Change #5: Restrictions on Retroactive Cancellation
One weapon utilized by insurance companies is rescission. That means cancellation of a contract and the return of the parties to the position they would have been in had the contract never been made. The following example illustrates the harshness of a retroactive cancellation of long term disability insurance:
You thought you had long term disability insurance, and your employer had properly paid the premiums on your behalf. You became disabled and filed a claim and received benefits for five years. Now the insurance company, after conducting a careful audit in year six, finds that you should not have been covered. Now it rescinds that insurance coverage and demands repayment of five years of benefits. You have not been able to work due to serious medical issues for over five years and you relied on that long term disability insurance to cover you in your time of need. You cannot pay the money back, as you spent it to survive month-to-month. Even worse, how will you survive with the loss of the benefit now?
The above scenario could occur under the old claim procedure regulation. Now the definition of an adverse benefit determination includes audits that retroactively go back in time. The insurer can still get out of the claim if premiums were not paid. However, other audits such as failure to fill out an evidence of insurability form will fall underneath the definition of an adverse benefit determination and rights arise under the regulation. Time limits will be applicable to such decisions. A seasoned ERISA attorney will be able to guide you with such a problem. Again, the claim procedure regulation has injected a bit more fairness for the claimant.