With the start of the new year, we can all now turn our attention to tax issues.  A recent case demonstrates the need to be careful with what is on your tax returns and the information reported to a long-term disability insurer. Pankey v. Aetna Life Ins. Co., 2024 U.S. Dist. LEXIS 233286 (M.D. FL December 27, 2024).

The case involves a professional engineer, Mr. Pankey who was found disabled by Aetna back in November 2009 for “bilateral sensorineural hearing loss that also affects his speech”. About 10 years later, Aetna denied the claim and refused to reverse that decision on appeal by contending that Mr. Pankey's refusal to provide tax returns meant he failed to meet the proof of loss provisions and thus was no longer disabled. Mr. Pankey was forced to file a lawsuit. The magistrate judge provided a report in his favor.

 The first question most people have is how could an insurance company decide someone was disabled for 10 years and then terminate the claim with no evidence of improvement? Isn't that inconsistent?  In this case there was a dispute regarding tax returns, which often have little to do with disability. For those 10 years, there were at least four claim terminations, many of which involved disputes over the necessity of tax returns which involved Mr. Pankey's spouse's income as well as her Social Security number and other confidential information. On prior instances the claim was reinstated but not the last time.

 As is the case with many insurers, a claimant questionnaire is sent out to claimants periodically. This questionnaire is important as the insurer is specifically looking for reasons to terminate the claim. In this instance it was disclosed that Mr. Pankey received income from Brown Little Development. The income from that company, however, was for a passive real estate investment and not earnings from work. Nonetheless, in 2014 Aetna demanded tax returns.

 Instead of providing returns going back to 2011, Mr. Pankey questioned why the return was necessary and wanted to know what financial information was needed. He volunteered that there was no financial information regarding any entity other than the real estate company. Further, he was concerned over confidentiality for his wife given this was a joint tax return. Insurance companies do occasionally get hacked and confidential information gets leaked.

 Aetna said it only wanted information regarding Brown Little Development, but it refused to guarantee the confidentiality of his wife's information. It terminated benefits when he refused to provide the tax returns. Mr. Pankey challenged that and agreed to provide tax returns for the real estate company but not his personal tax returns. Benefits were reinstated.

 This situation occurred a few more times. Each time Mr. Pankey only provided the real estate company K-1 schedule or the tax returns for the company and not his personal tax returns. That was good enough for Aetna for ten years. This last time Aetna again demanded the tax returns and threatened to terminate benefits again if he did not comply. Mr. Pankey again furnished the K-1 information and even a Social Security earnings report but refused to provide his personal joint tax returns. However, this last time Aetna refused to reinstate benefits after the appeal. That was despite the fact that Mr. Pankey was still disabled and had provided the same K-1 information as always.  

 In litigation, the magistrate judge agreed with Mr. Pankey that this was not a reason to terminate benefits of a disabled individual.  He found that at most, Aetna had a right to suspend benefits. Next the court noted particularly:

 Plaintiff received disability benefits from December 26, 2011, AR522, until July 15, 2022, AR756—more than 10 years. During that time, Plaintiff never provided any personal tax returns and Defendant still paid benefits. Plaintiff asserts that Defendant should be bound by its prior interpretation of proof required by the LTD Plan, citing Bryant v. Community Bankshares, Inc., 265 F. Supp. 3d 1307, 1323-24 (M.D. Ala. 2017), aff'd, 736 F. App'x. 841 (11th Cir. 2018), and Epolito v. Prudential Insurance Company of America, 737 F. Supp. 2d 1364, 1375 (M.D. Fla. 2010). While these cases are not binding on the Court, they stand for the idea that one factor in determining whether a decision is arbitrary and capricious is whether the plan administrator applied the factors uniformly. (Emphasis added).

 This case illustrates an issue that is becoming all too common. Insurance companies frequently “go fishing” and demand information that is not needed and is not relevant. Insurance companies simply want to force claimants to do what they say and then if claimants insist on fairness and reasonableness, they act in high-handed fashion terminating benefits. While Mr. Pankey prevailed at least to this point in the litigation, it is unfortunate that he had to "make the trip" to require Aetna to act with reasonableness.  This case also underscores the necessity of having counsel during the claim process to make sure that red flags are avoided on claimant questionnaires. A strong claim record makes a strong case.