Entire Contract

 

Most people think the policy or certificate itself is the entire contract. Typically, that not the case. What this means is that there may be several documents that together consist of the entire contract. Most policies will have a provision that defines what is in the entire agreement or contract.

 

Here is an example from a private policy:

 

ENTIRE CONTRACT. This policy with the application and attached papers is the entire contract between you and us. No change in this policy will be effective until approved by one of our officers. This approval must be noted on or attached to this policy. No agent may change this policy or waive any of its provisions.

 

This is especially important, because every document that is part of the overall agreement binds both parties. That is almost always more than just the policy. If you have a private policy, frequently the entire contract includes the application, a rider, and any amendments. To have the complete contract with the insurance company, you must have all these documents to know your rights.

 

If you obtain the policy through the workplace, there likely will be the contract between your employer and the insurance company, often called the policy. That policy may not be given to you. Then there will also be a certificate of insurance or summary plan description that is provided to you. Most often, the certificate of insurance is only a part of the contract. The Supreme Court has said that a summary plan description is not a binding document, but rather a summary of the plan document. To know the terms that control, you need the true and full agreement.

 

To understand your rights, you must know all the key terms in all documents that constitute the entire binding contract. Just having part of that agreement, such as only the certificate, is not enough. That is like having part of the rulebook in the game of football. It is critical to know all the rules before you submit a claim, rather than to learn them after a claim arises.

 

It is also important to remember that anything orally told to you, that conflicts with the policy may not be binding on either the insurance agent or the insurance company. Usually, only the actual agreement is binding, making it very important to have the whole agreement when it comes to understanding your policy terms.

 

Merger Clause – Limitation of Authority

 

Another concern, which is related to the above “entire contract” provision is legally called the “merger clause”. That name is not usually found in the policy. The merger clause is typically described by the words “limitation of authority” or by words disclaiming reliance on any statement not in the policy. The intent of this term is to limit any responsibility and duty of the insurance company to only the language contained in the contract. Any statements to the contrary are then due to be disregarded. The policy typically will have a provision in it that reads something like the following:

 

LIMITATION OF AUTHORITY. Only the president, vice president, or secretary of our company has the authority to act for us in a written and signed statement to waive or alter any contract or policy provisions or any of our requirements or bind us by any statement or promise relating to the contract issued or to be issued. Agents and brokers do not have the authority to change the contract or policy or waive any of its provisions.

 

Thus, regardless of what an insurance agent, an employer, or anyone from the insurance company tells you, the contract is not changed unless it is in a signed document. All agreements or promises are “merged” into this policy. Oral agreements or statements may provide evidence of how the policy is interpreted if there is ambiguity, but they do not legally change the policy terms.

 

The danger is that people usually rely on statements from other people about a policy. But if it is not in writing, courts may say you cannot rely on it. If someone misstates information about the policy, you may have some type of claim against them, but it will not change the policy. If you cannot find the coverage you need in writing in your contract, then ask the agent or the employer for help locating where that promise is found.

 

 

Discretionary Authority

 

Discretionary authority is legal language that is most commonly found in group disability policies, such as those offered in the workplace. It is not seen in a private disability policy typically. It refers to the fact that the insurance company has the right to determine the meaning of the policy and to interpret the facts under the policy as to whether a claimant is due to receive benefits or not. The legal effect of this largely depends on whether federal law, known as Employee Retirement Income Security Act (ERISA), governs the claim or not.

 

If Employee Retirement Income Security Act (ERISA) governs the claim, then courts may find that this clause requires that a judge's decision give deference to the decision of the insurance company. Therefore, if the insurance company is wrong its decision may still be upheld by the court if a reasonable basis to that wrong decision is found. Here is an example of a discretionary clause found to be valid by a court in the case, Crume v. Metropolitan Life Ins. Co., 417 F. Supp. 2d 1258, 1270 (M.D. Fla. 2006):

 

In carrying out their respective responsibilities under the Plan, the Plan Administrator and other Plan fiduciaries shall have discretionary authority to interpret the terms of the Plan and to determine eligibility for and entitlement to Plan benefits in accordance with the terms of the Plan. Any interpretation or determination made pursuant to such discretionary authority shall be given full force and effect unless it can be shown that the interpretation or determination was arbitrary and capricious.

 

The concern is that if the insurance company can be wrong but still win in court regarding its refusal to pay a claim, there is great incentive for it to deny claims regularly. That is in conflict with fiduciary duties owed to an insured. It need only furnish a “reasonable” basis for any wrong decision. This provision frustrates many individuals since it is unfair.

 

This clause forces many individuals to obtain a lawyer who is experienced in this area of law early in the claim process. That is because most group disability policy participants do not know how to legally prove a case under this harsh standard, and they lack the legal and medical expertise to present the case to the insurance company. It is important to obtain well qualified help during the claim process.

 

Many states have outlawed discretionary clauses. They are one of the most unfair and unreasonable provisions in a policy. If your state has not made these clauses unlawful, you should be concerned over your policy. You may want to have a private policy in place in addition to your group policy.

 

Jurisdiction and Venue

 

Jurisdiction refers to the court or authority that is entitled to decide the claims made under the policy in a lawsuit. It can refer to courts in a particular state, or even a particular court. Some disability policies may provide an arbitration clause with jurisdiction with only an arbitrator selected under the rules of a certain arbitration association.

 

Here's an example of such a provision from a policy:

 

Jurisdiction: Any legal action or proceeding with respect to this policy may only be brought in a court in Alabama.

 

Several concerns can arise if there is a jurisdiction provision in a policy. For example, if you are working in a different state than the headquarters of your company, your company may provide a disability policy that permits jurisdiction only in the state in which the company is based. That may be extremely inconvenient and impose an unnecessary burden on you. Having to litigate an Alabama case in Maine involves a financial travel burden. It also raises concerns over why that state or court was selected.

 

Venue on the other hand refers to the location within a state in which a lawsuit may be brought. It may refer to a particular county or district within a state. For example, perhaps jurisdiction for a lawsuit is proper anywhere in the State of Tennessee, but if there is a venue provision restricting it to Shelby County, then venue is only proper in that county. A judge in Johnson County may have the authority to decide the claim, but if venue is not proper under the policy it may be transferred to Shelby County, which is 8 hours away. Not exactly convenient if the insured lives in Johnson County.

 

Legal Action Limitation

 

Many people are familiar with the term statute of limitation. They know generally that under state laws there are time limits to file a lawsuit for a breach of contract or a personal injury. They vary from state to state. Many insurance policies, especially those governed by a federal law such as the Employee Retirement Income Security Act (ERISA), however, contractually provide a more limited time frame to file suit under the policy. It can be rather complicated to determine that deadline date to file suit. Nonetheless, limitations have been enforced as short as 90 days starting after the final appeal decision.

 

Here is an example of a limitation of action provision:

 

LEGAL ACTIONS

No legal action can be brought more than 3 years after the date proof of loss is required.

 

That provision requires a determination as to when proof of loss was required. The insured must look at the definition of proof of loss. Proof of loss sometimes only describes the initial time limit for proof of loss. What about those instances where the insured received benefits for several years and then the claim was terminated? That would fall under the “ongoing proof of loss” provision, but sometimes there is not such a provision. If that is the case, one must infer that the date you last submitted proof or could legally submit proof for the in progress claim is the start date for 3 years.

 

For example, if a disability arose October 1, 2022, but proof can be submitted up to January 1, 2023, then you will have 3 years from that January 1^st date to file a lawsuit. If your claim is paid a while, and then terminated July 1^st, but you legally have 180 more days to submit proof challenging that termination, then the clock for the 3 years may start December 28, 2022. 

 

This provision is critical because if a lawsuit is not filed before the limitation of action date, it will be barred. That is true even if the lawsuit is filed within the state statute of limitations date, which is almost always much longer, such as six years. It is helpful to ask the insurance company to tell you the latest date suit can be filed. Under Employee Retirement Income Security Act (ERISA) that is required for a full and fair claim review.

 

Next of Kin and Estate

 

Next of kin refers to your closest living relative and is usually determined by state law. For example, a surviving spouse may be considered closest next of kin ahead of children or parents. If there is no spouse, then the next of kin may be the children. If there are no children, then the parents and so on. Whether the relationship is good or bad is irrelevant usually.

 

Your estate refers to what you own when you die. Generally your estate has to be probated or proven before a court so that your last bills can be paid and then your assets distributed according to your will or to your next of kin.

 

These terms, next of kin and estate, occur often in disability policies. Some disability policies contain a provision that will pay a benefit to your next of kin or to your estate if you die while receiving long-term disability benefits. The amount is set by the policy. For example, three months of benefits is frequently seen. There may be a requirement to immediately report the death of the disabled person in order to be entitled to that benefit.

 

Obviously, one purpose of the benefit is to induce the next of kin to inform the insurance company when the insured has died so that the monthly benefit check will stop. Otherwise a joint account holder, such as a spouse may enjoy a disability check for six months or even a year after the death of the insured. That money may have to be paid back. To avoid these headaches prompt notice of death is rewarded with several months of benefits, under this provision.

 

Here is an example of “Next of kin” and “Estate”:

Benefits to which you are entitled may remain unpaid at Your death. Such benefits may be paid at Our discretion to your Estate or to your next of kin, being your spouse, followed by your parents, children, or brothers and sisters.