By Pension and Benefits Editorial Staff
An employee who worked as a cryotherapy technician qualified as “sales personnel” under his employer’s group insurance plan, the U.S. Court of Appeals for the Tenth Circuit ruled, finding that he was entitled to additional long-term disability (LTD) benefits as a result. The evidence in the record, including emails from the insured’s employer referring to “bonuses” he had earned selling the company’s products and services, supported the conclusion that a reasonable person in the insured’s position would have believed himself to be a salesperson.
The insured had worked for a pharmaceutical company until a degenerative eye condition forced him to retire. He participated in the company’s employee welfare benefit plan, which was administered by the Life Insurance Company of North America (LINA). LINA had issued to the employer a group LTD policy governed by ERISA. The policy, which named LINA as the fiduciary for deciding claims, divided employees into two classes: Class 1, which included employees other than sales personnel; and Class 2, sales personnel. Under the terms of the policy, employees were entitled to monthly disability payments worth 60 percent of their average pre-disability earnings. For Class 2 employees, the definition of earnings included payments “received from bonuses or target incentive compensation bonus[es].” The policy did not define “sales” or “sales personnel.”
LINA approved the insured’s claim for LTD benefits, but categorized him as a Class 1 employee. The insured objected, asserting that he “sold products while out in the field” and that the administrator’s classification would significantly reduce his benefits. Approximately 70 percent of the insured’s earnings came from his base salary, and 30 percent from sales-driven compensation, including bonuses. After LINA denied his administrative appeals, the insured filed suit.
Standard of review. Contrary to LINA’s assertion, nothing in the policy language granted it discretion to conclude who qualified as a salesperson. Rather, by stating that LINA “determines” eligibility, the policy merely clarified that LINA, and no one else, decided in the first instance whether to award benefits. Refusing to extend the policy language into a conveyance of any discretionary authority, the court reviewed LINA’s benefits decision under the de novo standard.
Salesperson. The question before the court was whether a reasonable person in the insured’s position would have believed himself to be a salesperson. Citing the Oxford English Dictionary, the insured asserted that a salesperson is one “whose job involves selling or promoting commercial products.” This “ordinary meaning” was recently endorsed by the U.S. Supreme Court.
Based on the evidence in the record, the court concluded that the insured clearly qualified as a Class 2 salesperson. As the district court had explained, the insured had responsibilities to sell and promote his employer’s commercial products and services at every available juncture and could have new cryotherapy cases to treat only if he successfully sold new doctors on those products and services. He also received sales bonuses. The appellate panel noted that the record contained numerous emails and presentations from company supervisors emphasizing to cryotherapists the importance of “help[ing] growth” by asking their partners if they knew of any other doctors who might be interested in performing cryotherapy, making sure that the physicians always had literature, and being “persistent” because “they might say no a couple of times.” Persistence is the hallmark of a good salesperson, the panel remarked. In addition, one of the emails referenced “the development of [cryotherapy technicians’] specific geography,” another telltale sign that the insured was a salesperson.
LINA’s post hoc characterization of the insured’s sales bonuses as “commissions” was not credible, given that it withheld federal taxes on those payments at the rate for bonuses. The court also rejected LINA’s argument that there was no requirement that the one lead per month the insured was required to obtain actually result in a sale. Although a salesperson may have a bad day or bad week when he is unable to close any sales, that does not change his job, which is to sell products. Moreover, even though the insured derived a majority of his income from non-sales activities, he could not continue performing cryotherapy services without selling the company’s products, and the insurance policy did not define how much selling an insured must do to be considered “sales personnel.” Accordingly, the panel concluded that a reasonable person in the insured’s position would have believed himself to be a salesperson. As such, the panel affirmed the district court’s award of Class 2 benefits to the insured retroactive to the date his LTD benefits commenced.
SOURCE: Hodges v. Life Insurance Co. of North America, (CA-10), No. 18-1279, April 2, 2019.
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