jurisdiction here over
whatever State Law claims she may have, there is no
need to deal with the class action aspect.”
As noted above, the attempt to state federal claims
depends on the applicability of the Social Security Act,
WPPDA or ERISA, or several of them.
The section of the Social Security Act relied on, 42
USC §407, does not apply. That section does two
things:
18 Lamb has no claim cognizable here, and so has no standing to
represent some kind of class similarly situated. Sosna v. Iowa,
419 U.S. 393 (1975); Kaufman v. Dreyfuss Fund, 434 F.2d 727,
at p.784 (CA 8, 1970), cert. den., 407 U.S. 974 (1971).
Beyond that, Lamb has made no attempt to define a rational
class. At argument, reference was made to data about all lines of
CGLIC group policies, regardless of similarity or difference. See
Tr., 2/26/79, p.7,1.16 to p.9,1.20. As shown by Appendix B, some
States have regulated the subject, but most have not. Should the
class be limited to New Jersey policies? Also, Lamb was an em-
ployee of an employer whose plan was not covered by WPPDA;
should this be another parameter of the class? The master policy
was terminated in early 1972; should this be another condition?
These and other features make it unrealistic to think of a putative
class as large as Lamb defines it. The implication is that Lamb
wants to reach out and define a class not “similarly situated”,
but so broad as to convert a judicial proceeding to adjudicate a
claim into something quite different and which it is the function of
legislatures and administrative agencies to consider and deal with.
The court notes that 8.3017 was introduced in the Congress as
the “ERISA Improvements Act of 1978”, dealing expressly with
employee welfare benefit plans and the matter of “frozen” versus
“unfrozen” integration of disability “plans” with Social Security.
The Congress has not passed the bill, and the court cannot be asked
to do so in its stead. Even if it could, the change could not be
retroactive.
29a
1. It forbids assignment or transfer of “any future
payments” under the subchapter;
2. It declares that none of the moneys paid or pay-
able, or rights under the subchapter, are to be sub-
ject to execution, levy, attachment, garnishment, or
other legal process or to the operation of any bank-
ruptcy or insolvency law.
The policy terms here do not amount to an assign-
ment or transfer of any future payments for social
security benefits. The contract binds CGLIC to pay the
difference between the benefits under the Social Security
Act, payable “on account of” Lamb’s disability, and 70%
of her basic monthly earnings at disability, (i.e., $790
per month), with a guaranty of $50. per month in any
event.
If the section forbidding assignment or offset applied
at all, it would apply of necessity to the entire social
security benefit, and not merely to increases from time
to time, as alleged in the fourth count. It would com-
pletely bar any policy provision for integration with
social security. Hence, so long as no law forbids the
making of a contract to pay the difference between the
social security benefits, whatever they may be, and some
other larger number, or a minimum amount in any
event, the social security law does not stand in the way.
Such a contract, to pay something more than the Social
Security ‘enefit, can hardly be called a transfer or as-
signment merely because the amount to be paid will vary
with the social security benefit level, subject always to
the minimum.
Lamb ignores the fact that the tests for disability
under the policy and under the social security law are
different. Under the policy, if the participant is disabled
so that he is completely prevented from performing the
duties of his occupation or employment, benefits will be
30a
paid for up to 24 months of continuous disability after
the 6 month waiting period. This is not the test for
disability benefits under social security. Under the Act,
the term “disability” means
“(A) inability to engage in any substantial gainful
activity by reason of any medically determinable
physical or mental impairment which can be ex-
pected to result in death or which has lasted or can
be expected to last for a continuous period of not
less than 12 months.” 29 USC § 423 (d) (1) (A).
(Emphasis added)
Thus, an individual impaired from engaging in his
usual occupation or employment, but capable of engaging
in some other substantial gainful activity which can be
performed in view of education and work experience,
and for which jobs are available in the region, will be
ineligible for any disability benefit under social security,
but would be entitled to payment of full benefits, with-
out deduction, under the CGLIC policy for 24 months
after the waiting period.
After the 24 months of payments under the more
generous test specified by the policy, the payments
terminate unless the employee is so disabled that he is
completely prevented from engaging in any occupation
or employment for which he is qualified, or may reason-
ably become qualified, based on his training, education
and experience. In that event the payments continue so
long as the disability exists, up to age 65. Although
worded differently, the policy test after the 24 month
benefit period appears to be essentially the same as the
social security test in underlying meaning.
The “freeze” provision in the Internal Revenue Code,
and the regulations thereunder, 26 USC §411(a) and
26 C.F.R. § 1.411 (a) (4), discussed at greater length in
Appendix A hereto, are addressed to the non-forfeitability
8la
feature of pension plans and only affect their status as
being “qualified” or not for income tax treatment. They
are unrelated to “welfare” plans.
The second part of 42 USC § 407, above, is obviously
not applicable since there is no kind of process to take
away any part of the social security benefits. They
reach Lamb in full and are in no way affected.
This disposes of any claims grounded on the Social
Security Act.
The first discussion above shows that the Overlook
plan was never covered by WPPDA because of Overlook’s
status under 26 USC § 501(c) (3), and the group policy
involved was terminated in early 1972, so that ERISA
has no application.
It is also quite clear that the attempt to allege that
CGLIC was the “administrator” of a WPPDA plan has
no foundation at all. The legislative history, as well as
the language of the Act and the decisions, make it obvi-
ous that the “administrator” was Overlook, and that the
benefits of the disability aspect of the welfare plan were
merely provided by insurance issued by CGLIC. This
being so, any request for information should have been
addressed to Overlook, the employer/administrator rather
than to CGLIC, and so the claim for $100 a day damages
cannot stand. Beyond that, the request was in 1977 for
a 1969 computer program, well beyond the 5 year reten-
tion period of WPPDA and the 6 year retention period
of ERISA, aside from the misdirection of the request.
None of the facts being in dispute on these matters,
CGLIC is entitled as a matter of law to summary judg-
ment on all federal aspects of the amended complaint,
and Lamb is not entitled to summary judgment on
Count 3.
82a
What remains, if anything, would be state law claims.
The allegations of fraud, or of negligent misinformation,
have no federal law foundation.
Having chosen erroneously to have labelled CGLIC as
the “administrator”, Lamb’s original and amended com-
plaints are mostly silent about Overlook, the actual ad-
ministrator. Overlook’s letter, at the front of Exh. A
to the amended complaint, makes reference to what must
have been both a welfare plan and a pension plan, al-
though neither would be covered by WPPDA due to
Overlook’s status. The letter is addressed to “exempt”
salary employees, a term clarified by other documents as
referring to employees exempt from the Fair Labor
Standards Act, 29 USC § 201, et seq. The exemption
provision, 29 USC §213(a) exempts (among others)
any employee employed in a bona fide executive, admin-
istrative or professional capacity. In a hospital such
as Overlook, Lamb (as a dietician) would be in this
exempt class along with executive and administrative
people and professionals such as staff nurses, salaried
physicians and the like. The documents on discovery
show that there were 93 of these in all in the group.
The letter goes on to refer to already existing fea-
tures. One was composed of “pension and annuity pro-
grams”. All the rest are benefits of a kind coming
within the definition of a “welfare” benefit plan, as did
the newly offered disability coverage.
Both WPPDA and ERISA contemplate that there be
a “plan” which, in the context of the undisputed facts
here, would have been an Overlook plan, of which the
proposed disability coverage would have been an added
feature. Discovery has produced no “plan” on the part
of Overlook, nor any indication that any plan was “pub-
lished”, as called for by 29 USC § 307(a) or filed with
the Secretary of Labor as required by 29 USC § 307(b).
Had it been, it should have been found. Its non-
83a
existence in any formal document is doubtless due to
the fact that any such plan was not covered by WPPDA
because of Overlook’s status, and consequently inappli-
cable provisions were simply not complied with.“
Informal though Overlook’s “plan” may have been,
Lamb’s complaint that the policy provisious involved
were not fully explained in the advance brochure handed
out by Overlook and discussed by its personnel is really
a claim against Overlook, not against CGLIC. Nothing
submitted even remotely suggests that the policy written
by CGLIC was any different than had been requested
by Overlook, acting as plan administrator on behalf of
the group of exempt employees. Overlook would be an
indispensable party to a suit asserting such a claim,
and even if CGLIC were to be a proper party, the lack
of diversity between Lamb and Overlook precludes juris-
diction in this court under 28 USC § 1332. Since all that
remains undecided are potential state law claims against
Overlook at least, and possibly against CGLIC, that
remainder will be dismissed for lack of jurisdiction on
the court’s initiative pursuant to F.R.Civ.P. 12 (h) (3).
1 The Overlook application to CGLIC, Exh. p-17 of the Gros-
heider deposition, discloses that the Overlook “plan” at that time
provided life and major medical benefits through a policy with
Provident Life and Accident of Tennessee, and hospital and medi-
cal coverage through a group contract with Blue Cross/Blue Shield.
To take an example, suppose an employer announces a bonus
plan to allow a salesman generating $X of sales to have the
Cadillac of his choice from a local GM dealer. Suppose A qualifies,
goes to the dealer, and is told that the employer only arranged
to pay for a Buick. Can the salesman sue the dealer for a Cadillac,
or is that claim one that can only be made against the employer?
20 To summarize, the claim that the Social Security law itself
bars the offset or full integration of the benefits payable to the
claimant and dependents “on account of” the claimant’s disability
is simply unsupported. Hurd v. Illinois, 136 F.Supp. 125 (D.IIL,
1955), af d., 234 F.2d 942 (CA7, 1956), cert. denied as Seybold
v. Western Electric, 352 US 918 (1956), reh. den., 352 US 942
84a
The state law nature of remaining claims is under-
scored by the fact that some states have, by statute or
regulation, dealt with the subject of integration and
offset as a matter of their authority to specify what
provisions may or may not be included in one or another
kind of policy issued in each state. This is a recognized
function of the states and involves local law, not federal
law. A list of the references located by the court is
attached as Appendix B, and it discloses that New Jersey
has not placed any restriction on integration provisions
in insurance policies.
/s/ Vincent P. Biunno,
U.S. D. J.
March 3, 1980
Original to Clerk
xe: Robert H. Jaffe, Esq.
Eugene M. Haring, Esq.
(1957) deals with the point directly since neither WPPDA nor
ERISA existed at that time. The situation here is the same be-
cause neither Act applies to this case. As the trial court observed
in Hurd, the legislative history shows that the Social Security law
was not intended to bar offset against amounts payable under
private arrangements, see 136 F.Supp. at 142-144. See, also,
Dowell v. Aetna, etc., 468 F.2d 802 (CA 4, 1972).
Coughlin v. CGLIC, 880 A.2d 159 (Del Super.1974) is plaintiff’s
main support for the claim that the dependents’ benefits cannot
be taken into the calculation. However, that case turned on a
construction of the contract according to State law, and not on
federal law. The reference to 42 USC 402(d)(1) was solely for
the purpose of supporting the construction of the policy, and not
to suggest that it barred offset or integration for dependents’
benefits. In fact, the Delaware court refers to Dowell, but distin-
guishes it on the ground that the language and construction were
different.
Cases in the category of Philpott v. Essex, etc. Board, 409 U.S.
418 (1973) do not apply because they involve the use of some kind
of “process” to enforce a claim against the social security benefits
themselves. These cases do not involve the situation here, which
is concerned with a formula in which specified collateral source
benefits are a variable used to decide how much should be paid
under the policy in addition to the collateral source benefits. But
see Western Electric v. Traphagen, 166 N.J. Super. 418 (App.
1979), an ERISA case, where garnishment of a former husband’s
pension was allowed to satisfy an alimony obligation.
Hisquie[rjdo v. Hisquie[rjdo, —— U.S. ——, 59 L. Ed. 2d 1
(1979) does not apply. The question there was whether a husband’s
inchoate interest or expectation to possible pension benefits under
the Railroad Retirement Act (and which he would enjoy if he
lived to retirement) could be taken into account under California’s
community property law. It was in this connection that the court
observed that the potential benefits, like those under Social Se-
curity, are not contractual and that the Congress can go so far as
to repeal the entire Act.
Nor does it make any difference, as the court sees it, that Over-
look paid 25% of the premium and participants paid 75% [.] CGLIC
contracted for a single premium, and whether one or the other
paid it all, or whether it was divided, was a matter between them
to resolve. In fact, since Overlook is a § 501 (e) (3) organization,
it presumably files no income tax return and receives no deduction
for its share of the premium as a profit-making employer would.
Clearest of all, however, is that Lamb’s dealing was only with
Overlook. If Overlook bought a contract that provided less than
it undertook to do under its “plan”, Lamb’s real state claims are
claims against Overlook, not CGLIC, and she cannot sue Overlook
in this court on state claims.
See, too, Jaffess v. HEW, 393 F. Supp. 626 (D.N.Y., 1975)
where a war veteran entitled to a non-service connected disability
pension under 38 USC § 521 was obliged to report to the VA the
fact and amount of a Social Security award for disability benefits
so that they would be offset with the military pension. The col-
lateral sources so integrated are very broad, and where the pen-
sioner is married and has children, their collateral sources are
included. See 38 USC § 503.
36a
APPENDIX A
HISTORY OF EMPLOYEE WELFARE
AND PENSION PLANS
The now widely used employee welfare and pension
benefit plans, supplemented by self-employed (Keogh)
retirement plans and individual retirement accounts
(IRAs) have an interesting general history which it has
been necessary to explore in connection with this case,
and which provides context and l to the analysis
for the rulings made.
Before World War II, there was no general or wide-
spread pattern for any kind of private plan. With the
wage and price controls in force during the War, the
practice developed of negotiating for deferred compensa-
tion through the medium of one or another kind of
pension or retirement plan. It must be remembered that
during the war period, income tax rates ran as high as
90%, and there was hardly an industry that was not
heavily engaged in defense production under government
contracts commonly on the basis of “cost-plus”. Since
the fringe benefit expense for an employee plan was
recognized as cost, the combination of circumstances
made it quite natural, and in the common interest of
both employers and employees, to establish welfare and
pension plan arrangements as fringe benefits in lieu of
wage increases, which were severely limited by law.
This general background is referred to in Senate Re-
port No. 1440, to accompany S. 2888, and in House Re-
port No. 2283, to accompany H.R. 13507, which, after
Conference Report No. 2656, to accompany 8.2888, even-
tually became the Welfare and Pension Plan Disclosure
Act of 1958 (WPPDA), 29 USC § 301, et seq., now
repealed.
Similar historical background is also found in the
extensive committee and conference reports in connection
37a
with the enactment of the Employee Retirement Income
Security Act of 1974 (ERISA), 29 USC § 1001, et seq.,
plus various sections of 5 USC, 26 USC, and 42 USC.
The development of various plans as fringe benefits
during the war years had been preceded by two pro-
grams, one public and one private, which had originated
during the Depression years. The public program was
the Social Security Act, 42 USC, which began as a sys-
tem to provide old age benefits after retirement, although
its scope has since been broadened in a number of ways.
The private program was the Blue Cross hospital service
plan, later enlarged to include surgical benefits through
the related Blue Shield program, and a degree of non-
surgical medical service through Rider J.
The Social Security old-age retirement plan was struc-
tured essentially like a pension plan, with contributions
(in the form of Social Security taxes) assessed equally
between the employer and the employee. Unemployment
compensation plans, structured somewhat along the lines
of Social Security were also developed, and later on
long-term disability benefits were added to the Social
Security program, as well as supplemental income ben-
fits later on measured on a “needs” basis.
Except for the supplemental income program, the
format of Social Security benefits (whether for old age
retirement or disability) was such that the level of
benefits was related to formulas (sometimes complex)
based on the level of taxable earnings and duration of
employment as a covered worker, but without regard
to the assets or investment income of the beneficiary.
The same was true of Blue Cross/Blue Shield, except
that since these were “service” plans dependent on the
willingness of participating hospitals and physicians to
render specified services at rates and fees set by the
Plans, there has always been a partial means test in
that if the subscriber’s earnings exceeded a specified
38a
level, a higher rate or fee could be charged, with the
Plan paying the specified sum and the subscriber being
responsible for the difference.
From the start, all of these programs carried with
them some number of tax consequences under the In-
ternal Revenue Code. Thus, the Social Security con-
tribution levied on the employer is an allowable deduc-
tion to the employer as a business expense under I.R.C.
§ 162. The same is true of payments made by an em-
ployer as part of or all the cost of hospital, medical or
other welfare protection for employees. And, on the other
side of the tax implications, the contributions of an
employer to accident and health plans for compensation
(through insurance or otherwise) to his employees for
personal injuries or sickness (whether work related or
not), are excluded from the gross income of the employee,
26 USC § 106.
In the case of pension plans, as distinguished from
welfare plans, a wide variety of systems developed over
the years. In a sense the simplest plan was a plan by
which the employer undertook by contract to pay a stated
amount per period after retirement, the amount being
measured by years of service and level of compensation,
or some such formula. These simple plans were not
funded in any way. Instead, when an employee retired
the employer merely made payments periodically as
agreed, out of current revenues. Another form consisted
of plans for which the employer made installment pay-
ments during employment toward the purchase of an
annuity contract which, at retirement, would have ac-
cumulated a value sufficient to satisfy the periodic retire-
ment payments. Another form was to establish a trust,
either with a financial institution as trustee, or with
labor and management representatives as trustees. The
latter form was (and probably still is) the most common
for multi-employer plans in the construction trades, where
employees commonly do work for a variety of employers
to whom he is assigned by the construction trades union
to which he belongs. To a lesser degree, some plans were
based on profit sharing, stock options, and the like. No
doubt there are other varieties.
The earliest kind of federal legislation dealing with
any kind of plan consisted of provisions of the Internal
Revenue Code, and of these the earliest that dealt with
plans in a specific and comprehensive way are found
in the 1954 Code, 26 USC § 401 et seq., establishing the
concept of “qualified” pension plans. The term “quali-
fied” is a shorthand adjective for a variety of conse-
quences under the Internal Revenue Code. The initial
objective, as enacted in 1954, was to deny the tax bene-
fits of having a “qualified” status if the terms of the
plan “discriminated in favor of employees who are of-
ficers, shareholders or highly compensated, and if it were
possible, under the terms of the plan, to divert the corpus
or income to purposes other than for the benefit of the
employees or other beneficiaries before all liabilities to
them had been fully satisfied. This key section, 26 USC
§ 401, has been amended a number of times and today
presents a formidable text. See Pub. L. 87-792, §2
(Oct. 10, 1962) ; Pub. L. 87-863, § 2(a), (Oct. 23, 1962);
Pub. L. 88-272, § 219 (a) (Feb. 26, 1974); Pub. L. 89-97,
106 (d) (July 30, 1965) ; Pub. L. 89-809 §§ 204 (b) (1),
204 (e) L,] 205 (a) (Nov. 18, 1966); Pub. L. 91-691, § 1 (a)
(Jan. 12, 1971); Pub. L. 93-406, §§ 1012 (b), 1016 (a)
(2), 1021, 1022 (a) to (d), 1022 (f), 1023, 2001 (e) to
(e) (4), 2001 ch) (1), 2004 (a) (1) (Sept. 2, 1974); Pub.
L. 94-267, §1 (e) (1) and (2) (Apr. 15, 1976); Pub. L.
94-455, §§ 803 (b) (2), 1505 (b), 1901 (a) (56), 1906 (b)
(13) (A) (Oct. 4, 1976); Pub. L. 95-600, §§ 135 (a),
141 (f) (3), 143 (a) l,] 152 (a) (Nov. 6, 1978). Yet, the
above themes predominate even today despite sophisti-
cated refinements and added coverage to deal with plans
40a
for self-employed individuals, owner/employees and the
like.
What is significant about these sections of the Internal
Revenue Code, 26 USC § 401, et seq., is that they deal
with pension plans for retirement benefits, and not with
welfare plans as defined either by WPPDA or ERISA.
There seems to be but one provision, §401(h) which
mentions benefits for sickness, accident, hospitalization,
and medical expenses, which are among the recognized
purposes of welfare benefit plans rather than pension
benefit plans. However, this provision does no more than
state that the inclusion of such benefits to retired em-
ployees, spouses and dependents will not prevent the plan
from being “qualified” as a pension plan so long as (1)
the benefits are subordinate to the retirement benefits;
(2) a separate account is established for such benefits;
(3) the employer contributions to the separate account
are reasonable and ascertainable; (4) the corpus or in-
come of the separate account cannot be diverted to any
purpose other than to provide those benefits; and (5)
when all liabilities for the benefits have been satisfied,
any balance in the separate account must be returned to
the employer.
Thus, 26 USC 5 401 (h) clearly does not deal with
a “welfare plan” as defined by both WPPDA and
ERISA.
WPPDA of 1958 was evidently the first federal stat-
ute purporting to deal with welfare and pension plans,
and it dealt with them only in the relationship of em-
ployer/employee. The WPPDA text itself, as well as the
explicit statements in the committee reports are clear
that the Act made no attempt to regulate welfare or
pension plans in any way, and dealt only with employee
oriented plans to the extent of establishing a mechanism
for reporting and disclosure. This is confirmed by the
4la
Supreme Court ruling in Malone v. White Motor Corp.,
435 U.S. 497 (1978).
The committee reports on WPPDA made clear that
the Congress was aware of the indirect regulation al-
ready afforded by the Internal Revenue Code, and the
final bill omitted any provisions for criminal penalties,
on the theory that 18 USC § 1001 provided adequate cov-
erage. See next to last paragraph of Conference Report
No. 2656, Aug. 15, 1958, to accompany S. 2888.
Four years later, Pub. L. 87-420, §17(e) (March 20,
1962), enacted what is now codified as 18 USC § 1954
to make criminal the offer, solicitation or acceptance of
any thing of value because of, or to influence, any ac-
tion, decision or other duty in connection with an em-
ployee welfare or pension benefit plan as defined by
WPPDA (since amended to refer to the definitions of
ERISA).
The history of ERISA is extensive and bulky. The
Act as passed was the distillation of many bills, as re-
flected in the committee and conference reports men-
tioned above, and it shows that, unlike WPPDA, the
object of ERISA was mainly regulatory, and the focus
was centered on pension plans rather than welfare plans.
As introduced and discussed, the bill would have merely
amended and supplemented WPPDA, as to welfare plans,
and the rest dealt with problems unique to pensions.
These features deal with funding, eligibility and vest-
ing, non-forfeitability, fiduciary responsibility, prohibited
transactions, and the like. One important feature, not
included in the Act as passed, dealt with portability and
would have established a centrally administered fund
through which accrued and vested shares in one plan
could be exchanged for an equivalent or superior share
in another plan when changing jobs. Provision was in-
cluded for insurance, like FDIC and SIPC, in case of the
financial failure of a plan, but only for pension plans,
not for welfare plans.
>
42a
In the end, WPPDA was not amended and supple-
mented, but was repealed. Administrative aspects were
divided between the Department of Labor and the Treas-
ury Department. The general provisions, as well as those
dealing with reporting and disclosure, fiduciary respon-
sibility and administration and enforcement, apply to
both welfare and pension plans. The parts dealing with
participation and vesting do not apply to employee wel-
fare benefit plans by express language of § 201 and § 301.
The amendments to the Internal Revenue Code, by the
addition to Title 26 of 58 410-415 deal only with pension
plans and not with welfare plans. The same is true of
the amendments to 26 USC § 401, and by the addition
of 26 USC 88 6057, 6058 and 6059. The addition of
§ 1131 to 42 USC, imposing duties on the Secretary of
HEW deals only with pension plans, and not with wel-
fare plans. The addition of 7676 to Title 26, to au-
thorize declaratory judgments in the Tax Court, is limited
to retirement plans in the form of (1) a pension, profit-
sharing, or stock bonus plan; (2) an annuity plan de-
scribed by § 403(a), and (3) a bond purchase plan de-
scribed in § 405 (a). All are pension plans; none is a
welfare plan.
The provisions in respect to the Pension Benefit Guar-
anty Corporation (ERISA 55 4001-4068), also apply only
to pension plans and not to welfare plans.
Other criminal statutes which had been enacted by
supplement to WPPDA, such as 18 USC § 664 (em-
bezzlement or conversion from employee benefit funds)
and 18 USC § 1027 (making any knowingly false state-
ment in any document required by the Act), were
amended to substitute references to ERISA rather than
to WPPDA, and apply to both welfare and pension plans,
as does 18 USC § 1954 (kickbacks).
These criminal statutes roughly parallel analogous
statutes dealing with federally insured banks, such as
43a
18 USC 8 656 (embezzlement or misapplication by a
bank officer) [;] 18 USC 5 1005 (false entries in bank
records) ; 18 USC § 1014 (false statements in loan ap-
plications) and 18 USC § 215 (kickbacks on loans, etc.).
From this history and analysis, it is plain that from
the entire universe of welfare and retirement plans, the
Congress has chosen to legislate to encourage some of
them by favorable tax treatment in the Internal Reve-
nue Code, and, in the case of those employee oriented
plans covered by WPPDA, acted between 1958 and 1975
to require certain reporting and disclosure but did not
regulate, and since 1975, by ERISA, has undertaken to
regulate, such plans to the ex“ ent that they are pension
plans.
Except as included in one or another of these federal
statutes, the Congress has not enacted any law dealing
with other kinds of plans in the universe of plans,
whether constructed on an individual basis or by groups
other than those composed of employees of an employer
or groups of employers or of employees.
Natural persons thus remain free of federai law of
this kind to establish individual, family and group plans
or programs to deal with all the countless risks that
life in a complex society entails. They may design all
manner of savings plans, from the simple bank account
at interest on through term certificates, T-bill certificates,
on to sophisticated investment portfolios of debt and
equity securities. They may invest in land or other
property. They may buy insurance of all kinds, whether
of an indemnity or investment nature, including protec-
tion against the risks of fire, lightning and extended cov-
erage risks; burglary, theft and mysterious disappear-
ance; homeowners’ and automobile or water vessel or
aircraft liability; hospital and medical expense policies,
including major medical and disability benefits whether
caused by accident or sickness; life insurance in all its
44a
variations, from term to endowment; and annuities. This
list does not exhaust all the available choices freely avail-
able on a voluntary basis, which may play a part in es-
tablish. g individual or group programs for providing
security against risks.
Yet, except in peripheral ways, such as through the
SEC, and through regulating interest rates and terms
of various kinds of deposits in banking institutions, fed-
eral law does not attempt any direct regulation of that
part of the field. So much as has been dealt with, mainly
in the Internal Revenue Code, WPPDA and ERISA, has
been confined to matters of special tax treatment, to
reporting and disclosure, and to rather strict regulation
of plans that are employer/employee oriented, except for
the very recent developments, mostly with tax conse-
quences, of HR-10 or Keogh Plans and IRA’s in an effort
to provide means to those outside the traditional labor/
management sphere to achieve some measure of equal
tax treatment in respect to pensions and retirement.
So far as the regulation goes, its major aim is to es-
tablish minimum standards for eligibility and vesting,
and to require suitable funding to minimize the risk
that there will be insufficient funds to provide the bene-
fits specified by the plan. By and large the Congress
has not made the establishment of any plan mandatory,
nor has it attempted to specify what the particular bene-
fits are to be.
Thus, there is nothing illegal or forbidden about estab-
lishing a plan that would otherwise fall within ERISA,
for example, but that fails to qualify with its require-
ments. The only consequence of such a course of action
is that by failing to qualify, the tax benefits otherwise
available will be denied. If someone wishes to follow
that course he is free to do so. ERISA itself makes it
explicit that the participation and funding provisions
45a
of an employee pension benefit plan, 29 USC § 1051
through 1061, do not cover (among others)
. an unfunded plan maintained by an employer
primarily to provide deferred compensation for
a select group of management or highly com-
pensated employees (29 USC § 1051 (2));
. a plan of a labor organization described in 26
USC § 501(c) (5) which has no provision for em-
ployer contributions after September 2, 1974 (29
USC § 1501 (4));
. agreements for payments to a retired partner
or a deceased partner’s successor in interest (i.e.,
a widow) under 26 USC § 736 (29 USC § 1051
(5));
Han excess benefit plan, which is one providing
benefits in excess of the limitations specified by
26 USC § 415 for a “qualified” plan (29 USC
§ 1015(7)).
For these, and for all other plans not directly regu-
lated by federal law, the party involved is free to “write
his own ticket”, subject only to compliance with ap-
plicable State law, and with the consequence that one or
another tax benefit will not be available.
Insofar as one or another plan may involve the use
of an insurance policy, it must be kept in mind that for
most of the history of insurance systems in this country,
the law was that it did not constitute commerce and was
not within the reach of Congress. See Paul v. Virginia,
8 Wall. 168, 19 L. Ed. 357 (1869). It was not until 75
years later, in U.S. v. Southeastern Underwriter Ass’n,
322 U.S. 533, 88 L. Ed. 1440 (1944), that the Supreme
Court, by a vote of 4 to 3, explained Paul v. Virginia
as focused on the validity of state statutes, and not on
the issue, not squarely presented before, whether the
Sherman Anti-Trust Act was intended to and could
46a
apply to interstate insurance. The Court ruled that it
did. See, also, Polish Alliance v. NLRB, 322 U.S. 643,
88 L. Ed. 1509 (1944), decided the same day.
Early in 1945, Congress passed the McCarran Act,
Pub. Law 15, which affirmatively consented to the con-
tinued regulation of insurance by the states and sus-
pended the application to the insurance business of the
Sherman Act, the Clayton Act, the Federal Trade Com-
mission Act, and the Robinson-Patman Act. After the
suspension period, those acts were to apply to the in-
surance business only to the extent that it was not regu-
lated by state law. See, 15 USC § 1011 to 1015.
Neither in the Internal Revenue Code provisions ap-
plicable here, nor in WPPDA, nor in ERISA, did the
Congress undertake to regulate the business of insurance
in any way. To the extent that insurance is mentioned,
it is either by way of recognition that one or another
form of insurance had long been, and could continue to
be, used as the medium to provide the benefits specified
by a particular plan (including annuities where appli-
cable to pensions), and that where information to be
reported and disclosed by a plan administrator was not
in the administrator’s hands and could only be supplied
by the insurer, it was required to supply it to the ad-
ministrator of the plan on the administrator’s request.
This is as far as WPPDA went while it was in force,
in respect to plans to which it applied. ERISA goes
somewhat further in cases where a “separate account”
is required.
Insofar as the subject involved here is concerned, i.e.,
the offset or integration of social security, workers com-
pensation, and the like, the Congress has recognized that
plans in existence contained such offset or integration
provisions, both “frozen” and “unfrozen”. The subject
is discussed in the committee reports on ERISA.
47a
Conference Report No. 92-1280 discusses integration
with social security in connection with pension plans and
says that under Titles I and II of the conference sub-
stitute, plans may not decrease benefits due to increases
in social security benefit levels “in the case of retirees,
or [vested] individuals who separate from service be-
fore retirement”. It also called for a study by the Con-
gress over a two-year period, “of the issues involved in
the integration of private pension plans with social se-
curity”. [emphasis added]
As observed in Buczynski v. General Motors, —— F.2d
—— (CA 8, #79-1668, 2/15/80), the offset or integra-
tion subject was not dealt with explicitly in ERISA as
enacted, although embraced by the general prohibition
against forfeiture in 29 USC § 1053(a). What occurred
was that the subject was eventually addressed by a
Treasury Regulation found at 26 CFR 5 1.411 (a) (4),
under the authority of the antiforfeiture provision in the
ERISA amendment to 26 USC § 411. The Treasury Reg-
ulation declares that offsets are not prohibited forfeitures,
although as to social security offsets, it employs a “fro-
zen” formula rather than an unfrozen formula, from
September 2, 1974.
The Internal Revenue Code provisions of ERISA, as
observed above, are limited in their application to the
question whether pension plans are “qualified” or not for
tax purposes. They do not apply to welfare plans at all,
they do not apply to group insurance policies for long-
term disability which were terminated more than two
years before ERISA was enacted, and they certainly
do not purport to change the terms of such a contract
so as to increase the obligation of the carrier beyond the
explicit provisions of the terminated policy.
Even if there was a pension plan involved, rather than
a disability policy to satisfy a welfare plan, and even
if through some oversight the employer purchased an
48a
annuity contract calling for full integration with Sal
security when 26 USC §411 limited integration to a
modified frozen offset, the consequences would be that
(a) the plan would not be “qualified” for tax purposes
and (b) the employee might have a claim against the
employer for the difference in benefits as the result of
buying the wrong kind of annuity contract. Nothing in
the federal statutes would support a federal claim by
the employee against the carrier that wrote the annuity
contract to compel the carrier to pay more than its con-
tract called for.
Government pension plans, both federal and state, are
excluded from both WPPDA and ERISA. If government
plans have any single characteristic, it is that they either
are unfunded or inadequately funded. There is a strong
tendency, whenever there is a current surplus (in con-
trast to an actuarially determined fund surplus) to
broaden risk coverage and to increase benefit amounts.
The federal government, in connection with social se-
curity benefits, is perhaps the worst offender in this
regard. The so-called “trust funds” are currently pro-
jected to run short of benefit needs within several years.
Controversy rages about putting on some sticking plaster
by lending money from one fund to another, whether to
reduce benefits, whether to increase the social security
tax, or whether to draw on general tax revenues from
deficit budgets to make up the shortage.
New York City seems to be another major offender.
According to press reports when it was on the brink of
bankruptcy, it was said that benefit levels were set ac-
cording to earnings of the highest of some number of
recent years, including overtime, and that prospective
pensioners with enough seniority to demand it were put-
ting in all the overtime they could in the year before
retirement. Not only that, but it was also said that the
actuarial assumptions currently used to estimate the
49a
proportion of city employees likely to retire at various
ages was based on experience data of about 1916, in the
face of current knowledge that early retirements are now
far higher than they were then.
If government, which has unlimited taxing power,
wishes to broaden coverages and increase benefits far
beyond what the contributions to the trust funds will
support, it is within its power to do so, whether wise
or not. But there is simply no way in which government
can compel privately contracted payments to be increased
beyond the level agreed to without threatening the very
feature that the pension aspects of ERISA were intended
to protect, namely the financial soundness and ability to
pay the benefits agreed to. Private enterprise does not
have the power to tax. It cannot make up the difference.
50a
Order Filed March 5, 1980
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Civil 77-1290
ANNELIESE B. LAMB,
Plaintiff,
vs.
CONNECTICUT GENERAL LIFE INSURANCE Co.,
Defendant.
ORDER FOR SUMMARY JUDGMENT
For the reasons set out in the opinion of even date,
it is on this 8rd day of March 1980 ORDERED that:
1. Plaintiff’s motion for summary judgment on Count
Three is denied.
2. Defendant’s motion for summary judgment in its
favor is granted in respect to all federally based claims,
and judgment thereon will be entered in its favor and
against plaintiff.
8. The remainder of the amended complaint is ordered
dismissed for lack of jurisdiction in this court, pursuant
to F.R.Civ.P. 12 (h) (3).
/s/ Vincent P. Biunno
U. S. D. J.
Original to Clerk
xe: Robert H. Jaffe, Esq.
Eugene M. Haring, Esq.
ATTACHMENT TO NOTICE OF APPEAL
51a
Order Granting Summary Judgment And Granting
Plaintiffs Leave To File Amended Complaint
Filed July 31, 1978
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
THE HONORABLE VINCENT P. BIUNNO
Civil Action No. 77-1290
ANNELIESE B. LAMB, individually and on behalf of
all other persons similarly situated,
Plaintiff,
vs.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
a corporation of the State of Connecticut,
Defendant.
ORDER GRANTING SUMMARY JUDGMENT
WITH LEAVE TO FILE
AMENDED COMPLAINT
This matter being opened to the Court by McCarter
& English, Esqs., attorneys for defendant, Eugene M.
Haring, Esq., appearing, seeking an © Jer for Summary
Judgment pursuant to Rule 56; in the presence of Robert
H. Jaffe, P.A.[,] attorneys for plaintiff, Robert H. Jaffe,
Esq., appearing; the Court having considered the af-
fidavits and briefs in support of and in opposition to
the motion and having considered the arguments of coun-
sel at hearings held on March 30, 1978, and June 12,
1978; it appearing to the Court that there is no genuine
issue as to any material fact, that there is no ambiguity
in the policy language at issue, and that defendant is
entitled to judgment as a matter of law on all the issues
raised by the Complaint herein; and it further appearing
52a
from the representations of counsel at the hearing on
June 12, 1978, that plaintiff may seek to file an amended
Complaint; and good cause appearing;
IT IS on this 31st day of July, 1978;
ORDERED, ADJUDGED, AND DECREED that the
defendant’s motion for summary judgment is hereby
granted and the Complaint herein is dismissed with
prejudice and without costs;
IT IS FURTHER ORDERED that plaintiff is granted
leave to serve and file an amended Complaint within ten
(10) business days from the date of the entry of this
Order, jurisdiction is retained for trial purposes and any
ensuing proceedings.
/s/ Vincent P. Biunno
VINCENT P. BIUNNO
U.S. D. J.
Hearings On Defendant’s Motion For Summary Judgment
Dated June 12, 1978 Filed October 16, 1978
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Civil No. 77-1290
ANNELIESE B. LAMB,
Plaintiff,
v.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
Defendant.
Newark, New Jersey
June 12, 1978
TRANSCRIPT OF PROCEEDINGS
BEFORE:
THE HONORABLE VINCENT P. BIUNNO, U.S.D.J.
Appearances:
RoBeErT H. JAFFE, Esq.,
Attorney for Plaintiff
McCarTER & ENGLISH, ESQs.,
By: EUGENE W. HARING, Esq.,
and
RICHARD M. EITTREIM, Esd.,
and
STEPHEN G. SIEGEL, Esq.,
Attorneys for Defendant
54a
[2] THE COURT: All right, Lamb against Connecti-
cut General.
I’ve read the papers. There is no point in talking
about an amended complaint which hasn’t been filed yet
and which needs leave to be filed because I don’t have
it before me. In any event, the plaintiff should be aware
that if the plaintiff’s motion—the defendant’s motion is
granted, there is any indication that the plaintiff feels
capable of filing a complaint that is valid against the
motion, leave would be granted in any event to file such
a complaint within a reasonable time to be stated. But
so far as the argument of this motion is concerned, the
fact that you’re contemplating an amended complaint is
not a matter to be considered. It doesn’t address the
motion.
MR. JAFFE: I understand, your Honor. I hope to
have the papers there which in some ways could be re-
ferred to, but I agree with the Court that—
THE COURT: Well, that’s something else.
MR. JAFFE: All right.
THE COURT: Now, frankly, I don’t see the basis
for any claim under the present complaint. I don’t
know what other complaint you're going to have. We'll
face that when, as and if it’s filed. But on the present
complaint, it seems to me that what you have gotten and
gathered discloses what everybody knows anyway, namely
that when you [3] buy a disability plan or any other
kind of dollar payment plan on a group basis, whether
for employees or not, you can buy them through the Bar
Association to, you know, for example, by your own.
You can either get fixed dollar amount, so much a week,
so much a month, what have you, or a formula that
amounts to the same thing.
Or you can get payments which is set at a given
level, and which will remain there when combined with
other benefits available from other sources. So that the
benefits under the policy and the benefits from other
sources combined will equal a given number. That costs
less. It costs less because some number of the people in
the group will not get the other benefits and some will.
So that the total dollars paid out will be somewhat less
than a full dollar—fixed dollar system would cost.
The third variation, we are speaking now particularly
of things like social security, either retirement type or
disability type. The full benefits received from the other
sources are taken into account in determining how much
is to be paid under the policy so that the total received
under the policy and under the other benefits will equal
the fixed sum which the policy underwrites.
Here you have the variation, the social security bene-
fits, at least since the 50’s, have been periodically in-
creased for existing beneficiaries. As social security
[4] increases, it benefits the amount payable by the
insured, would be reduced to that extent. So the total
would remain the same.
That form of coverage costs still less for the obivous
reason that the exposure is reduced to some extent.
Arriving at the premium is an actuarial process, It isn’t
precisely any more than any other actuarial calculations.
Those calculations are at their most reliable when you’re
dealing with straight life insurance.
The experience under the mortality tables is highly
reliable. The experience on disability is less forecastable.
The smaller the group the more uncertainty is introduced
into the estimated actuarally.
On some group contracts the company that under-
writes it may lose its shirt. On other ones it may make a
profit. There is no way of knowing in advance which
it will be.
From the papers that have been submitted, it seems
entirely clear that there is no question that what the
employer negotiated for here to offer to its employees,
who I take it were non-union, am I right on that?
56a
MR. HARING: I believe you are.
THE COURT: They had no collective bargaining
agent.
MR. HARING: No, your Honor.
51 THE COURT: Something offered by the employer.
Was a disability group plan designed to pay a fixed
dollar amount based on a percent of salary? So that’s a
formula which becomes ascertainable when the claim
ripens.
It calls for offset of the benefits, including social
security disability benefits of all kinds.
It is argued that the language in the policy, the lan-
guage in the booklet, the language in the summary sheet,
that sort of thing, doesn’t spell out all these details. I
don’t think that is a valid point. I think it misconstrues
the meaning of what’s there.
What is there says there is a deduction for other bene-
fits. It follows if the other benefits fluctuate, then the
amount payable under the policy will fluctuate. It would
only be necessary and be more explicit if the deduction
for other benefits were to be other than for the amount of
the other benefits, namely some lesser amount, a so-called
frozen method. That would need to be spelled out.
To give an example of why this language is per-
fectly adequate and entirely clear on this point, con-
sider the fact that one of the elements in the offset is
benefits payable by social security for dependent minor
children. Dependent minor children either reach ma-
jority or cease to be dependent or die, or one way or
another at some point no longer form a basis for a pay-
ment. When, as and if that [6] happens, the payment
from social security becomes smaller. The payment from
the company would become larger. Neither the policy
nor the booklet nor the summary statement says so, but
what is there obviously leads to that result without any
dispute about it and without any need for construction.
57a
It seems to me that the present motion should be
granted and an order to that effect should be entered.
It should grant leave to file an amended—to serve and
file an amended complaint. Is ten business days enough?
MR. JAFFE: From the date of the order, your
Honor?
THE COURT: Yes.
MR. JAFFE: Yes.
THE COURT: Within ten business days from the
date of the order. I’ve been using that lately so you
don’t have to figure whether the last day falls on a
Saturday, Sunday or holiday. Anything else?
MR. JAFFE: Your Honor has ruled. I'll have a
chance in my amended complaint. I will reserve my
argument which undoubtedly will come up again at that
point.
THE COURT: Thank you.
58a
APPENDIX C
UNITED STATES COURT UF APPEALS
FOR THE THIRD CIRCUIT
No. 80-1523
LAMB, ANNZLIESE, B., individually and on behalf of
all other persons similarly situated
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
a Corporation of the State of Connecticut
ANNELIESE B, LAMB,
Appellant
(D.C. Civil No. 77-1290)
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Present: ADAMS, GARTH and SLOVITER, Circuit
Judges
JUDGMENT
This cause came on to be heard on the record from the
United States District Court for the District of New
Jersey and was argued by counsel on December 4, 1980.
On consideration whereof, it is now here ordered and
adjudged by this Court that the judgment of the said
District Court, entered March 5, 1980, be, and the same
is hereby affirmed. Costs taxed against appellant.
ATTEST:
7s, Sally Jarvos
Clerk
February 23, 1981
59a
APPENDIX D
Affidavit Of Robert H. Jaffe, Esq. Filed March 23, 1978
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
HONORABLE VINCENT P. BIUNNO
Civil Action No. 77-1290
ANNELIESE B. LAMB, individually, and on behalf of
all other persons similarly situated,
* Plaintiff,
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
a corporation of the State of Connecticut,
Defendant.
AFFIDAVIT OF COUNSEL FOR PLAINTIFF
PURSUANT TO RULE 56(f) IN OPPOSITION TO
MOTION FOR SUMMARY JUDGMENT
STATE OF NEW JERSEY )
1
COUNTY OF UNION )
ROBERT H. JAFFE, of full age, being duly sworn
according to law, upon his oath, deposes and says:
1. I am an attorney at law of the State of New Jersey
and a member of the law firm of Robert H. Jaffe, P.A.,
attorneys for plaintiff Anneliese B. Lamb (“Lamb”). I
make this affidavit pursuant to Rule 56(f) of the Federal
Rules of Civil Procedure and other applicable rules of
this Court in opposition to the motion for summary judg-
60a
ment sought by defendant Connecticut General Life In-
surance Company (“CGLIC”).
2. At the heart of the complaint in this class action
is whether defendant CGLIC is entitled to decrease
monthly benefits paid to plaintiff Lamb and other per-
manently disabled persons similarly situated under a
standard group long term disability insurance policy sold
through employers by an amount equal to increases in
government disability payments under the Social Security
Act mandated by the United States Congress since 1972,
in order to offset and compensate for increases in cost
of living factors in accordance with a formula estab-
lished by federal statute. The type of standard group
disability insurance policy at issue in this action is one
whereby the employee pays approximately three-quarters
of the premium and the employer pays approximately
one-quarter of the premiums.
8. One of the most important questions to be de-
termined in this class action is what were the factual
circumstances surrounding the sale by defendant CGLIC
of its standard group long term disability insurance
policies to employers of persons such as plaintiff Lamb.
The reconstruction of these factual circumstances include
such factors as the actuarial basis for the premium in-
itially charged, the actuarial basis or calculations for
any increase in premium, copies of any and all com-
munications, including, but not limited to, booklets, no-
tices and advertisements sent to the employer of plaintiff
Lamb and/or other interested parties to the sale of the
group policy at issue, when originally sold by defendant
CGLIC and the first premium paid, copies of all com-
munications sent to plaintiff Lamb and all other em-
ployees eligible for coverage under the group long term
disability insurance policy sold to Overlook Hospital ex-
plaining the basis for the initial and any increased
premium rates etc.
6la
4. Information relating to the above enumerated fac-
tual matters have been requested by way of interroga-
tories served on defendant CGLIC in August, 1977 and
requests for document discovery served on counsel for
defendant CGLIC in January, 1978.
5. The requests for information as to the basis for
premium rates made in the interrogatories were not ade-
quately responded to and resulted in a motion to compel
discovery which was denied by this Court in February,
1978 without prejudice to renewal after this motion for
summary judgment was heard.
6. There has been no response by defendant CGLIC
to a request for document discovery to be supplied on
March 2, 1978 at the offices of counsel for the plaintiff
pursuant to the Plaintiff’s First Request To Produce
Documents, a copy of which is attached to this affidavit
as Exhibit “A”. Said request for document discovery
would have supplied information pertinent to the factual
circumstances under which plaintiff Lamb purchased cov-
erage through her employer Overlook Hospital of Sum-
mit, New Jersey under the standard group long term
disability policy sold by defendant CGLIC.
7. The importance to plaintiff in obtaining the dis-
covery requested and refused by defendant CGLIC is
highlighted by the statement made in the affidavit of
Lawrence A. Jenson, Secretary of Group Insurance Op-
erations of defendant CGLIC, that:
“(A)t the time Overlook Hospital purchased the
policy in question (defendant CGLIC) also offered a
so-called ‘frozen’ Social Security integration pro-
vision. Under this ‘frozen’ provision, the offset for
Social Security benefits was permanently fixed
throughout the period of disability as the amount of
Social Security benefits received by the insured at
the time disability payments commenced under the
62a
policy. Overlook Hospital chose the ‘unfrozen’ in-
tegration provision and paid a lower premium than
would have been required if the ‘frozen’ integration
provision had been purchased.”
8. The affidavit of Mr. Jensen was signed on March
2, 1978 the same day that document discovery was re-
quested of defendant CGLIC but was not forthcoming.
There is not one document attached to the affidavit which
corroborates the factual assertions made therein. Fur-
ther, his affidavit was not filed until March 8, 1978 more
than three weeks after the Notice of Motion for Sum-
mary Judgment had been served on counsel for plain-
tiff Lamb. Although a request for deposition of Mr.
Jenson has this week been filed on defendant CGLIC,
it will be impossible to depose him with respect to the
factual assertions made in his affidavit prior to the
hearing in the instant motion for summary judgment
now scheduled to be heard on Thursday, March 30, 1978.
9. The factual assertions set forth in the affidavit of
Mr. Jenson appear to contradict the admittedly incom-
plete answers of defendant CGLIC to interrogatories of
the plaintiff. The very first interrogatory was as follows:
“With regard to the premiums paid by plaintiff
Lamb for her group disability policy with Overlook
Hospital Association, state how defendant CGLIC
arrived at the basis for the initial premium rate of
$1.14 for $100 of Monthly Benefit.”
The answer to this interrogatory, certified to by Leonard
A. Mytych, Director of Long Term Disability Claims,
Group Insurance Operations of defendant CGLIC and
mailed counsel for plaintiff Lamb on or about December
2, 1977 states that the monthly premium which totals
$1.48 (of which plaintiff Lamb paid $1.14)
“was calculated in accordance with a computer pro-
gram developed for that purpose which is no longer
63a
in existence. The program was based on four fac-
tors: 1) frequency of disability occurences based on
1964 Commissioner’s Disability Table (CDT), 2)
termination rate based on 1964 CDT, 3) loading
factors, and 4) Social Security integration calcula-
tion based on either unfrozen or frozen Social Secur-
ity integration.” (Emphasis added.)
10. There is an evident contradiction in the answer
given by Director Mytych to the first interrogatory indi-
cating plaintiff Lamb and her employer paid a premium
to defendant CGLIC calculated on either an unfrozen
or frozen Social Security integration which was a factor
in a computer program “no longer in existence,” and
the factual assertions made by Secretary Jenson that
the employer of plaintiff Lamb had been given a clear
choice of premium based on frozen or unfrozen integra-
tion. Only discovery by counsel for the plaintiff can
resolve the conflicting factual statements made by rep-
resentatives of defendant CGLIC. Certainly, such ap-
parent conflicting statements should not serve as the
basis for a motion for summary judgment.
11. Both the printed and written content of the “Ap-
plication for Group Insurance” made part of Exhibit
“A” attached to the affidavit of Mr. Jenson raises addi-
tional fact questions contradictory to the position taken
by Mr. Jenson in his affidavit and by counsel for the
plaintiff in the “Preliminary Statement” to the Brief
In Support of Motion For Summary Judgment that the
employer of plaintiff Lamb made a choice between
“frozen” and “unfrozen” social security integration with
respect to disability income benefits under the standard
group long term disability policy at issue.
12. The Application contains several categories of
group insurance benefits. Under Item 7 there is printed
“Disability Income Insurance.” Next to this printed ex-
pression there is inked in the words “Long Term.” It
64a
is interesting to note that there is no printed choice for
frozen or unfrozen social security integration with re-
spect to disability benefits on the Application. Nor did
the Overlook Hospital Association representative ink in
an indication of a choice of either frozen or unfrozen
social integration referred to by Mr. Jenson.
13. An examination of the provisions of the standard
Group Long Term Disability Benefits Insurance Policy
effective October 1, 1969 of defendant CGLIC attached
as Exhibit “A” to the affidavit of Mr. Jenson, reveals
a self-evident unconscionable provision under the section
“Premiums.” The provision under the caption “Amount
of Monthly Income in Force” lends substance to the
claim of plaintiff Lamb in the verified class action com-
plaint and her affidavit dated January 12, 1978 in sup-
port of the Motion To Compel Interrogatories that the
premiums paid by her and other persons similarly situ-
ated have resulted in the unjust enrichment of defend-
ant CGLIC to the detriment of the beneficiaries of its
standard group disability policy and in violation of fidu-
ciary obligations owed plaintiff Lamb and the putative
class:
“For the purpose of determining the premium, the
amount of Monthly Income in force under this policy
will mean the amount determined in accordance with
the Schedule of Benefits exclusive of any adjust-
ments provided for on accownt of Other Income Bene-
fits or any workman’s compensation benefit.”
Translated into plain words, this clause means that the
premiums charged employees under the terms of the
policy are calculated not taking into account deductions
in monthly income benefits categorized under “Other In-
come Benefits” including “periodic cash payments” pro-
vided on account of an employee’s disability under the
Federal Social Security Act. Thus, by the terms of the
group disability insurance contract itself, payment of
65a
premiums are calculated without any allowance for re-
duction to monthly income benefits while payment of
benefits are calculated not only after deduction of the
various items enumerated under “Other Income Bene-
fits“ but after taking into account increases in such
“Other Monthly Benefits” when the employee has been
declared permanently disabled and thus eligible for dis-
ability payments. The interaction of these contract
clauses is indeed calculated to reap unconscionable wind-
fall profits for defendant CGLIC which should not be
countenanced by this Court under prevailing concepts of
federal public policy reflected in Section 207 of the Social
Security Act (42 U.S.C., paragraph 407) and the various
provisions of the Employee Retirement Income Security
Act of 1974 (29 U.S.C.A., paragraph 1001, et seg.) and
particularly parts four and five of Title I of the latter
Act.
14. It is further submitted that the pleadings in this
class action pose complex issues of fact and unsettled
questions of law involving significant matters of public
policy. In the words of an excerpt from the purpose
clause of a model regulation to prohibit the offset of in-
creased social security benefits in group disability in-
come policies proposed by the National Association of
Insurance Commissions:
“When Congress increases social security benefits to
disabled persons, it is to provide the disabled per-
sons with additional income regardless of any other
income or insurance benefits payable to such persons.
Accordingly, to permit such an offset would nullify
the purpose of the social security legislation and
would result in an inequity which is contrary to the
expectations of the disabled insured.”
In order to fully air the publie policy questions at issue
in this action there must be adequate opportunity to
fully develop the public policy issues relating to the
66a
social security offset practices of defendant CGLIC as
well as to obtain necessary discovery.
15. Based on the foregoing, it is respectfully sub-
mitted that plaintiff Lamb is not yet in a position to
fully present by affidavit facts essential to justify her
opposition to the motion for summary judgment. In the
exercise of its sound discretion, this Court should deny
the motion for summary judgment or, in the alternative,
at least order a continuance to permit discovery to be
made by counsel for plaintiff Lamb and allow for fur-
ther development of factual material pertinent to the
public policy issues that should be determined in con-
nection with this class action.
Respectfully submitted,
/s/ Robert H. Jaffe
ROBERT H. JAFFE
Sworn and subscribed to before me
this 22nd day of March, 1978.
/s/ Paula K. Daniel
PAULA K. DANIEL
Notary Public of New Jersey
My Commission Expires Dec. 1, 1981
Registered Union County
[SEAL]
67a
EXHIBIT . A“
Attached to Affidavit of Plaintiff
Anneliese B. Lamb
OVERLOOK HOSPITAL
Summit, New Jersey
November 20, 1969
Dear Mrs. Lamb:
Overlook’s Long Term Disability Insurance program
became effective October 1, 1969. However, since group
premium rates are affected by the age, sex and income
of its members, final rates could only be determined
after the enrollment closed (October 31, 1969). Your
adjusted monthly rate is $7.58.
You will note that in most cases this rate is lower
than your initial computed rate.
Premium deductions will normally be taken from the
first paycheck each month.
In order to bring your monthly payments up-to-date,
however, it will be necessary to make the initial deduc-
tions in the following manner:
November 20 October premium
December 4 November premium
December 18 December premium
If this should present a particular problem to you,
please contact me as soon as possible.
Should you decide to discontinue your Aetna coverage,
please sign the enclosed cancellation card and return it
to my office.
Very truly yours,
/s/ F. E. Marshall
F. E. MARSHALL
Director of Personnel
68a
EXHIBIT “B”
Attached to Affidavit of Plaintiff
Anneliese B. Lamb
YOUR LOSS
At your present age, if you were disabled, you would
have a loss of income to age 65 of $140,558.
MONTHLY CONTRIBUTION
The monthly cost is $1.14 for each $100 of Monthly
Benefit. Premiums will be paid by payroll deduction.
Your monthly deduction will be $8.34.
69a
Interrogatories Filed September 1, 1977 With Answers
Filed December 5, 1977
RoBerT H. JAFFE, P. A.
8 Mountain Avenue
Springfield, New Jersey 07081
(201) 467-2246
Attorneys for Plaintiff
HONORABLE VINCENT P. BIUNNO
° Civil Action No. 77-1290
*
ANNELIESE B. LAMB, individually and on behalf
of all other persons similarly situated,
' Plaintiff,
V.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
a corporation of the State of Connecticut,
Defendants.
INTERROGATORIES
TO: McCarter & English
550 Broad Street
Newark, New Jersey 07102
Attorneys for Defendants
PLEASE TAKE NOTICE that the plaintiffs require
of the defendant answers to the following Interrogatories
within the time prescribed by the Rules of Court.
RoBERT H. JAFFE, P.A.
Attorneys for Plaintiff
By: /s/ Howard G. Schlesinger
HOWARD G. SCHLESINGER
Dated: August 30, 1977
70a
I
Definitions
As used herein:
A. The word “person” means any natural person and
any corporation, partnership, association, joint-venture,
firm or other business enterprise or legal entity and
means both the singular and the plural.
B. The word “document” includes, but is not limited
to the original or any copy of books, records, reports,
tape recordings or memoranda or notes of conversations
and meetings, notes, letters, telegrams, diaries, scheduled
graphs, charts, contracts, releases, studies, analyses, can-
celled checks, summaries, booklets, circulars, bulletins,
instructions, minutes, bills, questionnaires, tapes, tape re-
cordings, correspondence, financial statements and drafts
of any of the foregoing, as well as any other tangible
things on which information is recorded in writing or
sound or in any other manner and including supporting
underlying or preparatory material.
C. “Communication” means any oral statement, dia-
logue, colloquialism, discussion, conversation or agree-
ment.
D. “Identify”:
1. When used with reference to a natural person,
means to state the full name, present or last known
address, past and present positions of any partner,
officer of employee of the defendants, and if not such a
partner, officer or employee, the occupation or business
and position, if known, of such person. When sued with
reference to any particular person, the information other
than the full name need be given only once.
2. When used with reference to a corporation, part-
nership, association, firm or other business enterprise or
legal entity, means to state the full name and address
71a
and a brief description of the primary business in which
such entity is engaged. With respect to any particular
entity, the information other than the full name need be
given only once.
8. When used with reference to a document, means
to state (a) the date, type of document (e.g., letter,
memorandum, ete.), author, addressee, recipient, title
and file or identifying number; (b) present location and
custodian; and (c) the substance thereof or to annex
to and incorporate in the answers to these interrogatories
a true and correct copy thereof. If any such document
is no longer under your control, state what disposition
was made of it, by whom, and the date thereof.
4. When used with reference to a communication,
means to state the substance thereof, the identity of the
persons between whom it was made the identity of each
person present and the date when it was made, and
identify each document in which such communication
was recorded or described or referred to.
5. When used with reference to an act, means to
state the substance thereof; the identity of the person
who participated and/or were present, the date or
dates and location thereof, and each document or com-
munication in which such act was recorded or described
or referred to.
II
Manner of Answer
In answering each interrogatory:
A. Identify each document or communication or act
(1) relied upon in the preparation of each answer, or
(2) which forms all or part of the basis for the answer,
or (8) which corroborates the answer, or (4) the sub-
stance of which forms all or part of the answer.
72a
B. If all the information furnished in answer to all
or any part of an interrogatory is not within the per-
sonal knowledge of the affiant, identify each person to
whom all or any part of the information furnished is a
matter of personal knowledge, and each person who
communicated to the affiant any part of the information
furnished.
C. If the answer to all or any part of the interroga-
tories is not presently known or available, include a
statement to that effect, furnish the information known
or available, and respond to the entire interrogatory by
supplemental answer in writing and under oath within
ten days from the time the entire answer becomes known
or available.
1. With regard to the premiums paid by plaintiff Lamb
for her group disability policy with Overlook Hospital
Association, state how defendant CGLIC arrived at the
basis for the initial premium rate of $1.14 for each $100
of Monthly Benefit.
ANS. $1.14 per $100 of Monthly Benefit refers only to
the portion of the premium to be paid by the enrolled
employee. The total premium of $1.48 per $100 of
Monthly Benefit was calculated in accordance with a
computer program developed for that purpose which is
no longer in existence. The program was based on four
factors: 1) frequency of disability occurences based on
1964 Commissioners Disability Table (CDT), 2) termi-
nations rate based on 1964 CDT, 3) loading factors, and
4) Social Security integration calculation based on either
unfrozen or frozen Social Security integration.
a. If actuarial calculations and computations were
made, state the name and address of each and every
person, firm, or organization who prepared these
calculations.
78a
ANS. The computer program was prepared by Defend-
ant’s Group
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