Four Common Disability Insurance Provisions and Why They Matter

As with most insurance cases, disputes over disability insurance coverage or benefits frequently turn on the specific insurance policy language at issue.  Insurance policy fine print can often be read in ways that are counterintuitive.  Below are four common policy provisions that are often key to the outcome of disability insurance disputes.

1.     The Definition of “Disabled”

Disability insurance policies can define “disabled” in different ways.  Some policies define disability in terms of the insured’s employment qualifications.  Such a policy might provide: “you are unable to perform the duties of any gainful occupation for which you are reasonably fitted by education, training or experience.”  Other policies define disability in terms of the insured’s existing occupation, defining disability as: “you are unable to perform the material and substantial duties of your regular occupation, or you have a 20% or more loss in your monthly earnings.”  Further, some insurance policies change the definition of disability once the insured has been disabled for a certain time period, typically tightening the standard.

For insureds, the definition of disability is the key to claiming benefits.  Many disability insurance disputes focus on whether the insured meets the definition of disability.  That’s key because insurers sometimes deny claims under the wrong standard of disability.  Denying claims under an erroneous standard could result in denying benefits where the insured is otherwise entitled to them.

The definition of disability also establishes the specific medical evidence needed to establish the insured is disabled.  That’s key because doctors typically do not write medical records with the insurer’s definition of disability in mind; they focus on the medical information relevant to the patient’s diagnosis treatment.  Accordingly, insurers often claim the insured’s medical records don’t prove the insured is disabled because the doctor’s notes don’t precisely match up with the definition in the policy.

2.     Mental Health Limits

Many disability policies contain special provisions restricting coverage where the insured’s disability relates to their mental health.  Although the federal Mental Health Parity Act generally prohibits health insurers from disfavoring mental health coverage, disability insurers are still often free to do so.

An example of a common mental health limitation in a disability policy: “Disabilities which are due in whole or part to mental illness have a limited pay period during your lifetime.  The limited pay period for mental illness is 24 months during your lifetime.”

Mental health limitations can be critical to disability insurance disputes.  The insured may have both physical and mental health symptoms.  Sometimes, the physical ailments cause the mental health symptoms directly, for example, in the case of a traumatic brain injury which manifests with difficulty concentrating or focusing.  Or, the mental health symptoms may be ancillary to the physical injury; for instance, people suffering a physical disability often seek mental health treatment after becoming depressed and anxious about their inability to work, engage in hobbies or socialize because of their physical disability.  Sometimes the mental and physical symptoms may be completely unrelated, for instance, when a person who has been treated for anxiety for many years sustains a physical disability following an injury.

In these circumstances, insurers often conflate the physical and mental health symptoms to justify limiting benefits under the mental health limitation.  Insurers may ignore the physical ailments that prevent the insured from working and focus on ancillary mental health symptoms that were well-managed prior to the onset of physical symptoms.  Or, the insurer may incorrectly determine that any physical limitations are caused solely by mental health conditions, for instance, by characterizing migraine headaches as a symptom of anxiety.

To avoid this, it’s critical to present the insurer with medical records and statements from treating providers that clearly differentiate mental health conditions from physical ailments, and indicate whether the physical ailments alone render the insured disabled.

3.     “Objective” Evidence Requirements

Similar to mental health, many disability insurance policies limit coverage for so-called “self-reported symptoms,” defined as symptoms that cannot be proven through “objective” testing.

Many disabling conditions are, by their nature, not readily provable through “objective” testing.  Chronic migraines, fibromyalgia, or Chronic Fatigue Syndrome are common examples.  These conditions sometimes result in disabling symptoms, but are difficult to objectively measured through things like MRIs or X-Rays.  Consequently, many insureds have coverage denied for conditions that render them disabled but cannot be identified on objective tests.

Overcoming “objective” evidence requirements often entails establishing that the condition is one that is known in the medical community to resist proof by objective means.  Many courts have recognized the medical consensus that conditions like fibromyalgia do not show up on MRIs, and, consequently, do not allow insurers to deny such conditions for lack of “objective” testing that, by definition, cannot exist.

4.     ERISA

Disability policies issued through an employer are typically subject to a federal law called the Employee Retirement Income Security Act (“ERISA”).  If ERISA applies, it imposes important deadlines and procedural rules insureds must follow in order to contest a disability insurance denial.  For instance, insureds must appeal a denied claim within specific time periods (usually measured in days).  Moreover, the appeal must include all information the insured relies on in claiming benefits; information absent from the appeal often cannot be considered in a lawsuit disputing the denial.

ERISA Plan Administrator Cannot Unilaterally Ignore Treating Physicians, Appeals Court Confirms

A recent appeals court ruling emphasizes that ERISA plan administrators cannot ignore the opinions of a claimant’s treating physicians absent tangible evidence those opinions are wrong.  In Hennen v. Metropolitan Life Insurance Company, the appellate court ruled the plan administrator acted arbitrarily in discounting the opinions of the claimant’s treating physicians and remanded the claim for a full and fair review.

After a back injury, Hennen applied for long-term disability (“LTD”) benefits with her employer’s group policy insured by MetLife.  MetLife agreed that Hennen was disabled and paid benefits for two years.  But after two years, MetLife terminated Hennen’s benefits, finding that the Plan’s limitation for neuromusculoskeletal disorders cut off Hennen’s benefits after two years of payments.   Hennen sued under ERISA, arguing she fell within an exception to the two-year cutoff because she had radiculopathy.

The U.S. Court of Appeals for the Seventh Circuit ruled for Hennen.  Although the court acknowledge ERISA required deference to MetLife’s decision because the plan contained discretionary language, the court noted discretionary authority did not permit MetLife to act arbitrarily in deciding Hennen’s entitlement to benefits.  The court determined MetLife acted arbitrarily when it discounted the opinions of four doctors who diagnosed Hennen with radiculopathy in favor of the opinion of one physician who ultimately disagreed, but only while recommending additional testing that MetLife declined to pursue.

The court noted that even though a plan administrator is typically permitted to chose which medical opinions to rely on, its decision must still have a rational explanation.  Every physician who examined Hennen since 2012 concluded she had radiculopathy.  These doctors’ opinions had substantial medical support.  While MetLife chose to ignore these doctors’ opinions in favor of its own employee Dr. McPhee, that decision was arbitrary.  Dr. McPhee recommended Hennen undergo further testing and an independent medical examination in order to determine whether Hennen’s radiculopathy diagnosis was correct, but MetLife ignored that suggestion.  The court emphasized:

Here, MetLife took an extra step for its own benefit when it referred Hennen’s file to Dr. McPhee for review. But when Dr. McPhee recommended that MetLife take an additional step for Hennen’s benefit — to confirm whether his lone opinion that she did not suffer from radiculopathy was accurate—MetLife declined to take that step.That was arbitrary and capricious.

The court also emphasized “Although it is reasonable for MetLife to require objective support for a diagnosis of radiculopathy, it would be unreasonable to discount clinical observations of Hennen’s treating physicians in favor of testing that is inconclusive for the condition.”

The court ordered Hennen’s claims be remanded to MetLife for the full and fair evaluation ERISA mandates.

The Hennen decisions represents an important enforcement of ERISA’s requirement that insureds and claimants be afforded a fair and objective determination of their entitlement to benefits, even where the Plan affords the plan administrator discretionary authority.

Medical Proof Required to Deny ERISA Claims Based on Intoxication Exclusion Says Fifth Circuit

Many ERISA plans and insurance policies contain provisions excluding coverage for losses caused by the insured’s intoxication.  In cases where the plan or insurer asserts such an exclusion, the question becomes what evidence must the insurer put forward in order to prove the insured was intoxicated and the exclusion applies?

The U.S. Court of Appeals for the Fifth Circuit recently answered that question in White v. Life Insurance Company of North America.  Life Insurance Company of North America (“LINA”) issued an ERISA-governed life insurance policy insuring Mr. White with Mrs. White as the beneficiary.  Mr. White was killed in a horrible car crash in which his vehicle crossed the center line and struck an oncoming 18-wheeler head-on.

LINA denied coverage asserting the policy’s intoxication exclusion precluded coverage because Mr. White was drunk at the time of the crash.  Weather and road conditions were clear at the time of the crash, Mr. White’s vehicle appeared to function properly, and paramedics reported smelling alcohol on Mr. White’s breath.  Hospital staff took blood and  urine samples from Mr. White that tested negative for alcohol but contained undefined amounts of amphetamines, cocaine, opiates, benzodiazepine, and cannabinoids.  The tests were preliminary and only indicated the presence, not the amount, of controlled substances.

The Court agreed with Mrs. White.  The LINA life insurance policies excluded coverage for death “caused” by Mr. White’s intoxication.  The policy (borrowing from Arkansas law) defined intoxication to mean “influenced or affected by the ingestion of alcohol [or] a controlled substance…to such a degree that the driver’s reactions, motor skills, and judgment are substantially altered and the driver, therefore, constitutes a clear and substantial danger or physical injury to himself or herself or another person.”

The Court found LINA’s evidence failed to meet the policy definition of intoxication.  LINA relied on the opinion of a toxicologist who opined it was impossible to estimate the level of Mr. White’s impairment at the time of the crash based on the preliminary test results.  The toxicologist opined only that “in the absence of any other cause of the collision, the drugs in [Mr. White’s] system could explain his level of impairment that resulted in his crash.”

Accordingly, the Court entered judgment in favor of Mrs. White.  The White case is an important reminder that ERISA plans and insurers cannot deny claims by asserting exclusions that lack tangible factual support.

ERISA Plan Cannot Recover Overpayments Resulting From The Plan’s Own Mistake

Most employee benefit plans (e.g., employer-sponsored health or disability insurance) allow the plan to recover excess overpayments it provides the insured.  This typically occurs where the plan provides benefits that are duplicated by another source of funding.  For instance, most long-term disability plans provide that benefit payments are offset by amounts the insured receives from a Social Security Disability claim.  These provisions are generally enforceable.

The Ninth Circuit Court of Appeals recently refused to uphold the plan’s right to repayment where the overpayment was due to the plan’s own error.  In its unpublished decision in Mrkonjic v. Delta Family-Care and Survivorship Plan, the court held Delta’s employee benefit plan could not recover overpayments from Myrkonjic caused by Delta’s improper denial of Myrkonjic’s initial claim for benefits.

Myrkonjic became disabled following a work injury and applied for long-term disability (“LTD”) benefits from his employer Delta’s employee benefit plan.  Delta denied Myrkonjic’s claim.  During the ensuing thirteen-year lawsuit over Myrkonjic’s right to LTD benefits, Myrkonjic took early retirement under Delta’s retirement plan in order to provide a source of income during the period he could not work and was not receiving LTD payments.

After years of litigation, Delta agreed Myrkonjic was entitled to LTD benefits.  But Delta subtracted from Myrkonjic’s LTD payments amounts Delta had paid him in early retirement benefits, relying on language in the governing plan documents permitting Delta to make an offset accounting for duplicative benefits.  Delta’s calculation of Myrkonjic’s offsets differed from the manner in which Delta typically calculated offsets: “Normally…If the offsets exceed the benefit, the claimant receives nothing but does not owe excess offsets back to the Plans.  The Plans concede that they calculated Myrkonjic’s LTD benefits inconsistently with their normal method.”

The Ninth Circuit determined Delta’s offset calculation was improper.  Noting “Myrkonjic would up in federal court in the first place” and “was forced to elect early retirement” “because the Plans improperly refused to approve his LED application”, the court ruled the Plans should have resolved the offset “so as to leave Myrkonjic no worse off from their mistakes.”


Health Plans Can’t Discriminate Against Mental Health Treatment Says Ninth Circuit

Among the challenges of a mental health condition is the difficulty persuading health insurers to cover treatment.  Mental health conditions can be difficult to objectively diagnose and can require lengthy and expensive treatment often with little prospect of a conventional “cure.”  Hence, health plans have a powerful incentive to minimize coverage for mental health conditions to reduce costs.

In response, the federal government, as well as Washington and many other states, have enacted mental health parity laws.  In general, these laws prohibit health insurers and health plans from discriminating against mental health conditions by mandating mental health conditions be covered to the same degree as physical ailments.

On June 6, 2018, the Ninth Circuit Court of Appeals confirmed the federal Mental Health Parity Act prohibits health plans from discriminating against mental health conditions for the purposes of health insurance coverage. In Danny P. v. Catholic Health Initiatives, the court determined the health plan violated the law by denying the plaintiff’s claim for the cost of an inpatient stay at a residential mental health treatment facility.

In ruling for the plaintiffs, the court determined the Mental Health Parity Act required the health plan’s coverage of inpatient mental health treatment facilities be no more restrictive than coverage for stays at skilled nursing facilities.  Since the Act prohibited imposing more restrictive coverage requirements on mental health treatment than on treatment for physical conditions, the Act precluded the health plan from deciding to cover room and board at skilled nursing facilities for medical patients while refusing to provide the same coverage for mental health inpatient care.

The Danny P. decision is an important win for patients seeking mental health treatment and vindicates Congress’ intent in passing the Mental Health Parity Act that mental health patients be free from discrimination by their health plans.