Court finds employer's reasons for rejecting employee's application for short term disability benefits disingenuous

The Advocates for Justice Chartered Attorneys filed a CPLR Article 78 petition on behalf of a retired employee [Claimant] of the New York City Transit Authority [Authority] who had filed an application for "short term disability benefits" under the Authority's short term disability policy after Claimant's application for workers's compensation benefits was denied.

A Workers' Compensation Board Administrative Law Judge [ALJ] found that Claimant suffered from a psychiatric injury, including post-traumatic stress disorder, but determined that there was insufficient evidence that Claimant had experienced "stress at work greater than the usual irritations to which all workers in similar employment are normally subjected." The Workers' Compensation Board affirmed the ALJ's findings and decision.

The Authority advised Claimant that his application for short term disability benefits was approve by Occupational Health Services based on its finding that Claimant suffered from a qualifying medical condition. This finding, however, "did not determine if Claimant  was eligible for short term disability benefits." 

Ultimately the Authority orally advised Claimant's counsel that a final determination had been made that Claimant was not eligible for short term disability benefits. This decision was subsequently confirmed in a letter to counsel in which the Authority explained that Claimant "was not eligible since managers/non-represented employees are not permitted to use sick leave benefits for absence due to claimed injury on duty and exhaustion of sick leave is a prerequisite for short term disability benefits."

Supreme Court found that Claimant had commenced this proceeding within the applicable statute of limitations* but dismissed Claimant's petition on the basis of the Authority's representation that its short term disability policy rendered "workers who applied for Workers' Compensation benefits ineligible for short term disability benefits." Claimant appealed the Supreme Court's ruling arguing that the denial of his short term disability application on this basis was arbitrary and capricious.

The Appellate Division agreed, finding the Authority's denial of Claimant's short term disability benefits claim was arbitrary, capricious and irrational for a number of reasons, including:

1. Authority never notified Claimant that it was denying his claim because he had previously applied for Workers' Compensation benefits.** 

2. Nothing in the Authority's Employee Benefit Summary, its short term disability policy, or its letter confirming that Claimant's short term disability claim had been denied states that employees are barred from seeking short term disability benefits if they have previously applied for Workers' Compensation, places the rationality of the Authority's determination into question.

3. There is no risk of "double dipping," which is the sole rationale the Authority gave for interpreting its short term disability policy to bar an employee who has applied for Workers' Compensation from applying for short term disability as Claimant applied for short term disability benefits after his Workers' Compensation claim had been denied.

The Appellate Division opined that the Authority's position with respect to Workers' Compensation was disingenuous as it was inconsistent with its position regarding what the disability policy covers. If the Authority claims that the policy only covers non-work-related illnesses such as cancer or a heart attack, then it would have had no reason to be concerned about "double dipping," as Workers' Compensation benefits are provided only in the event a claimant has suffered a work-related injury or disease. 

The court said that the Authority's was similarly disingenuous to argue that Claimant was not eligible under the disability policy because he did not exhaust his sick leave as the Authority's letter confirming the denial of Claimant's short term disability application indicated that Claimant was "not permitted to use sick leave benefits for absence due to claimed injury on duty and exhaustion of sick leave is a prerequisite for short term disability benefits." The court observed that had Claimant been approved for Worker's Compensation, the Authority's rationale might hold but once Claimant was denied those benefits no rational basis for denying petitioner his sick time could be advanced.

The Appellate Division then remanded the matter to the Authority "for calculation of Claimant's short term disability benefits after deduction of Claimant's sick leave credit."

* In McLaughlin v Saga Corp., 242 A.D.2d 393, the Appellate Division held that if the party is able to submit "proof of mailing within the limitations period," the application or appeal is timely.

** The Appellate Division's decision in this action states that the Authority "had not notified [Claimant] of this alleged prohibition and nothing in the Authority's Employee Benefit Summary or short term disability policy states that employees who have applied for Workers' Compensation benefits are not eligible for short term disability" benefits.

The decision is posted on the Internet at:
http://www.nycourts.gov/reporter/3dseries/2020/2020_01694.htm