Signing that Release Agreement with Your Employer Could Cost You Your Long Term Disability Benefits

Employees in Chicago who separate from their employer, voluntarily or involuntarily, often are presented with separation and release agreements to sign in exchange for some separation pay, perhaps a few weeks’ worth or more.  Few employees give much consideration to how that release agreement impacts any employee benefits, such as long term disability insurance or life insurance with a waiver of premium provision, and do not anticipate it could prevent them from bringing a civil action under ERISA § 502(a).  Long term disability is a unique kind of benefit in that the triggering event must occur while in active employment, but the benefit is ongoing thereafter. Health insurance can be replaced with substitute coverage.  If the employee is disabled and qualifies for a waiver of premium benefit (whereby the person is no longer in active service, but keeps the life insurance coverage without paying premiums because he is totally disabled), there can also being ongoing benefits that may be in jeopardy if released through a release agreement with an employer.

Many mistakenly believe that if the long term disability or life insurance benefits are paid by an insurer, any agreement signed with the employer will have no effect on those insured benefits.  That may or may not be the case.  Most release agreements with employers today are worded so broadly as to include in the definition of “Released Parties,” affiliates and/or benefit plans. Both of those terms will usually be construed to include in the release any claims for long term disability or life insurance benefits.  Just imagine that you became sick and qualified for disability benefits, and to keep your life insurance at no cost, and signing a release agreement with your employer for a couple weeks pay ends up costing you both the monthly disability benefits and the life insurance (likely both worth more than the severance amount paid by your employer).  Such a travesty occurred recently in Gonda v. Permanente Medical Group., Inc., No. 11-cv-01363, 2015 U.S. Dist. LEXIS 18892 (N.D. Cal. Feb. 17, 2015).
In Gonda, Dr. Thomas A. Gonda was a surgeon on leave receiving long term disability benefits.  After he had been on leave for some time, his employer offered him some severance in exchange for a release of claims, including all ERISA claims.  The insurer of the long term disability benefits, Cigna (through its underwriting arm, Life Insurance Company of North America), was not a party to the agreement, but administered the claims for the long term disability plan and paid its benefits as the insurer.  When Cigna terminated Dr. Gonda’s benefits, and after he went through two administrative appeals, Dr. Gonda sued for the benefits.  Cigna raised the defense that Dr. Gonda waived these claims in the release agreement with his employer.  Despite raising numerous arguments attempting to evade application of the waiver in the release agreement, the court ultimately agreed with Cigna and held Dr. Gonda could not recover his disability benefits because of that signed agreement, notwithstanding he became disabled before signing the agreement.
In our experience, the best course of action is to consult a knowledgeable ERISA attorney before signing any such release agreement, especially if you have a pending claim for any employee benefits, or you should raise a claim. Sometimes a good lawyer can negotiate the terms of that release agreement to allow your benefits claims to be excluded from the released claims. The negotiation could be tricky depending on how much it affects the employer. Some employers pay deductibles or coinsurance on approved disability claims while others do not. So if you are presented with a release agreement from your employer and have questions about the impact on any employee benefits, contact an experienced ERISA attorney.