The Games Long-Term Disability Insurers Play: Unlimited Fouls

In basketball, certain physical contact with a player on the other team is deemed by the rules unfair and considered a foul. The penalty is free throw(s), or the ball is put in play again. Intentional fouls are used to prevent the other team from scoring or to preserve time. Sometimes the last minute of a game actually lasts substantially longer because the team that is behind fouls the other team to stop the clock. The check on unlimited fouls is that players who commit five fouls are barred from further play in the game.

But what if there were unlimited fouls? That is what we have with ERISA. And, that is a game some insurers like to play.

We see this with life wavier of premium claims and long-term disability claims. The ERISA insurer denies a claim, the plan participant appeals and challenges that denial, and it is refused. Then the plan participant files a lawsuit and the court finds that the insurer acted wrongfully (“fouled”). The ERISA insurer is ordered to pay back benefits and the plan participant is placed back on claim. The lawsuit is over. A few months go by (or maybe a few years) and the insurer terminates benefits again. The participant appeals. The appeal is denied. The participant must file another lawsuit. The court rules in favor of the participant again – calling a “foul” on the insurer. The plan participant receives back benefits and goes back on claim. And so it goes, on and on. Unlimited fouls.

A recent case illustrates this in part. In Peer v. Liberty Life Assurance Co. of Bos., No. 18-13173 (11th Cir. Feb. 8, 2019), Peer filed suit for waiver of premium benefits. That is when life insurance is free and kept in place because of disability. Liberty recognized the foul when the “referee” was closely watching and reversed its earlier denial of Peer’s claim. This meant the case would be over. Peer, fearing Liberty would do this again, asked the Court for declaratory relief. The court refused. Peer appealed to the 11th Circuit. That Court refused finding, “Absent an adverse benefits determination, there is no ripe claim before us.” So, Liberty has unlimited fouls and there is nothing to prevent it from discontinuing payments again.

If an insurer plays the game as Liberty played it – reversing its denial after a lawsuit is filed but before the court blows the whistle –its foul is never even public record! Imagine how much money an insurer could save given that not every participant would file a lawsuit. After all, it has unlimited fouls! That is…unless you call us when the foul is first committed!

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