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What If You (or Key Staff) Became Disabled? The Good, the Bad & the Ugly

Posted by David P. Martin | Jul 27, 2021 | 0 Comments

I. Introduction

We attorneys occasionally think about what would happen if we died. We have life insurance in place and so there should be plenty of money to cover the needs of our loved ones and help the firm either windup or carry-on in our absence. But what if you didn't die – but rather you are disabled? Every one of us is only one moment from disability from either a medical incident (e.g. a stroke) or an accident (e.g. auto accident with quadriplegia). Disability is something to seriously consider or we may in the words of Mr. Potter be “worth more dead than alive”.

Then there is also that key staff employee in your firm. That employee also is only one moment away from disability. And then what? Will your firm keep that employee on the payroll while waiting two years for the Social Security Administration to approve a disability benefit? Can you afford to do that? Is there a way for you to afford to help that employee out in case of such an event?

And finally, what about that client who brings several disability policies for you to look at and ask if they are good policies are not? Are you aware of the ramifications from a litigation standpoint as to different policy terms? After all the policy with the bigger benefit is not necessarily the best policy is it?

This presentation will cover some of the most relevant policy terms that occur with both private policies and group insurance policies. You would do well to purchase a private disability policy to cover your own financial needs in the event that you become disabled. But as to your key staff person your best option may well be that you obtain a group policy for yourself and all staff people at your firm. And as to your client you will need to be able to ascertain the differences between a group policy and a private policy to know if the coverage is reasonable or not.

No one wants to fight an insurance company just to receive benefits that are deserved. This presentation will help you identify the more troublesome terms, and then hopefully place you in a better position to reduce the risk of litigation and advise clients on reducing their risk of litigation. For the most part, you really do get what you pay for with disability insurance, and thus focusing only on price is a very shortsighted approach. But for most attorneys, there clients, human resource professionals and employers, that is the often used approach. That can lead to disappointment and litigation, and result in financial harm to many perhaps including yourself.

II. Two Policy Categories

Disability policies all fall into two categories – private/individual policies, and then group policies provided to employees of a company or members of an association or other similar group. All disability policies are governed by one of two areas of law, which are state law and federal law. There can be a big difference in how insurance companies adjudicate claims under each area of law, largely because of the costs of litigation and certain policy terms.

Private Policies

Private policies fall under state law and they typically involve less litigation, but they also have higher premiums. You have more options as to the policy terms you desire and thus, they are better policies than group policies. However, insureds can make poor choices as to certain policy terms in an effort to save money.

Group Policies

Then there are group policies, which refers to those policies offered to a group of employees, an association, or other group organization. They typically have terms that are not as beneficial as private policies but enjoy lower premium rates. These policies encourage much more litigation than private policies. The amount of litigation increases if the policy falls under federal law. It can be difficult to know in advance if the policy falls under federal law or state law.

Group policies can fall under state law due to the type of employer, i.e. the government or a church organization, or due to lack of endorsement of the plan by the employer. Thus, they still have the advantage of being governed by state law along with lower premiums. Of course, there are some exceptions given some policies are issued through a federal governmental statute and thus will be governed by federal law.

Most Group policies that are governed by federal law arise under a law known as ERISA, the Employee Retirement Income Security Act, which is federal law, and typically carries a number of disadvantages. For example, the recovery for damages arising from a breach of policy terms is much more restrictive, so as you might anticipate, there is more litigation with these policies. Insurers have much less incentive to pay a claim given there is little downside to not paying the claim. Typically, these policies do have much lower premiums, which is attractive to employers or associations. However, disappointment can arise when claims are not paid, and so taking time to consider the policy terms is necessary.

III. Private policies

There are many terms that can be more beneficial than others, and policies are periodically changing. A few of the recurring terms that arise in litigation will be the main focus here. Of course, you may pay for those more beneficial terms in the form of higher premiums, but then there may be greater future costs such as attorney's fees and litigation expense clearly flowing from the less beneficial terms. Do not obtain all information from an insurance agent given that agents, who are not litigators, are not familiar with the most often litigated terms nor of litigiousness of certain insurers. It is noteworthy that there are instances in which an insured may pay higher premiums, but actually receive less due to court interpretations. The first policy term considered notes this issue which focuses on the definition of disability. By way of contrast, I will point out good examples of policy terms bad examples of policy terms and downright ugly policy terms.

A. The definition of disability

1. Good – Own Occupation as the Insured Performed It

Of course, the most desirable definition of disability covers the individual's own occupation as he or she performed it when becoming disabled. In other words, a claim is adjudicated by examining the details as to how the occupation was performed inclusive of physical and cognitive demands. The important or material duties are first identified as to the occupation. If the insured is not able to perform a certain number of the material duties, most courts find disability is supported. Courts are not uniform on the interpretation of this definition. Variations range from proof of disability as demonstrating the inability “… to perform most or a vast majority of the material duties of his occupation” Pomerance v. Berkshire Life Ins. Co., 288 Ga. App. 491, 496 (Ga. Ct. App. 2007) to “… the inability to perform any of the principal duties of the insured's occupation.” Gross v. UnumProvident Life Insurance Company, 319 F. Supp. 2d 1129, 1139 (C.D. Cal. 2004). Thus, the law of the jurisdiction which controls the policy interpretation can make a dramatic difference.

Own occupation disability provisions that strictly ensure one's own occupation also have the benefit of allowing the insured to work in some other occupation thus increasing household income. Work is good for the soul. Many of your clients strongly identify with work. For example, an orthopedic surgeon may have an injury or sickness which limits how long she can stand and thus that will rule out a number of different surgeries that require standing for greater than the time permitted. Nonetheless, the orthopedic surgeon may be able to serve as a medical compliance officer for a hospital making the same amount of money, or even greater money than earned before becoming disabled, and still receive a disability benefit.

Here is an example of this definition with occupation also defined:

That language still raises a question as to whether the insured must prove inability to perform EVERY substantial and material duty or just one or more substantial material duties?[1] Courts have found that if one is required to prove inability to perform each and every substantial and material duty, insurers will likely be able to deny every single claim and the policy may be illusory. That is because some substantial and material duties are important but very simple, such as making a phone call or reviewing a patient chart or inventory record. Thus, a quadriplegic, who can no longer perform his occupation in the marketplace, would nonetheless be denied disability benefits if required to prove inability to perform each and every substantial and material duty.

While courts vary on this, most reject requiring that the insured demonstrate the inability to perform each and every substantial and material duty. See, Giddens v. Equitable Life Assur Soc. of U.S., 445 F.3d 1286, 1298 (11th Cir. 2006 Ability to perform a few substantial and material duties is not enough to preclude disability if insured could not continue in his occupation.) Dowdle v. National Life Ins. Co., 407 F.3d 967, 970 (8th Cir. 2005) “… ‘total disability' means the inability to perform ‘the most important part' of his occupation.” Others leave it open as to whether it is one or several. But see the flexible standard in Fiorentini v. Paul Revere Life Ins. Co., No. 17-3137, at *4 (7th Cir. June 21, 2018) “While we have refused to hold that the inability “to perform one task is always sufficient for total disability,” Cheney v. Standard Life Insurance Co., 831 F.3d 445, 452 (7th Cir. 2016), we have acknowledged that the inability to perform one task might sometimes qualify under similarly worded policies. For example, in McFarland v. General American Life Insurance Co., we noted that a shortstop who could no longer throw would be unable to do his job even if he could still run, hit, and catch. 149 F.3d 583, 588 (7th Cir. 2016).”

2. Bad – Residual Disability – Less for More Money?

There is much litigation given less than clear definitions of total disability, especially when there is a residual disability clause or rider as well. The case Giustra v. Unum, 815 A.2d 811, 814 (Me. 2003) discusses the problem in particular. “The policy definition of “total disability,” which refers to “the” important duties of Giustra's occupation, must be read in the context of the entire policy. Because the policy also provides for lesser benefits for partial disability, which is defined as being unable to do “one or more” of the important regular duties of his occupation, total disability refers to something more debilitating [than an inability to perform one or more duties]. “The important duties” of an orthopedic surgeon must, therefore, be interpreted as meaning “all of the important duties.” If the phrase “the important duties” was construed to mean “one of the important duties,” it would mean the same as “partial disability,” and such interpretation would be unreasonable.” Astonishingly some courts may find an insured disabled under the definition of total disability if there if there is no residual disability rider, but not totally disabled but rather residually disabled if there is a rider. That means in essence that the insured's paying more for the partial disability benefit only to receive less!

Giddens v. Equitable Life Assur Soc. of U.S., 445 F.3d 1286, 1300-01 (11th Cir. 2006) salvaged such clauses in some respect, however. It noted this argument that residual disability alters the definition of total disability to where it requires proof of the inability to perform ALL duties. The Court saw some middle ground however in examining the actual duties and whether the occupation could still be performed. It noted: “Equitable finally argues that total disability must mean the inability to perform all of the material and substantial duties because to interpret the term otherwise would nullify the “Residual Disability” clause. The Policies define “residual” disability as the inability “to perform . . . one or more of the substantial and material duties of [the insured's] occupation. … Where the insured, such as Giddens, is unable to perform most or the majority (but not all) of the material duties and thus cannot engage in his regular occupation, the insured nevertheless is totally disabled from his regular occupation, and this interpretation does not nullify the Residual Disability clause.” (Emphasis added.)

That is a big concern and thus the lack of clarity in such policies leaves it suspect as to whether the increased premiums actually provide greater value in some jurisdictions. It is counterintuitive for an insured to be charged more for a residual disability rider and end up less, but that is exactly what I have seen from certain insurers and it is demonstrated in court opinions.

3. Ugly – National Economy- My Job or Someone Else's Job?

Some policies may attempt to use a national economy standard as to the own occupation definition of disability, in essence defining the occupation of the insured as it is performed in the national economy. The problem that arises here is that frequently this is based on the Dictionary of Occupational Titles which was last updated in 1991. Many things have changed since 1991, as you might imagine, and so utilizing that definition may be misleading to your clients. That is a terrible definition, for an individual policy. Here is an example:

“Your Occupation” is defined in the IDI Policy as “The occupation or occupations, as performed in the national economy, rather than as performed for a specific employer or in a specific location, in which You are regularly engaged at the time You become Disabled.” (IDI-POL-13).” Kamerer v. Unum Life Ins. Co. of Am., 334 F. Supp. 3d 411, 414 (D. Mass. 2018)

An ugly definition of disability in a private policy would also be an any occupation definition of disability. In other words, the insured would not be disabled if he could not perform his own occupation necessarily but rather must prove disability as to any possible occupation. This ugly term is seen in Dowdle v. National Life Ins. Co., 407 F.3d 967, 968 (8th Cir. 2005) – “The disability policy defines “total disability” as the inability “to perform the material and substantial duties of an occupation.” ” Clients should be directed away from such provisions unless the price with an own occupation rider is beneficial to the insured. Hopefully, there is a restriction to occupations the insured would qualify to perform by reason of education training and experience.

B. Lifetime benefits (or so it seems)

1. Good – There Really Are Lifetime Benefits

Many private policies contain a provision mentioning a lifetime benefit. A good lifetime benefit is one which promises that the benefit will pay for the remainder of the insured's life if disabled due to sickness or injury, if arising before age 65. This version of a lifetime benefit provision comes closest to meeting the reasonable expectations of the insured. Most people consider age 65 to be retirement age or at least close to it. Thus, if you become disabled before you reach that age, you are entitled to a disability benefit for the remainder of your life. The logic behind that, of course, is that you were not able to finish out working during some of the most productive years of your life and if you are older you may have limited opportunities to engage in any other occupation.

Here is an example from an old New England Life policy:

2. Bad – Lifetime Unless 60 or Older

A bad version of the lifetime benefit provision reduces the age at which you must become disabled to a random age such as 60. Only if disabled before that date is there a lifetime benefit. This added term may escape an insured's notice and invite litigation. If there is a significant reduction in premiums, the insured may prefer it, provided there is full disclosure. It is likely best to put the disclosure in writing and retain a copy rather than just rely on the policy. A case discusses this very problem. Falcon v. Nw. Mut. Life Ins. Co., Civil Action No. 19-404, at *20 (W.D. Pa. Nov. 30, 2020) discusses a very upset insured who filed a lawsuit against both the agent and the insurance company. “The evidence of record includes Dr. Falcon's representation that he told Northwestern Mutual's agent that he wanted a disability policy which included lifetime benefits. According to his testimony, he was not told that he could not obtain such a policy or that the Policy that Northwestern Mutual claims was issued would limit benefits to two years if he became disabled after the policy anniversary following his 60th birthday.”

Certainly, there are increased physical problems that arise as we head into our 60s, but most people do not attach any significance to the ages of 60, 61 or 62, and thus there is often a surprise for the insured. The insured's work life has been reduced during some of the highest compensated years and now she is forced to limp into retirement on a mere disability benefit that may barely cover living expenses with nothing to put aside for the future. To add insult to injury, the benefit may end two years before Social Security retirement kicks in for many. Thus, this provision has some traps for the unwary.

3. Ugly – Decreasing Benefit for Sickness

The ugly version of this provision provides a lifetime benefit if the disability is due to an injury. If it is due to a sickness, the benefit pays decreasing amounts as the insured approaches age 65. This provision tends to invite litigation due to a dispute as to whether a condition is an injury or sickness. For example, if an insured suffers an injury to her neck but continues working for another five years only to finally succumb to surgery and then disability, the insurer may contend that the matter is really a sickness such as degenerative disc disease. The insurer will argue that degenerative disc disease was going to occur regardless of the injury and the insured will, of course, argue that but for the injury the degenerative disc disease would not be so severe as to disable.

Here is an example of the decreasing schedule:

IV. Group Policies

A. Discretion

Whether a policy contains a discretionary clause or not is one of the most significant concerns IF it is governed by federal law. If the policy falls under ERISA and there is a discretionary clause, the chances of reversing a wrong insurer decision drops to about 30% in litigation. Thus, there can be very little incentive for insurers to take care to provide fair and accurate decisions when discretion is afforded.

1. Good – No discretion

Policies that do not contain a discretionary clause, receive a de novo review in court. That means that the court evaluates the decision freshly without giving any deference to insurer's prior decision. This is a review similar to a normal insurance policy case. If the matter falls under ERISA there will be no jury trial. If the matter falls under state law, there can be a jury trial. These policies are the most favorable policies for employers to have in place, thus they make my good list. An example of no discretion is a policy that only requires proof to be submitted and does not involve language also conferring discretion. Fitts v. Federal Nat. Mortg. Ass'n, 236 F.3d 1, 5 n.3 (D.C. Cir. 2001) noted most circuits that have considered the issue have concluded that the mere requirement of proof of eligibility does not confer discretion upon an administrator. See Herzberger v. Standard Ins. Co.,205 F.3d 327, 332 (7th Cir. 2000) (“That the plan administrator will not pay benefits until he receives satisfactory proof of entitlement . . . states the obvious, echoing standard language in insurance contracts not thought to confer any discretionary powers on the insurer.”

2. Bad – Discretion

Policies which reserve discretion for the insurance company's decision can be very difficult to overcome in court. An adverse decision will generally require the insured to hire experienced counsel during the claim process so that the case can be as strong as possible for the insured. There are very few incentives for the insurance company to make a fair and accurate decision when a policy reserves discretion. Any decision that it makes must be upheld by a court of law unless the decision is shown to be arbitrary and capricious. Arbitrary is defined as being without any reasonable or rational basis and capricious is defined as being evil intent.

These policies invite litigation, but the insured must not stand too strongly on their case and typically will seek to settle the case given the predisposition of court to rule in favor of the insurer. Only when there is a strong case to demonstrate arbitrary wishes conduct will the insured have a chance at winning. As noted above, the success rate for insureds is about 30% nationwide. When insured is covered by one of these policies, very few of them realize that there is a 70% chance of losing their claim and case if they indeed become disabled. For this reason, these policies make my bad list.

An example of discretion: [The Insurer] has complete discretion to construe or interpret the provisions of this group insurance policy, to determine eligibility for benefits, and to determine the type and extent of benefits, if any, to be provided. The decisions of [the insurer] in such matters shall be controlling, binding, and final as between [the Insurer] and persons covered by this Group Policy.

3. Ugly – Weasel Wording Discretion to Circumvent Discretionary Bans

There is one type of policy that is worse, and that is one which reserves discretion, but in a state which bans the issuance of policies with discretionary causes. There is a choice of law provision in the policy for a differing state which does not ban discretionary causes in a disingenuous effort to circumvent the ban of discretionary clauses. This of course invites litigation on that specific issue and may even invoke an appeal to a higher court. This type of policy makes my ugly list because it is a not so veiled effort to try to defeat and overcome the laws of the particular states at least in instances where the employer is not a multistate employer. Ellis v. Liberty Life Assurance Co. of Bos., 958 F.3d 1271, 1288 (10th Cir. 2020) notes that if there is a multistate employer, the choice of law provision may be justified to allow for uniformity as to how its employees are treated.

B. Own Occupation – Any Occupation

Most employees would prefer to be insured as to their own occupation for the entirety of their claim, but such policies are typically expensive. One way to reduce that expense is to insure the individual as to his own occupation for a short time frame such as one to three years, and then change the definition of disability to an any occupation definition. The idea is to cover the time frame that Social Security disability claims routinely take or allow recovery/retraining time to learn a new occupation. As you might expect, however, there is some further shaving of the definitions to reduce coverage and cut the cost.

1. Good – Three-year own occupation – then any occupation

A good group policy provides coverage as to the occupation performed for the employer and for a time period sufficient to receive a decision from the Social Security Administration or allow adequate training and rehabilitation for an occupation. An adverse Social Security decision by an administrative law judge may take a full two years and sometimes more. Three years is adequate in most instances to learn the result. Receipt of an adverse decision may convince the employee to engage in retraining and rehabilitation and the added time is helpful to accomplish that.

An example of this 36-month own occupation policy term is as follows:

2. Bad – One year “national economy” own occupation – then any occupation

A bad policy may define one's own occupation as how the occupation was performed in the national economy and not for the actual employer. As noted above, such a definition may be bottomed on the 1991 version of the Dictionary of Occupational Titles. This may be far different than how the occupation is currently being performed. The employee is thus caught off guard as well as a disability claim may be based on some other occupation actually rather than the occupation that the employee was performing.

An example is as follows:

Again, this is another reason why the employee should obtain experienced counsel when confronted with an adverse decision. The employee may not be aware that a different occupation is actually being used and it may be necessary to review the claim file and any vocational opinion in the file to learn of this information.

Some policies make matters worse as well by only using a one-year own occupation standard. That is not enough time to obtain a Social Security disability decision in most places, thus the claim will likely be denied at the one year mark. The employee will challenge but that can take anywhere from 7 to 10 months. A Social Security decision will likely come after another year. So, the employee is “flapping in the wind” with no income or benefit for the majority of a year. Not exactly what the employer or employee was thinking, when insuring with these policies. Very bad.

3. Ugly – Own Occupation then any part time occupation

Among the worst occupational definitions are those that mimic the FedEx occupational definitions. This policy covers for the first year or two years disability as to the insured's own occupation, but then it switches to an any part time occupational standard using a 20 hour work week. Thus, even if there is a favorable Social Security decision finding the insured incapable of any gainful employment, this standard falls well below that. Making $7.25 an hour for 25 hours a week is sufficient to preclude a finding of disability. Very few people will be covered after that first time frame. Insurers have been known to cobble together activities such as dropping kids off at school, picking kids up from school, the family cleaning and grocery shopping to piece together 20 hours demonstrating the ability to work a 20 hour job of some sort. Often the insurer does not even go to the trouble of identifying such a job; just counters surely there must be one given you are engaged in some activity 20 hours a week. After the initial time frame, this is a job policy that is akin to a policy that uses activities of daily living standard. It is mainly designed to collect premiums without having to pay claims a significant time frame. The Federal Express plan reads as follows:

“Total Disability shall mean the complete inability of a Covered Employee, because of a medically-determinable impairment (other than an impairment caused by a mental or nervous condition or a Chemical Dependency), to engage in any compensable employment for twenty-five hours per week for which he is reasonably qualified (or could reasonably become qualified) on the basis of his ability, education, training, or experience.“

C. Offsets

Offsets are critical, as they can turn any policy into an illusory policy. Thus, policies with offsets often have a minimum benefit provision to avoid a court finding that the policy is illusory. The minimum benefit may be 10% of the full benefit, $50 or $100 dollars. All employees are shocked to find out that they are paying $20 a month to receive a $50 per month benefit. There are 2 main offset considerations – offsets that do not relate to the Social Security disability benefits and offsets that do relate to Social Security disability benefits

1. Benefits from salary continuation, vacation, severance, pension contributions, etc.

The non-Social Security offsets generally pertain to salary continuation, paid time off, vacation, sick leave, severance, and pension benefits. These can be benefits paid for and provided by the same employer so there is some fairness relating to the offset, although the offset may not be saving the employer any money but rather just the insurance company.

a. Good – Same employer and employer paid

The good policy with this offset requires that the benefits offset in the disability benefit, from the same employer. The employer provides a $25,000 lump-sum severance package. There is some fairness to the employee having that money offset against long-term disability benefits as the employer paid for and provided both. Both employers and insurers seek to avoid creating incentives for an individual to not claim disability. When an employee makes more money being disabled than if working, perverse incentives may arise. It may or may not save the employer premiums, but at least there will be a reduction of financial support for the employee if claiming disability.

b. Bad – Employer or employee paid

The fairness of claiming offsets for employer-provided benefits is not present as much in plans which take an offset for benefits the employee paid for. For example, if the employee pays 100% of the long-term disability benefit, and there is an offset for money withdrawn from a 401(k) that was entirely funded by the employee, the only objective being met there is keep the employee making far less with the disability claim as opposed to working. The effect, however, is punitive in making this provision bad. The employee would not be withdrawing money from the 401(k) but because of financial desperation and given this was the employee's money, there is not much fairness here.

c. Ugly – Any employer

The worst offset for employer-provided benefits spans the scope of the offset to a benefit provided by any employer including prior employers that had nothing to do with the disability claim. For example, if a prior employer offers a disability pension benefit and a disability claim arises with a subsequent employer, the employee will be surprised and angered if the pension benefit from the prior employer given the current employer had nothing to do with that. Again, this is a circumstance in which an employee would do well to hire experienced counsel to evaluate offsets before taking them. This is an ugly offset.

2. SSDI benefits

Social Security disability benefits are routinely an offset in every group policy that I have ever examined since 1992. There is a difference among these particular offsets in the marketplace, however.

a. Good – SSDI disability – primary only and does not count attorney fees
Some offsets take the offset only for the insured's Social Security disability benefit, and they do not offset amounts paid for the attorney representing the insured. This is good. The insured never received the money given to the attorney, and so it should not be counted as being received. Also, monies paid to others are not the insured's monies, so likewise it is fair not to offset those. These policies with this fairer offset are out there if you look specifically for them!

b. Bad – SSDI family – does not count attorney fees
A weaker version of the above offset does reduce the disability benefit by the amount that children or spouse may receive due to the insured's disability. These offsets are viewed as being fair because the amount paid to the children satisfies the child support obligation that the insured would have regardless of disability. Nonetheless, there are many circumstances which the insured never sees the benefit check so the insured will not see it as fair. Usually, these policies still allow a reduction of the offset for attorney's fees paid to the SSDI lawyer.

c. Ugly – SSDI includes attorney fees
The ugliest version of this offset takes an offset for the money that was paid to the attorney by the Social Security Administration, and which never goes to the claimant. So, the insurer in essence takes advantage of work of the attorney to reduce the amount of the benefit and does not give any credit to the insured for the amount paid to the attorney. Sometimes this is an intentional effort to force the insured to use the insurer's representative (which is a conflict of interest). That is a direct conflict-of-interest, and typically requires that the insured signs an authorization allowing that firm to disclose any and all information directly to the insurer including provision of the benefit monies. The offset only gets uglier under that circumstance, and frequently the insurer will take advantage of the offset and then deny the claim right after receiving its overpayment money. Policy provisions that permit this are among the worst in the business.

D. Limits on Conditions
Some policies will restrict time frames or payment of benefits relating to certain conditions. Insurance companies dislike the fact that the pain does disable people but generally it must be based on the court of the insured. The report of the insured as to the level of pain, however, can be found credible if it relates to conditions known to cause significant pain, and if there are manifestations of that pain increased party, sweat droplets upon light exertion, and observation of the insured by other individuals, such as supervisors and co-employees. Nonetheless, many insurers view this as an opportunity for lower premiums and by far less coverage than many employers and employees realize.

1. Good – Only a limit on pre-existing conditions

A good policy will only have a limitation as to a pre-existing condition. This limitation typically involves a condition for which the insured sought treatment for 3 or 6 months, or perhaps one year prior to becoming insured under the disability policy. Additionally, the claim for disability must arise during the first year of coverage. In essence, this precludes the insurance company from buying into a disability claim which should not be its responsibility because the condition already existed. Insured is thus reducing its risk by having such a provision in place which is not generally considered to be unreasonable for a disability policy.

There still can be disagreement, insurer acts overly aggressive. For example, it may find “treatment” for a back condition if a routine medical note merely talks about insured waking up with stiffness one morning even though no prescription or therapy was provided.

2. Bad – One or two year limit on neuromusculoskeletal disorder

Some policies may have a provision limiting benefit payments to 1 or 2 years if the condition arises from what is classified as a neuromusculoskeletal disorder. Basically, if the person does not have demonstrable radiculopathy, the commodity of the claim will only be paid for a short time frame. There are quite a few painful conditions that arise short of radiculopathy, such as radiculitis. Nonetheless, the policies written in a manner disregard the ongoing disability that arise from conditions other than radiculopathy. This provision again relates to the dislike of the insurer to provide disability benefits for matters relating to pain. Thus, this is a bad policy in my view; it can easily be classified as junk. It is another way of collecting premiums without making significant benefit payments for those who are disabled. An example of this bad provision is as follows:

Monthly LTD benefits under this plan are payable for up to a maximum of 24 months during your lifetime if you are disabled because of a mental, nervous disorder or disease or neuro-musculoskeletal or soft tissue disorder, unless the disability results from:- Schizophrenia- Bipolar disorder- Dementia- Organic brain disease.

3. Ugly – Only objectively verifiable

Another means of reducing the number of pay disability claims is to include a provision that requires proof by objective evidence. On the surface this one sounds legitimate, but when an insured realizes that many conditions, which involve significant pain, are not considered to be objectively proven – cannot take an x-ray of pain- their expectations are sorely disappointed. Some conditions do not actually have objective proof and are diagnosed by a clinical examination alone. The education training and experience of physicians who perform that clinical examination are nonetheless disregarded because there is no x-ray or diagnostic proof of the condition. Again, that is pretty ugly.

The policy in the case Doyle v. Liberty Life Assur, 542 F.3d 1352, 1358 (11th Cir. 2008) had such a provision: “Under ChoicePoint's policy, a plan beneficiary must provide proof that she is disabled in order to obtain LTD benefits. The policy defines “proof as including “chart notes, lab findings, test results, x-rays and/or other forms of objective medical evidence in support of a claim for benefits.””

E. Venue Requirements

Venue relates to the location which a lawsuit must be brought. Venue is proper on most disability claims where the insured resides and where the policy was issued. However, some policies include provisions designed to circumvent the typical venue applicable in order to provide a more favorable location for the insurance company in litigating the matter.

1. Good – Any federal or state court

Good policies provide that an adverse claim decision may be litigated in federal or state court. That is fair and typically would mean that a lawsuit may be brought where the insured is residing or where the policy was delivered to the insured.

2. Bad – Different state than insured
Insurers trying to take advantage of the right to such a contractual venue insert provision in the policy requiring a lawsuit to be brought in a certain state, typically where the insurance company is located, and where it has regular counsel. This is unfair to the insured, and frankly this is a bad provision that should be rejected. Overlooking this provision is a disservice to the insured as it may greatly increase the cost of negation. For example, an Alabama resident may be forced to litigate a matter in the state of Connecticut.

3. Ugly – One particular federal court
Some insurers insert a provision requiring litigation to be conducted only in one particular federal court, such as the Eastern District of Missouri. This is likely due to its familiarity with the judges in that district, the location of its regularly utilized counsel, and perhaps the location of its claims department. This is the most unfair venue provision.

F. Limitation of Action
The last concern pertains to the time limit for filing a lawsuit. Many policy forms approved by the respective departments of the insurance for various states have approved such limitations in their policy for unknowingly creating an unfair burden for insureds.

1. Good – State law – 6 years

A good and fair limitation of action provision adopts the state law of the insured's employment location. That would be reasonably expected by the most insureds as well as by lawyers in that state.

2. Bad – Three years from proof of loss

A bad limitation of action provision follows a widely distributed policy form that requires a lawsuit to be filed 3 years after the date proof of loss was required to be furnished. Most insureds are not able to calculate that date. Many attorneys have difficulty calculating that date. It requires one to examine exactly when proof of loss was required to be furnished and even then, there can be a variable time limit. Many proof of loss provisions require the proof be furnished within 90 days but in no event later than one year. Then which is the date proof of loss was required to be furnished? Ninety days or one year? Typically, that time frame starts with the date of disability. Then one must add 3 years to either 90 days or one year to find the date by which the claim will be barred.

However, what happens if the claim is paid for 2 years and then the claimant did not? Does the 90 days or 1 year proof of loss time limit run from the date that the claim was denied, or does it go back to the date of disability still? The uncertainty generated by this limitation of action provision makes it a bad provision.

3. Ugly – Excessively short time frame such as 60 days after final denial.

The worst provision however involves a rather short limitation of action commencing a short time after the final denial. That time limit may be 60 days. The problem with that is there is little time to obtain the final claim record, review that and then hire counsel, prepare a lawsuit and have it filed. The insurer may not readily provide the claim record, it may take nearly the entire 60 days just to provide the claim record. Any policy that has such a short time frame for filing a lawsuit avoided is the ugliest of all policies.

V. Conclusion

Don't buy junk for yourself or your employees. Knowing the litigation concerns that arise can save you or your employees or special client a good bit of trouble. There are many opportunities to help your staff with good disability policies. Too often the focus is on the cheapest policy rather than on the policy that will provide better coverage for a wider variety of circumstances. The marketplace is cutthroat and overly competitive when it comes to pricing, but the result may be too many junk policies have displaced the better policies. Happy hunting!

[1] For example, the 11th Circuit Appeals Court noted, “Equitable's main argument on appeal is that Giddens must be unable to perform all substantial and material duties of his occupation in order to be totally disabled. The problem for Equitable is that the Total Disability clause in its Policies does not identify what percentage of “the” duties the insured must be unable to perform. The clause does not say “all” substantial and material duties or “most” or any percentage.” Giddens v. Equitable Life Assur Soc. of U.S., 445 F.3d 1286, 1298 (11th Cir. 2006)

About the Author

David P. Martin

Senior & Managing Attorney


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