Rustad-Link v. Providence Health

Can a Disability Insurer Offset Your Malpractice Settlement in Montana? Rustad-Link v. Providence Health & Services, 306 F. Supp. 3d 1224 (D. Mont. 2018)

Boland Aarab PLLP

Not on the facts of this case. In Rustad-Link v. Providence Health & Services, 306 F. Supp. 3d 1224 (D. Mont. 2018), the U.S. District Court for the District of Montana held that Unum could not reduce a disabled employee’s long-term disability benefits to recoup her medical malpractice settlement for a below-the-knee amputation. The court applied de novo review, held that Unum had to produce its pre-appeal communications with in-house counsel, and ordered Unum to repay the withheld benefits and reinstate her benefits without the offset.

Key Takeaways

• Washington’s ban on discretionary clauses in disability policies applied to a plan that renewed after the ban, so the court reviewed Unum’s decision de novo (slip op. at 14–21; WAC 284-96-012).
• Under ERISA’s “fiduciary exception,” an insurer acting as claims fiduciary cannot claim attorney-client privilege over plan-administration advice given before the final administrative appeal (slip op. at 22–27).
• An undefined plan term, “same disability,” meant the same medical condition, not the same time period. Unum’s contrary reading was “impermissibly self-serving” (slip op. at 29–32).
• Ambiguous offset language is construed against the insurer (slip op. at 30–31, 35).

In this case sheet: At a glance · What the court held · What it means · Laws · When it applies · How hard · Related law · FAQ

The lawyers who handled this case are the lawyers who handle yours. Contact Boland Aarab PLLP for a free consultation at (406) 315-3737.

At a glance

What did the federal court hold in Rustad-Link?

Dawn Rustad-Link worked for Providence at St. Joseph Medical Center in Polson, Montana, and was covered by an ERISA long-term disability plan. Unum insured the plan and was its claims fiduciary (slip op. at 2–3).

• Her conditions. She was diagnosed with multiple sclerosis in 1996. In 2010 she suffered a below-the-knee amputation caused by negligent medical care (slip op. at 3).
• Unum’s shifting diagnosis. Unum approved benefits, and over the years internally switched her “injury causing disability” between the amputation and MS. It settled on MS in 2012, without telling her (slip op. at 5–8).
• The settlement. In 2014 her lawyer told Unum of a malpractice settlement for the amputation. Unum’s in-house counsel initially concluded that the settlement would not qualify for an offset (slip op. at 8–9).
• The offset. Unum then decided that MS “is not a basis for her disability” and that the amputation alone disabled her. It declared an overpayment of $46,856.28 and cut her monthly benefit to $115.71 until it recouped the settlement (slip op. at 9–10). Her administrative appeal was denied in July 2015 (slip op. at 11).

The court granted her motion for summary judgment and denied Unum’s:

1. Standard of review. Washington law governed the plan. Washington’s regulation provides that “[n]o disability insurance policy may contain a discretionary clause.” Because the regulation was in effect when her claim arose and the plan renewed each year, the court reviewed de novo (slip op. at 13–21). Even under abuse-of-discretion review, Unum’s structural conflict of interest was “apparent in the record” (slip op. at 21–22).
2. Privilege. Unum had to produce the 23 withheld communications with counsel dated up to its final appeal decision. Those dated afterward stayed privileged (slip op. at 22–27).
3. “Same disability.” The plan allowed offsets only for income “payable as a result of the same disability.” Nothing in the plan made “disability” a time period, and Unum’s reading was “impermissibly self-serving” (slip op. at 28–32).
4. Deductible income. The plan’s catch-all for third-party settlements was ambiguous and had to be read narrowly, in her favor (slip op. at 34–35).
5. Remedy. Unum had “attempted to benefit from Rustad-Link’s misfortune by unreasonably asserting an offset against a settlement for a different disabling condition.” It was ordered to reimburse the withheld benefits and reinstate her benefits without the offset (slip op. at 35–38).

The court also held that she was entitled to attorney’s fees under ERISA (slip op. at 36–37). In a later order, it awarded $41,024.90 in fees and costs and prejudgment interest at 1.79% (Order of Mar. 15, 2018, at 3).

What did Rustad-Link mean for the law?

Rustad-Link is a published district court decision. It does not bind other judges, but courts and litigants may rely on its reasoning. Its main points are:

• Discretionary-clause bans reach older plans when the claim arises later. The court followed Western District of Washington decisions applying WAC 284-96-012 when the claim accrued, not when the plan first took effect (slip op. at 16–21).
• The fiduciary exception applies to insurers until the final appeal. Applying Stephan v. Unum Life Insurance Co. of America, 697 F.3d 917 (9th Cir. 2012), the court rejected Unum’s argument that the communications were irrelevant under de novo review, calling it “circular” (slip op. at 23–26).
• An insurer cannot redefine a claim to reach a settlement. The court relied on the record showing that Unum changed its diagnosis only after learning of the settlement, without new medical information (slip op. at 33).
• Limits. The court did not hold that all third-party settlements are beyond an offset, or that labeling a settlement “not for lost wages” defeats one (slip op. at 36).

The plan in this case was governed by Washington law. A Montana plan governed by Montana law would be analyzed under Montana’s own insurance rules.

Which laws and rules apply?

• 29 U.S.C. § 1132: ERISA civil enforcement, including claims for benefits (§ 1132(a)(1)(B)) and attorney’s fees (§ 1132(g)(1)) (slip op. at 11, 32–33, 36)
• 29 U.S.C. § 1144: ERISA preemption and the savings clause for state insurance regulation (slip op. at 14 n.5)
• WAC 284-96-012: Washington’s ban on discretionary clauses in disability insurance (slip op. at 14–15)
• Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989): the default de novo standard (slip op. at 13)
• Fed. R. Civ. P. 56: summary judgment (slip op. at 12)

When might Rustad-Link apply to you?

• Your disability insurer wants a share of an injury settlement. Check whether the plan limits offsets to income from the “same disability,” and what condition the insurer has recorded as disabling (slip op. at 29–33).
• The insurer withholds its internal legal advice. Before the final administrative appeal, communications about plan administration may have to be disclosed (slip op. at 26–27).
• Your plan has a discretionary clause. State law may require de novo review anyway, depending on which state’s law governs and when the claim arose (slip op. at 14–21).

How hard is an ERISA disability case in Montana?

• The standard of review often decides the case. Under Firestone, review is de novo unless the plan gives the administrator discretion. If it does, courts review for abuse of discretion, adjusted for any conflict of interest (slip op. at 13–14).
• The record is usually limited. On de novo review, courts generally consider only the evidence that was before the administrator (slip op. at 25).
• Plan language controls, but ambiguity cuts against the insurer. Clear terms are enforced as written, and ambiguities are construed against the insurer (slip op. at 30).
• Fees are possible, but not automatic. A claimant must show “some degree of success on the merits” (slip op. at 36–37).

Related law and later decisions

Statutes and rules

• 29 U.S.C. § 1132 and 29 U.S.C. § 1144
• WAC 284-96-012: in effect since 2009 (slip op. at 14). Check the current version before relying on it.
• Fed. R. Civ. P. 56
• No Montana statute or rule was applied; the plan chose Washington law.

Later decisions citing this case

• None confirmed. An exact-citation search (September 2026) returned no later opinion citing it.

The Boland Aarab Way

Samir F. Aarab and Caitlin Boland Aarab of Boland Aarab PLLP represented Dawn Rustad-Link. The court’s decision rested on the administrative record: diagnosis codes, round-table notes and letters showing when and why Unum changed its position. Building that kind of record against an insurer is the same work we do in catastrophic injury cases and serious trucking and injury cases, where insurance questions often decide what a client actually recovers. When you hire Boland Aarab, you work directly with the attorneys whose names are on decisions like this one.

Frequently Asked Questions

Can a long-term disability insurer take part of my injury settlement? It depends on the plan. In Rustad-Link, the plan allowed offsets only for income payable “as a result of the same disability,” and the settlement was for a different disabling condition, so the offset was not allowed (slip op. at 29, 35–36).

Does my insurer have to share its lawyers’ advice about my claim? Under ERISA’s fiduciary exception, advice on plan administration given before the final administrative appeal may have to be produced to the beneficiary (slip op. at 23–27, applying Stephan v. Unum).

What standard does a court use to review an ERISA benefits decision? De novo, unless the plan validly gives the administrator discretion. In Rustad-Link, Washington’s ban on discretionary clauses required de novo review (slip op. at 13–21).

Work With the Lawyers Behind These Cases

Boland Aarab is a Great Falls trial firm. The same attorneys who brief and argue before the Montana Supreme Court and the Ninth Circuit handle our clients’ serious injury, trucking and wrongful-death cases from the first call. Contact Boland Aarab PLLP for a free consultation at (406) 315-3737.

About Boland Aarab PLLP: Boland Aarab PLLP is a Great Falls, Montana trial firm. Its attorneys, Caitlin Boland Aarab and Samir F. Aarab, have appeared in more than 40 matters before the Montana Supreme Court and have argued twice before the U.S. Court of Appeals for the Ninth Circuit. The firm carries on the Great Falls practice Thomas E. Boland began in 1974. Meet our attorneys.

Sources:

• Rustad-Link v. Providence Health & Services, 306 F. Supp. 3d 1224 (D. Mont. 2018) (CourtListener)
• Amended Opinion and Order, Doc. 36 (Jan. 31, 2018) (govinfo, PDF)
• Order on fees, costs and prejudgment interest, Doc. 43 (Mar. 15, 2018) (govinfo, PDF)
• 29 U.S.C. § 1132
• 29 U.S.C. § 1144
• WAC 284-96-012
• Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989)
• Fed. R. Civ. P. 56

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship.