The claimant, Martinez, was a disabled veteran who suffered from multiple sclerosis. In September 2010, Martinez became a participant in his employer's group LTD benefits plan (the "Plan"). When his health deteriorated in November 2012, Martinez submitted a claim for LTD benefits, which were insured by Sun Life. Under the Plan, Martinez was entitled to monthly benefit payments, less any "Other Income Benefits." While on claim, Martinez applied for and was awarded VA Benefits under the Veterans' Benefits Act. Martinez notified Sun Life of the award of VA Benefits. Thereafter, Sun Life informed Martinez that his VA Benefits were considered "Other Income Benefits" subject to offset under the Plan. Sun Life cited the entire "Other Income Benefits" provision, highlighting two specific sections: "The amount the Employee is eligible for under any other act or law of like intent" and "Disability or retirement benefits under the United States Social Security Act, or any similar plan or act . . . ."

Martinez appealed Sun Life's decision, asserting various reasons for the exclusion of VA Benefits as "Other Income Benefits" under the Plan, including that such benefits were not "compulsory" under the "Other Income Benefits" provision relating to "[t]he amount the Employee is eligible for under Compulsory Benefit Act or Law." In its letter denying Martinez's appeal, Sun Life cited a number of federal cases supporting its decision, including a Tenth Circuit decision which held that service-connected disability benefits are awarded under a "Compulsory Benefit Act or Law" pursuant to the same policy language as set forth in the Plan. Martinez then filed suit in Massachusetts District Court, asserting, inter alia, a claim for benefits under ERISA § 1132(a)(1)(B).

Following summary judgment in favor of Sun Life, Martinez appealed to the First Circuit. On appeal, the First Circuit reviewed, inter alia, whether Sun Life's alleged failure to clearly disclose at the administrative level that it was relying upon the "Compulsory Benefit Act or Law" provision for the offset, now precluded it from relying on this rationale in litigation. This argument was premised on ERISA's statutory notice provision, which requires that an insurer "provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant." 29 U.S.C. § 1133(1).

The First Circuit held that Sun Life's communications to Martinez during the administrative process complied with this mandate. In so holding, the First Circuit reasoned that although Sun Life highlighted other rationales for the offset in its letters, the "Compulsory Benefit Act or Law" provision was included, albeit not emphasized, in Sun Life's communications to Martinez. This included Sun Life's appeal denial letter, which featured a lengthy discussion of the Tenth Circuit's decision in Holbrooks v. Sun Life Assurance Co. of Canada, 570 F. App'x 831 (10th Cir. 2014), which relied on the "Compulsory Benefit Act or Law" provision to offset VA Benefits.

The court further stated that despite Martinez's argument that Sun Life failed to include the rationale at the administrative level, Martinez clearly understood that the "Compulsory Benefit Act or Law" provision was pertinent, because he addressed the alleged non-compulsory nature of VA Benefits explicitly in his appeal letter.

The First Circuit further explained that even if Sun Life had not adequately disclosed its rationale to Martinez, barring the company from raising the "Compulsory Benefit Act or Law" provision during litigation would not be the proper remedy. Typically, a plan is barred from asserting defenses to coverage not articulated to the insured only when the lack of notice results in prejudice to the insured. Given that this case was strictly one of contract interpretation—a question of law—and Martinez had a full opportunity to present his arguments on the construction of the Plan's provisions, the court found no prejudice to Martinez. Accordingly, the First Circuit agreed with the district court's decision to entertain Sun Life's arguments premised on the "Compulsory Benefit Act or Law" provision.

Finally, after thorough analysis on the issue of whether the term "Compulsory Benefit Act or Law" was ambiguous, the First Circuit held it was not and that VA Benefits, being compulsory benefits under the Veterans' Benefits Act once eligibility is established, were properly offset under the "Compulsory Benefit Act or Law" section of the Plan's "Other Income Benefits" provision.