Category: Disability Insurance

Five Red Flags in Disability Insurance Claims

We often discuss issues with ERISA-governed disability insurance. Certain issues tend to crop up regularly when these issues lead to litigation. Here are the top five.

1: The company ignores your doctors.

Typically the first step in making a disability insurance claim is having the doctor complete a form identifying your diagnosis, the resulting symptoms, and their impact on your ability to work. This makes sense. After all, when a person can’t work because they’re sick or injured, the doctor treating them usually has all the firsthand medical knowledge.

So, ERISA requires that the insurance company consider the claimant’s treating doctor’s opinions. Of course, the insurance company doesn’t have to pay benefits just because your doctor says you can’t work. Sometimes the doctor doesn’t understand the person’s job duties or the insurance policy terms have other requirements besides medical evidence that aren’t met. But the company can’t just ignore your doctor.

So if the company can’t seem to engage with your doctor’s opinions, it’s a good sign something is wrong. Sometimes it’s obvious: the insurer just doesn’t address your doctor’s conclusions. Other times, it’s more circumspect: the insurer pays its own doctor to perform a medical review that summarizes your doctor’s opinions and then makes the one-sentence conclusion that the insurer’s doctor disagrees, without providing any explanation.

Regardless of how it’s done, an insurer that disregards your doctor without engaging with their opinions in detail probably isn’t doing the right thing.

2: The company ignores your job duties.

The details of a person’s job can be just as important to a disability claim as the medical evidence. Many disability insurance polices pay benefits if you can’t perform your “own occupation,” as opposed to being totally disabled from any work. That’s important protection that costs extra. Many skilled professionals have demanding jobs that a person could be disabled from performing without being totally unable to work. This makes the claimant’s job duties a very important part of a robust investigation in a disability insurance claim.

So if the company doesn’t engage with your job duties when the claim is under an “own occupation” insurance policy, that’s a big problem. This often happens in claims involving skilled professionals. A software engineer, for example, has demanding mental and organizational duties. If she develops an autoimmune disorder that leaves her too exhausted and in too much pain to perform her duties and makes a disability insurance claim and the insurance company only evaluates the physical demands of her job–i.e., the ability to sit at a desk and use a computer–the company misses the big picture.

This also crops up in cases involving medical conditions that impose intermittent symptoms. Often, a person becomes disabled due to a disease that manifests symptoms occasionally and unpredictably. For example, a person with heart disease might feel fine Monday thru Thursday and then have crippling pain and shortness of breath that keeps them from doing much of anything on Friday. If that person can’t reliably commit to attending their job full-time, they’re likely disabled within the meaning of most insurance policies, which provide a person is disabled if they can’t perform their job duties with “reasonable continuity.” After all, most jobs require you to be able to do your job full time and on a regular schedule.

If the company ignores that reliable attendance is among the person’s job duties, it can lead to a wrongful denial of coverage. The company might conclude that a person can still perform their job duties when they’re asymptomatic without addressing the fact that they can’t commit to regular attendance because they can’t predict when their symptoms will flare up. No boss wants an employee who can’t show up for work reliably.

3: The company declines to investigate.

ERISA requires the insurance company to reasonably investigate benefit claims for a good reason: turning a blind eye to the facts is an easy way to deny valid claims. Often, the company will deny a claim for lack of evidence–but they won’t make any effort to obtain it. For example, the company might say “we can’t pay your claim without additional medical records.” If they don’t make an effort to obtain the information they say is missing, it’s probably a sign that the company is more interested in finding excuses not to pay the claim than it is in performing a legitimate investigation.

4: The company cherry-picks irrelevant evidence.

Since disability claims depend on the intersection of work capacity and symptoms from illness or injury, a person could reasonably expect their disability insurer to focus on evidence relevant to how their symptoms impact their ability to work. Unfortunately, that isn’t always the case.

Often, the company will cherry-pick facts that aren’t relevant to how your symptoms impact your job. It’s distressingly common to read a letter denying a disability insurance claim that ignores the medical evidence of disability and instead recites facts that have nothing to do with that evidence.

Sometimes this happens with the analysis of medical records. A person might visit their doctor to discuss a new diagnosis of an autoimmune condition that leads them to make a disability insurance claim. That visit might include discussion about the test results leading to the diagnosis, the likely prognosis, the symptoms that the person can expect, and possible treatment. If the insurance company ignores all that and instead quotes only the sentence of the doctor’s note that reflects the patient was in no acute distress during the visit, that’s a bad sign. It shows the company is looking only for evidence that could permit it to deny the claim.

Other times, it might happen with ancillary facts about a person’s activities. Let’s say a person’s autoimmune condition keeps them at home most days due to exhaustion and pain. They might report to their disability insurer that they barely leave the house, rely on friends and family for grocery shopping, can no longer play sports, and limit their physical activity to a walk around the block once a day. A denial letter from the insurance company ignoring this and reciting that the person must be healthy because they can walk is a sure sign that the company isn’t doing the right thing.

5: The company doesn’t communicate what it wants.

ERISA requires the insurance company to have a meaningful conversation with claimants about the insurance claim. If the company thinks that something more than what’s been submitted is necessary in order to pay benefits, it must say so.

So when the company denies coverage and won’t say what’s missing, that’s a red flag. Too often, coverage is denied in a letter that summarizes the person’s treatment and then arbitrarily concludes there is insufficient evidence of disability. If the company doesn’t specify what evidence it says is missing, that’s a bad sign.

For example, a knowledge worker with severe mental health diagnoses might become unable to work due to cognitive impairment and make a disability insurance claim. The company might deny the claim because there is insufficient evidence of cognitive impairments. A company trying to do the right thing will tell you what additional evidence is needed. They might request results from specific testing. Or, they might request information from your employer about your performance.

What an insurance company acting in good faith probably won’t do is dismiss the claim with a one-sentence conclusion of “insufficient evidence” without telling you what additional evidence they need. If that happens, it’s a red flag.

Ninth Circuit Establishes Pro-Employee Test for Releasing ERISA Rights

The Ninth Circuit Court of Appeals recently decided the question of whether and how employees can be induced to give up their right to sue under ERISA.

In Schuman v. Microchip Technology, Inc., the Ninth Circuit (the court that hears appeals from federal trial courts in Washington and the west coast) reversed the trial court’s dismissal of ERISA claims by two employees who participated in the defendant’s ERISA plan.

The ERISA plan was unusual. Most employees who participate in ERISA plans receive what we think of as the “normal” benefits of employment: health insurance, disability or life insurance, etc.

The Plan in Schuman was created especially for the purpose of providing severance benefits to employees who might be laid off following an anticipated merger. One employer was about to merge with another, and wanted to offer the understandably anxious employees some reassurance about their job security. If an employee was deemed redundant after the merger, they would receive severance benefits from the ERISA plan.

Or so the employees thought. Unsurprisingly, this became a point of contention when the merger was consummated and layoffs ensued without the promised severance.

Schuman was fired without cause by the new employer shortly after the merger. Like most layoffs, Schuman’s involved an offer of some cash (much less than the ERISA plan had promised) in exchange for signing a standard severance agreement releasing all of Schuman’s claims against the company.

Critically, the employer told Schuman and others that the benefits promised under the ERISA plan were no longer available, claiming the plan had “expired.” Confronted with this all-or-nothing proposition, Schuman signed the release.

Schuman and other employees later filed a class action lawsuit. They alleged that the employers violated ERISA by, basically, lying to them about the availability of severance benefits under the ERISA plan to induce them to sign a release that gave up those benefits in favor of substantially smaller severance payments. The lawsuit sought benefits under the ERISA plan for severance. It also sought to void the releases signed by Schuman and other workers.

The trial court held the releases were valid. It dismissed the lawsuit.

The Ninth Circuit reversed. First, the appellate court established the test for whether an ERISA plan participant’s release of claims is valid.

Such a release, the court said, is valid only if it survives “special scrutiny.” That is because Congress enacted ERISA for the special purpose of protecting employees’ benefits. Employers are “fiduciaries” under ERISA. They have to put the interests of their plan participants first.

The appellate court therefore stated that the test for whether a release of claims under an ERISA plan is valid depends on the “totality of the circumstances” including, importantly, whether the company that procured the release is accused of improper conduct. The court listed the circumstances that should be considered as part of this decision, including the employee’s sophistication and knowledge of their rights, how the payment for the release compares to the value of the benefits the employee is giving up by signing, and whether the employer improperly induced the employee to sign.

Having formulated this test, the Ninth Circuit sent the case back to the lower court to apply it.

This recognizes the reality that allowing employers to seduce their workers into signing away their rights under the employer’s ERISA plan is like letting the fox guard the henhouse. The Ninth Circuit’s test helps ensure that employers cannot deceive their workers into releasing claims under the statute designed to protect them from just this sort of manipulation.

Ninth Circuit Helps Clarify Meaning of “Earnings” In Disability Insurance

Calculating earnings can be really important to disability insurance. Most disability insurance policies define “disability” in relation to how much the insured earned before they became disabled. For instance, a policy might say “we will pay you the insurance benefits if an injury keeps you from being able to earn 60% of what you earned while healthy.” And a person’s earnings often determine the amount of insurance benefits. Many disability policies will pay a person who becomes disabled a certain percentage of what they earned while working.

Calculating these amounts is simple where a person earns a basic salary. But where the insured earned things like bonuses, stock options, or fringe benefits, it can get complicated.

A recent Ninth Circuit Court of Appeals decision provides some guidance on this. In Neumiller v. Hartford Life and Accident Insurance Company, the Ninth Circuit addressed a dispute over how to calculate earnings in a case where the way earnings were calculated made the difference between the insured receiving ongoing disability benefits versus those benefits being terminated.

Neumiller had a disability insurance policy with Hartford. The policy paid benefits if she became disabled. The benefits ended if she earned more than 60% of what she made before becoming disabled.

Hartford decided Neumiller had earned more than that and terminated her benefits. Neumiller disagreed and filed a lawsuit under ERISA. The lower court agreed with Hartford. Neumiller appealed.

The Ninth Circuit focused on the insurance policy’s definition of “Current Monthly Earnings” to determine whether Neumiller had earned more than the 60% pre-disability earnings threshold that allowed Hartford to terminate her insurance benefits. The policy defined Current Monthly Earnings to mean money Neumiller received from any employment while disabled.

Neumiller argued that pre-tax deductions from her paycheck and certain bonuses fell outside this definition. The Ninth Circuit mostly disagreed.

The court looked to the dictionary definition of “earnings”, which meant any revenue gained from labor or services. It decided this definition was simple enough that it didn’t need to further consider what the term “earnings” might mean. Under this definition, the fact that bonuses weren’t explicitly listed in the insurance policy did not mean bonuses weren’t “earnings.”

And Neumiller’s pre-tax deductions were “earnings” too. Even though the deductions didn’t wind up in her paycheck, the Ninth Circuit reasoned that these funds went into her 401(k) because of her voluntary election. They were therefore “earned.”

But the Ninth Circuit did agree with Neumiller that bonuses paid out every four months were not “monthly” earnings under the insurance policy’s use of the term “Current Monthly Earnings.” These bonuses were paid for work performed over a four-month period. The lower court had nevertheless treated the entire amount of each bonus as earned in the month it was received.

The Ninth Circuit found that logic dictated the bonuses should be averaged over the four-month period in which they were earned for purposes of calculating Neumiller’s “monthly” earnings, especially given other parts of the insurance policy explicitly stated that bonuses would be averaged over the period in which they were earned.

This ruling is unpublished, meaning it can’t be relied on as binding precedent, but still provides helpful clarity on the calculation of earnings under disability insurance policies.

Ninth Circuit Ruling Elevates Hidden Fine Print to Reduce ERISA Plan Benefit

If you were to poll the public on why lawyers or the legal system get a bad rap, the experience of getting surprised by something sneaky the other party buried in the fine print might rank high on the list. That was the outcome in Haddad v. SMG Long Term Disability Plan, decided February 10, 2023. There, the Ninth Circuit ruled that an ERISA plan could reduce a former employee’s benefit payments based on inconspicuous language hidden in the benefit plan documents.

Mr. Haddad, like many folks, had long-term disability coverage through his employer’s benefit plan. He became disabled and the plan paid him the benefits.

But the plan reduced his benefits. The insurance company administering the plan decided Mr. Haddad’s settlement with a third party amounted to “lost wages.” The terms of the benefit plan allowed disability benefits to be reduced if the disabled employee had been compensated for lost wages.

Mr. Haddad sued. He argued that the “lost wages” reduction was hidden in the benefit plan documents’ fine print. He pointed to earlier Ninth Circuit rulings that any limitations should be conspicuous and that employees shouldn’t “have to hunt for exclusions or limitations in the policy.”

The Ninth Circuit said this rule didn’t apply to Mr. Haddad. It ruled that reductions in benefit payments on the basis of an “offset” were different from reduced payments due to an “exclusion” or “limitation.” The opinion does not elaborate on whether the average non-lawyer would find the distinction meaningful.

The ruling is “unpublished”, meaning it shouldn’t be relied on as binding precedent for lower courts.

Insurers’ Ability to Deny Claims “Because We Said So” Limited in Proposed Amendment to ERISA

One question that’s important in deciding an ERISA-governed insurance claim is: who decides? ERISA plans typically provide an employee or beneficiary receives a benefit under certain criteria. For instance, a health plan might provide for payment of medical bills if the treatment was “medically necessary,” a disability benefit plan might pay a portion of an employee’s wages if she can’t perform the “material and substantial” duties of her job, and so on.

Where a dispute arises over whether the plan should have paid these benefits, who decides whether these criteria are satisfied?

Since ERISA provides employees with a right to file a lawsuit in federal court to recover their benefits, you might assume the judge decides. But that’s often not the case.

A 1989 U.S. Supreme Court decision interpreted ERISA as allowing employee benefit plans to provide discretion to the plan’s decision-makers. This means that an employee benefit plan can empower itself or its agents with “discretion” to determine facts and interpret the terms of the plan. Where the plan’s decision-maker has discretion, federal courts often are not allowed to overrule them.

In other worse, these types of discretionary provisions in ERISA plans invite the decision-maker to deny claims for benefits based on little more than “because we said so.” And when the employee sues to get their benefits, the federal court is often not allowed to say that the decision-maker got their facts wrong or misread the benefit criteria. The judge can often do little more than send the case back to the same decision makers for another look.

Because many employee benefits are funded through an insurance policy, the person with this discretion is often an insurance company. Insurance companies, as the late Justice Scalia aptly observed, have a powerful incentive to abuse this discretion because they profit with every claim they reject.

New legislation was recently proposed to change this. The “Employee and Retiree Access to Justice Act of 2022” would amend ERISA to forbid this kind of “discretionary” language in ERISA plans. It would require insurers and other decision-makers who deny claims for benefits under ERISA plans to defend their decisions in court on the merits. They would no longer be able to point to their “discretion” and argue that the judge is forbidden from disagreeing with their decision.