Charles Martorello ("Plaintiff") sought to have his bonus amounts excluded from Sun Life Assurance Company's ("Defendant") calculation of his 'disability earnings,' which affected his entitlement to partial disability benefits. The parties filed cross-motions for summary judgment and the Northern District Court of California (Judge Hamilton) granted Plaintiff's motion and denied Defendant's motion.
The District Court found the Sun Life Policy ("Policy") contained an ambiguity with regard to the inclusion of bonus amounts in the calculation of "disability earnings," and by extension, partial disability benefits. The Court held the term "disability earnings" must be construed in favor of the Plaintiff and therefore excluded as bonus income in the calculation of Plaintiff's "disability earnings." The Court held Defendant's inclusion of bonus income in calculating the Plaintiff's "disability earnings" was improper.
In reaching its decision, the Court applied standard rules of contract interpretation looked to the Policy terms to make a determination. Under the Policy, an employee's entitlement to partial disability benefits is determined by comparing the employee's "Disability Earnings" and his "Indexed Total Monthly Earnings."
The Policy defined "Disability Earnings" as "the employment income an employee receives while partially disabled." However, "Indexed Total Monthly Earnings" depended upon the definition of "Total Monthly Earnings," which was defined as "the employee's basic monthly earnings as reported by the employer immediately prior to the first date total or partial disability begins." The definition of "Total Monthly Earnings" excluded bonuses, commissions, overtime pay or any other extra compensation."
Defendant contended the "Disability Earnings" provision's reference to "employment income" referred to all income derived from employment including bonuses. Plaintiff argued that because the definition of "Total Monthly Earnings" expressly excluded bonuses, it was inconsistent to construe "disability earnings" to include them, especially since the definition of "disability benefits" was silent on whether a bonus is expressly included as 'employment income.'
The District Court found both parties articulated reasonable interpretations of the Policy language and an ambiguity in the Policy with regard to the inclusion of bonus amounts in the calculation of "disability earnings," and by extension, partial disability benefits. Ninth Circuit authority construes policy terms in accordance with "the context of the surrounding disability plan, tends to generally infer ambiguities whenever plan language is susceptible of two reasonable interpretations, and will impose upon insurers the requirement to set forth any relied upon definitions with particularity."
Here, the District Court held the ambiguity must be construed in favor of the employee.
In applying these principles, the District Court concluded the Policy disclosed an ambiguity with regard to the inclusion of bonus amounts in the calculation of "disability earnings," and by extension, partial disability benefits, and therefore the phrase "disability earnings" must be construed in favor of the employee and the Plaintiff's bonus income was excluded from the calculation of his "disability earnings."
The District Court held the fairness of its conclusion was bolstered by the fact that from October 2006 through August 2007, the Plaintiff never hid bonus amounts from Defendant and therefore Defendant had numerous prior opportunities to construe the Policy benefits with reference to the Plaintiff's earlier bonuses. The District Court entered judgment in favor of Plaintiff and remanded the matter to the insurer to calculate the benefit amounts owed to Plaintiff.
Click here for opinion.
This opinion is not final. Though it has been certified for publication, it may be modified on rehearing, or granted review by the Ninth Circuit Court of Appeals. If any of these events occur, the opinion would be unavailable for use as authority in other cases.
This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees