Alaska Employment Law

When a Long Term Disability Plan uses the insured’s “basic monthly earnings” to calculate the payment and defines that phrase as “the insured’s monthly rate of earnings,” the number of hours the employee actually worked per month is irrelevant, according to the 9th Circuit:

The starting point of the LTD benefits calculation is the insured’s “basic monthly earnings,” defined as “the insured’s monthly rate of earnings from the employer in effect just prior to the date disability begins.” AIG urges that “basic monthly earnings” be equated with the total pay received by the insured in the one month period immediately before the insured becomes eligible to receive LTD benefits. AIG’s argument relies on two distinct premises: first, that “monthly rate of earnings in effect” means actual take-home pay; and second, that “date disability begins” means “date covered disability begins” — that is, a disability not excludable as a pre-existing condition.

We reject the first of these premises because it renders the “rate of” language nugatory.  See Richardson v. Pension Plan of Bethlehem Steel Corp., 112 F.3d 982, 985 (9th Cir. 1997). The ordinary understanding of a “rate” is the “amount paid or charged for a good or service.” Black’s Law Dictionary (8th ed. 2004). It is thus a step removed from actual take-home pay, because calculation of the latter requires that the rate be multiplied by the quantum of services performed during the period of measurement. On AIG’s reading, the “basic monthly earnings” of a newly hired employee who became fully disabled partway through her first pay period would be her take-home earnings from that fractional pay period. This interpretation is unreasonable: the number of hours that hypothetical employee managed to work has no bearing on her rate of earnings.

Hineman v. Long Term Disability Plan of ETrade Group, Inc., 2008 WL _______ (9th Cir. May 23, 2008)(unpub.)