Bryant Legal Group’s disability attorneys take a proactive approach to insurance claims. We help professionals at every stage of their journey:
- Evaluating their coverage and identifying possible issues with the policy’s language before they need to file a claim
- Guiding clients through the disability insurance application process
- Negotiating with the insurance companies
- Filing appeals with the insurer, state, or federal court
Private disability insurance policies vary significantly from policy-to-policy, and so too do the coverage exclusions that apply to insureds.
Whether certain coverage exclusions apply to your policy — and the limitations imposed by those exclusions — is often heavily dependent on how “premium” the disability insurance policy is. More expensive policies tend to feature fewer limitations and more generous benefits.
Despite these variations, there are certain exclusions that are more commonly encountered than others in the disability insurance context. These include, but are not necessarily limited, to exclusions that disqualify coverage to those who have been:
- Disabled through intentional or self-inflicted injuries
- Disabled pursuant to military service
- Disabled in an “extreme” and “risky” scenario, as defined by the insurance policy (i.e., skydiving, bungee jumping, etc.)
- Disabled during the commission of a criminal offense
- Disabled due to some specific condition (the insurance policy may define a range of conditions that will not qualify)
- Disabled due to a mental health condition (though most disability insurance policies simply limit the time period of eligibility for such conditions)
Yes, absolutely. Not only is it likely that you will receive regular requests for updated information relating to your disabling condition (and its progression) from your insurer, but insurers will expect you to keep them apprised of any material changes to your medical condition(s). You must provide updated information as you bear the burden of the proof of loss as the insured under most disability insurance policies.
It’s critical that you do not forgo such notification, or you could not only lose your benefits, but you could also be held liable for damages.
Whether or not an insurer is entitled to rescind coverage and deny benefits if you have made a material misrepresentation on your original insurance application is a matter of state law.
Generally, whether a misrepresentation is “material” depends on the total circumstances surrounding such misrepresentation. If the misrepresentation would have reasonably caused the insurer to alter or refuse coverage, then it will likely be considered “material.”
For example, mistaken administrative information (i.e., use of an older address, or incorrect spellings of names or conditions) are unlikely to be considered material, while the failure to disclose serious medical history concerns is likely to be considered material.
Whether you are entitled to receive partial benefits — generally referred to as residual benefits — is dependent on the coverage that you purchased. Residual benefits are not always automatically included in private disability insurance policies and tend to be offered as a supplementary rider. If you do not purchase supplementary “residual benefits” coverage, then you may not be eligible for residual benefits.
In any case, if your plan does include some provision for residual benefits, then you may be entitled to receive a portion of your total disability benefits in circumstances where you have not been rendered “fully disabled” but have still had your ability to work and earn impacted by your condition.
How does it work?
- Residual benefits qualification can vary significantly, but as a general rule, it is measured by a percentage reduction in income or hours.
- For example, if your total income has been reduced by 40 percent in the wake of your disabling injury, then you may be entitled to receive 40 percent of your total disability benefit (monthly) as a partial income replacement.
- Thus, if you would have been entitled to $5,000 monthly disability benefits (for a fully disabling condition), you would be entitled to receive $2,000 per month in partial benefits.
It should be noted, however, that most insurers require that the impact of your partial disability meet a baseline percentage amount before you are entitled to receive residual benefits. If the impact of your partial disability on income is just five percent, for example, then you would likely be ineligible to receive any benefits.
Insurers must come up with some justification for denying your disability benefits claim — if their justification has no reasonable basis, then you should appeal the denial or pursue a lawsuit to recover your benefits.
Common justifications for a claim denial include:
- Lapse of coverage
- Material misrepresentations in the original insurance application
- Insufficient evidence of disability
- Application of a coverage exclusion
- Disability is tied to a pre-existing condition
- Failure to seek ongoing medical treatment
Definitions of “disability” are determined by the disability insurance plan or policy. Policies tend to define disability into three fundamentally different categories: specialty specific own-occupation, own-occupation, and any-occupation.
Specialty Specific Own-Occupation
If your insurance policy includes a specialty specific own-occupation definition of disability, then you will be entitled to benefits if you can prove that your condition renders you incapable of substantially performing the primary duties of your own occupation in the specialty in which you perform it.
For example, if you work as a trial attorney, but your disability has damaged your cognitive abilities, then you may be incapable of meeting the cognitive demands required of a trial attorney and as a result should be entitled to benefits under the policy.
If your insurance policy includes an own-occupation definition of disability, then you will be entitled to benefits if you can prove that your condition renders you incapable of substantially performing the primary duties of your current occupation. For example, if you work as a financial analyst, but your disability has damaged your attention span and your ability to remain on-task for more than 10 minutes at a time, then you may be incapable of performing the complex, hourlong analyses necessary for you to perform your job as a financial analyst.
Oftentimes, insurers attempt to deny benefits in the own-occupation context by arguing that the duties of your current occupation can be different, and that the duties of your current occupation are not indicative of the “norm” in the industry.
If your insurance policy includes an any-occupation definition of disability, then you will only be entitled to benefits if you can prove that your condition renders you incapable of substantially performing the primary duties of any other condition for which you are reasonably qualified (and that constitutes “gainful employment’). This is a very strict definition of disability and can require a nuanced approach to overcome.
Most employer-sponsored disability plans — except for those sponsored by public employers and religious organizations — come under the Employee Retirement Income Security Act (ERISA), which creates an exclusive federal regulatory scheme for benefits claims and subsequent challenges.
ERISA was created with the intention of protecting plan participants from the abuses of plan administrators, but over time, ERISA has actually developed into something of a headache for the plan participants it was originally meant to protect. If your plan is ERISA-governed, for example, then you must fully exhaust your administrative remedies before pursuing civil action against the plan administrator or insurer — this can extend the timeline of the dispute and keep you in a vulnerable position for longer.
Additionally, ERISA preempts bad faith actions against insurers, thus eliminating a significant recovery option for insured plan participants whose insurers have mishandled their disability claims.
In long-term disability situations, private disability carriers can make offers to buyout coverage so as to avoid having to payout benefits for the lifetime of the policy. When you accept a lump sum buyout, you must agree to forgo legal claims against the insurer for the benefits at-issue (and any related issues, such as a bad faith claim you might have against that insurer for how they mishandled the processing of your benefits). The benefits owed over the lifetime of the policy are negotiated and repackaged as a lump sum payment. If you accept the lump sum buyout, then you will not be entitled to receive monthly benefits payments.
Now, with that out of the way: is it worth it? Though it might seem like an unsatisfactory answer, the truth is that the attractiveness of a lump sum buyout depends on the circumstances of your disability claim and your own preferences.
A lump sum offer for a buyout is less than the total present value of your maximum future benefits under your disability insurance policy. Whether or not the offer for a buyout is reasonable or “worth it” for you to accept requires complicated analysis. For one thing, disability insurance benefits are not static in nature. The insurer may conduct surveillance over time, and will absolutely expect you to update them on changes in your medical condition(s), your continued medical treatment, and any efforts to return to work. It is in the insurer’s best interest for you to improve and therefore to no longer be “disabled” under their policy, thus terminating the receipt of benefits. By negotiating a lump sum buyout, you don’t have to worry about whether the insurer will terminate your benefits at some later date — you can focus on recovery.
Though in the past, federal circuit courts — when reviewing denial of benefits cases governed by ERISA — used to defer to the decisions made by the plan administrator (pursuant to the “abuse of discretion” standard), the law in many states has since changed significantly.
Many states have prohibited the use of discretionary provisions (transferring responsibility for claims handling and determinations from plan administrators to insurers).
In these states, ERISA jurisprudence now requires that the court review the denial of benefits decision in accordance with the “de novo” standard, which requires that the court review the denial of benefits as if no prior decision had been made (pertaining to the facts at-issue).
By reviewing denial of benefits claims de novo, the court empowers ERISA beneficiaries to a significant degree — you must present the facts that support your claim, and the court will evaluate whether you should have received benefits in accordance with the language/terms of the applicable plan.
Yes, absolutely — in fact, concern over plan mismanagement by fiduciaries is what led to the enactment of ERISA in the first place. ERISA fiduciaries have strict duties to act in the best interest of plan participants. Failure to do so could expose them to substantial civil liability under ERISA.
- When such a situation occurs, the plan participants have a right to sue and recover damages for their losses.
- Typically, this is accomplished through a class action, as there are many others in the “class” of plaintiffs who are similarly affected by the fiduciary violation.
- For example, suppose that the administrator of your ERISA-covered retirement fund mismanages the funds through extremely risky investments. The losses are so substantial that the plan can no longer pay out the benefits to which you’re entitled. You would almost certainly have a claim against the fiduciary.
Unfortunately, bad faith claims are not actionable under ERISA.
ERISA is a federal law that pre-empts state bad faith laws, including those of Illinois. If your disability benefits claim has been mishandled by the insurer, and ERISA applies, then you will not be entitled to bring a claim for bad faith. This can undercut your ability to obtain maximum damages in extreme cases, as bad faith claims often lead to significant damages (and sometimes, courts award punitive damages, which can further multiply the amount received).
In some limited cases, however, you may be able to bring a separate fraud claim against certain defendants. You’ll want to consult a qualified ERISA disability attorney in Chicago for an evaluation of your bad faith claims and how you might be able to strategize around the pre-emption issue.
Many common law fraud claims are pre-empted by ERISA as well — such a claim might only avoid pre-emption if you can show that the defendant owed you (and violated) a duty independent of the ERISA-covered plan.