Why is the Summary Plan Description (SPD) so important when analyzing a long-term disability claim under ERISA?
The reason centers on the employee’s (and employer’s) ability to understand what they are paying for. The actual policy language in ERISA long-term disability plans is exactly what most people would imagine – long and difficult to understand. The SPD goal is to represent an accurate snapshot of the policy highlights so a layperson (non-insurance industry) can understand what the heck they are paying for.
Under the summary plan description (SPD), long-term disability was defined as not being able to perform the duties of one’s own occupation at the time one became disabled, and the benefits continued until age 65, recovery, or death – whichever occurred first. Under the plan, benefits continued for two years and, subsequently only if the employee could not perform the duties of any job. The question was which terms controlled. The court found that the different results arose not from an omission, but rather from a direct conflict between the SPD and the plan, and thus, the SPD controlled. A disclaimer, that in the event of a conflict, the plan would prevail, was not applied because if an employee were expected to read the entire plan to obtain a basic understanding of the benefits offered, then there was no point in creating a summary booklet. Also, the employee could not have been expected to rely on a letter, which set forth all the eligibility terms under the plan, that was received after he was disabled. Moreover, even in the absence of a conflict, the SPD would have probably failed ERISA requirements under 29 U.S.C.S. § 1022 and 29 C.F.R. § 2520.102-2.
The court concluded that the terms of the SPD controlled and therefore sustained the employee’s motion for summary judgment and denied the employer’s cross-motion for summary judgment.
Heady v. Dawn Food Prods., 2003 U.S. Dist. LEXIS 21634 (W.D. Ky. Nov. 25, 2003):
“The basic rule is easy to state and difficult to apply. HN3 When an SPD simply omits rather than contradicts plan details, the plan will govern. Sprague v. Gen. Motors Corp., 133 F.3d 388, 401 (6th Cir. 1998). Where an actual conflict exists between the SPD and the Plan, the SPD controls. Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d 134, 136 (6th Cir. 1988); see also Helwig v. Kelsey-Hayes Co., 93 F.3d 243, 250 (6th Cir. 1996). No one would seriously dispute that the SPD and the Plan are different. Determining whether that difference arises from a direct conflict or from a mere omission in the SPD requires a little more work….”