By: Guy O. Kornblum, Certified Civil Trial Advocate, National Board of Trial Advocacy and Member, Million Dollar Advocates Forum^[1]

Many, if not most of you who read this have long term disability insurance.  You have been persuaded to purchase an insurance policy that will pay you a monthly benefit if you are unable to work in your profession, i.e. you are “totally disabled” from your occupation.  This is often referred to as “own occ” coverage.  Your expectation is that if an illness or accident causes you to be unable to work, your insurance company will pay you each month the prescribed monthly benefit which will be at least a partial substitute for your lost ability to earn a living in the professional occupation for which you spent many years training and practicing.  Most of these policies have both “total disability” and “partial disability” provisions.  The latter allows a proportion of the stipulated monthly benefit to be paid where there is only a partial loss of income because of reduced hours or restrictions that result in a reduced income.

Sources of Coverage

There are basically three sources for this coverage. 

For some, the coverage may be provided through a group policy through your professional practice or employment.   (Claims under these policies are governed by the Employee Retirement Income Security Act, or “ERISA”, which prescribes special remedies under federal statute for those who claims are denied). 

Or, you may have a “private” policy either through your professional association, or one that you individually purchased through a broker.  These are usually paid for with “after-tax” dollars which allows you to collect a benefit without being taxed on it.  (Normally any failure to pay claims under these policies is governed by state law  which allows claims for “insurance bad faith” and punitive damages.  This makes a big difference because claims for “insurance bad faith” are allowed under state law, but not under ERISA.  In short, you have more leverage with the non-ERISA claims because of the threat of these “extra-contract” damages.)

The Purpose and Promises of Coverage

Long-term disability policies usually provide a monthly benefit based on a percentage of your average earnings over a period of time immediately before the disability begins, or a fixed sum based on financial information indicating that the benefit is something less than what you earned.  In the case of many individual long-term disability policies which are sold to high income earners, the benefits continue as long as you are “totally disabled” from your occupation up to Age 65 and sometimes for life.  (There is usually a “waiting period” of 30-180 days after disability begins before benefits begin.)

The marketing for these policies emphasizes the need to protect against loss of income from your inability to practice your profession because of a sickness or injury.  The “sales pitch” is that, if you are totally disabled from your “own occupation,” you are eligible to receive the monthly benefit regardless of your ability to earn income through another occupational activity.  The purpose is to protect you from the significant loss of income resulting from your inability to continue working in your occupation.  Thus, theoretically, a dentist or physician who is totally disabled from working in that profession, but who makes a greater income from writing books, or lecturing, is still eligible to receive the monthly benefit because he or she is totally disabled from the professional occupation that was insured.   

There are options that can be purchased to allow you to increase your monthly benefit periodically by paying additional premiums to increase the monthly benefits. This must be done before a claim is made.  You can also purchase a Cost of Living Adjustment (“COLA”) which provides for an annual upward adjustment to the monthly benefit after you become totally disabled so that your benefit keeps up with inflation.

What Happens When I Make A Claim?

While you may feel secure knowing that you have this “promise of protection” against income loss in the event you are disabled from working, disability insurers may have a different view of what protection they intend to provide.   Unfortunately, LTD insurers may not have your best interest at heart when you make a claim.  You have to be wary of “unfair claims practices” which may be used by insurers to build a file that will be used to deny or terminate your claim.

The disability insurance “business” has fallen on hard times.  Individual disability policies were a “hot product” in the 70’s, 80’s and early 90’s.  The marketplace was full of insurance companies willing to take on high end employees and professionals and insure them for several thousand dollars a month if they became disabled.  Prices were very competitive, i.e. favorable to the applicant.  The underwriting was “loose” to generate premium dollars.

In the late 80’s and 90’s, these carriers were hit with thousands of claims, and the premium income was not sufficient to pay claims.  The carriers had to dip into their pockets to keep up.  As a result, many of the insurance companies have sold off their “book of business” to one of the few large companies still interested in managing the policies and handling the claims.  The new carrier is paid on the basis of how much it saves in claims payments.  Thus, it is interested in terminating longer term claims as soon as it can.

There are various techniques used by the carriers still administering these claims – UNUM/Provident, Metropolitan Life, and others – to challenge a claimant’s eligibility for long- term disability benefits^[1].   As one former high level executive of one of the better known disability insurers said in a deposition: “[T]he company was looking for ways to disprove the credibility of claimants” and deny benefits.  One company estimated a savings of $30-60 Million as a result of “claim improvement initiatives.”

So, What is “Total Disablity”?

First of all, the definition of “total disability” in the policies protecting from the inability to work in your own occupation usually requires that you be: a) unable to perform the substantial and material duties of that occupation; and b) under the care of a physician.  Under this standard, you do not have to be totally helpless to be eligible for benefits.  That is you do not have to be unable to perform all the material duties of your occupation. It is sufficient that you are unable to perform a material duty.  While some policies state a standard that suggests near total helplessness is required before you are eligible for benefits, California case law has interpreted this language in favor of the insured so that being totally disabled from performing a material duty is sufficient.  Often, however, carriers to not apply this correct standard, and try to deny a claim because the insured is not totally disabled from performing several or even all of the material duties.

For example, a dentist with severe cervical disc disease may be unable to perform certain procedures that are essential to caring for patients, but still can oversee the office, perform some examinations, consult on cases, review X-rays, and perform other tasks related to dentistry.  However, the inability to perform procedures that require significant bending, twisting, use of the arms and neck muscles, is sufficient to render that dentist totally disabled.  Often, carriers fail to recognize the extent of an insured’s disability and choose to challenge a legitimate claim.

How Does the Insurer Respond to a Claim?

Once a claim is made, you are required to regularly supply a supplemental claim form, usually monthly.  Sometimes, if the cause of the disability is stable, quarterly or semi-annual submissions of these forms will only be required.  No matter how often a claimant is required to submit supplemental claim forms, they will be carefully scrutinized for any information which can be used to challenge a claim.  Often these forms are misleading or incomplete and the claimant is left to his or her own devices in completing them.  The carriers give little guidance as to how these forms are to be completed, but insist on their prompt return; otherwise benefits will “not continue.”  So, the unknowing or unsophisticated claimant does what is requested without a real understanding of how the claim form will be used.   Many times, the claimant makes statements that are misinterpreted by the carrier and used to support a denial.  

Your physician or medical care provider will be asked to complete an Attending Physician’s Statement (“APS”) which also is often misleading or contains questions which are easily misunderstood.  Sometimes the APS just is not relevant such as those that are primarily for back disorders or contain questions about vocational duties that don’t apply to your profession.  As you no doubt appreciate, physicians are often inundated with these forms and have very little time to complete them, so they are frequently hurriedly done with simple brief comments.  Sometimes, an administrator in the office will complete the form based on information from a patient’s chart, or the physician will ask the patient to complete the form for the doctor to sign. 

It is very important that these forms be carefully completed, and that you make sure your doctor pays close attention to the questions and even provides a supplementary statement or comprehensive report explaining the nature of your medical problem and why it affects your ability to perform one or more material duties of your profession.

The insurer may also send you to an “independent medical examination (I.M.E.),” used regularly by insurance companies to examine their insureds.  Generally, these are one time examinations by physicians who regularly do them for insurance companies who regularly engage them for such, even though they will claim there is no bias.  These I.M.E. physicians are “smart,” and know how to “play the game.”  These defense doctors write reports which highlight and/or emphasize a claimant’s “good days,” rather than evaluate the totality of medical condition and limitations of the insured.  Often, they review the file not only to support denial but in an attempt to show that the insurance company did not deny the claim in “bad faith”, because a physician supported the denial. 

In addition to an I.M.E., Functional Capacity Examinations (F.C.E.) or “long distance” reviews will be conducted by vocational specialists engaged by the insurance companies who fail to take into consideration the “economic realities” of the marketplace concerning whether a disabled dentist or physician can maintain a private practice with the condition causing the disability or obtain a position that allows him or her to continue practicing as a professional.   Frequently these reviews simply “miss the mark” and are not relevant to the assessment of whether the professional is totally disabled.

Or, the company may conduct an in-house review by its own captives – employees or consultants who base their opinions on the information provided by the claims handlers or simply what medical records or reports they obtained.  Often, claims tactics will be used under the “guise” of a “good faith” dispute over whether the claimant is truly totally disabled or because there is “suspected fraud.”

Sometimes, the carriers will use more direct approaches:

• Personal interviews which are conducted by professionals who know how to “set up” claimants for termination. Sometimes these are unannounced visits to your home, with the insurer hoping to catch the insured unprepared and doing or saying something that is inconsistent with the claim of disability.
• Direct contact with treating physicians – again with a view towards developing information designed to serve as a basis for termination.
• Surveillance, which is often conducted by “private investigators” who video activities of a claimant.

Unfortunately, the information developed in these approaches is all to often misused by the insurer to deny or terminate a claim, not as a basis for conducting an objective and unbiased evaluation.   More frequently than not, the claims representatives will scour files for statements that support denial, thus ignoring other information that supports payment of the claim.

Challenges to Your Claim 

What type of challenges might the insurer make to your claim?  Here are some that have been used to at least deny or terminate a claim at least initially.  If incorrect, the failure to pay can result in a lawsuit by the insured alleging that the insurer wrongfully denied the claim and if appropriate, claiming that the denial or termination was in “bad faith”:

• The claimant had a “dual occupation” at the time of disability. A favorite ploy for denying claims of dentists and physicians is to take the position that, while disabled from treating patients, the insured had a “dual occupation” as the “office manager” so that income was not earned from treating patients but from running the office, marketing the practice and letting others do the work.  While disabled from the professional occupation, the insurer will deny the claim because the insured is not disabled from the second occupation as an “administrator.”  Another  example is a professional who is also a department head, such as in academic medicine or dentistry.  Maybe the insured cannot work on all aspects of patient care, but he or she can “administer” a department and thus is not totally disabled from performing the duties of this second occupation. 
• Misrepresentations in the application for insurance. Often, if the claim is filed within two (sometimes three) years of issuance, the insurance company will engage in “post-claim underwriting” by completely investigating the statements made by the insured on the application in an effort to find some mistake on which it can void the policy.  However, the insurance company only has the two or three year period from the date of issuance to do this.  After that, it must accept the insured no matter what.
• The pre-existing condition charge: If the misrepresentation “defense” does not work, often the carrier will claim the condition was pre-existing or that what is there was not disabling before the policy was written, so why should it be totally disabling now? There is some overlap here.  For example, if an application asks you to reveal past medical history and you describe a potentially disabling condition, then it may be “ridered” or subject to an exclusion either eliminating it as an insured condition or providing a time period of months or years, after which it can be considered.  However, if there is a latent or minor problem which becomes totally disabling later, such as an osteoarthritis which is activated by a trauma, that condition is not excluded since it was not serious enough to reach the level of being a disabling condition before coverage was provided.
• The “you worked before with it; why can’t you work now” defense: Typically, except in the case of a serious injury which becomes immediately totally disabling, a professional will not just stop practice one day and walk out of the office claiming total disability. Usually in the case of a sickness, there is a period of progression, then denial, then a struggle, and finally acceptance by an insured of his or her disability.  Often it is months, if not years, before the professional finally admits that this sickness interferes with patient care so much that continuing not only exacerbates it, but may endanger the patient.  The professional is simply “forced” to give up.   In these cases, insurers will often use the time period before that occurs to argue that the insured continued to work with the condition in order to contend that total disability does not exist.
• “Hardball claims tactics”: Beware of “hardball” tactics in handling your claim. In the long term “expensive” claims – such as a claimant who is looking at more than a few months of benefits (often the maximum period) – the carrier will leave no stone unturned to deny or terminate a claim.  They will search financial and court records, unearth sworn statements from family law matters, and conduct a surveillance from time to time, hoping to find something that they can use to support a denial.  I have seen cases of back injuries where an insured is simply driving a car, and the insurer claims that is inconsistent with a claim of total disability.   Sometimes the insurers try to justify these “tactics” as a means of “fighting fraud.” 
• “Low-ball buy outs”: Insurers have “specialists” that are trained and experienced in persuading long term claimants to give up their claims in return for a lump sum payment. In the cases of large policies, the sums offered can be well into the six figures but represent only a small fraction of the total value of the claim, which can be in the several millions of dollars.  In one case a few years ago, a disability carrier suffered a million dollar punitive damage award for trying to get a disability claimant to accept a lump sum payment that represented less than 10% of the value of the long term benefits.  If you are interested in a “buy out,” be sure you consult with a lawyer or your CPA about the real “value” of your claim so that you can obtain a sum which is appropriate for your circumstance (if the insurer is willing to pay that much – an unlikely situation).  If, however, you and your insurer are able to reach a mutual “buy out” agreement, be sure to find out about how to defer applicable tax consequences by structuring any settlement you receive over time as opposed to taking a lump sum “buyout”.

What is most troublesome, however, is that persons handling these long term disability claims are often not sufficiently trained or qualified to do so.  They may know what forms are to be completed and how to handle the administration or paperwork, but they are otherwise not qualified to make the decisions they make.  They make vocational evaluations without being trained in the occupational fields for which they are evaluating the claimant; they decide medical issues without being medically trained.  And, if in house consultants are used, they are often not real “experts” in the fields of medicine on which they are called to give opinions, and they certainly do not have the intimate knowledge of the treating physician.  Usually, the treating doctors’ views are given short shrift; their opinions are frequently simply ignored. 

So What Does California Law Require?

The California Supreme Court has consistently provided that “[t]he insured in a [disability] contract…does not seek to obtain a commercial advantage by purchasing a policy – rather, he seeks protection against calamity…  The purchase of such insurance provides peace of mind and security in the event the insured is unable to work.”  (Egan v. Mutual of Omaha Ins. Co., 1979.)  The unique factors present in disability policies make it incumbent upon an insurer to respect the insured’s right to receive the benefits of the contract. 

California law requires that insurance companies handle all claims in “good faith.”  This means there are a rigorous set of duties for insurers to follow in administering long-term disability claims.  An insurer is required to “properly investigate its insured’s claim.”  (Egan.)  This obligation is two-fold: (a) “it is essential that the insurer fully inquire into possible bases that might support the insured’s claim”; and (b) “an insurer cannot reasonably and in good faith deny payments to an insured without thoroughly investigating the foundation for its denial.” (Egan.)   Knowing this, disability claims handlers and their “bosses” have become more sophisticated in “building a file” against their insureds.  They stack it with in house medical reviews, vocational assessments that are one-sided, and “defense medicals” by examiners who make their living reviewing files for insurers or examining their claimants.

Some Suggestions If You Have a Claim

So, if you have or are making a claim to “your” disability insurer, I suggest the following:

1. File as soon as you know you are disabled. Don’t wait.  If you do, the insurer will wonder why?  Filing early is also important if you have a “residual disability” clause which pays if you are not totally disabled but contemplate a gradual return to work.  It pays while you are not working or earning only a part of what you earned when working full time.
2. Be polite but discreet with claims handlers who call to “discuss” your claim. You are required to supply information, but I suggest you request the opportunity to record the conversation to document what is said.  They will be cordial and polite most of the time.  But be wary; they are in a disguised “adversarial” posture.
3. The claims handler who calls may ask to record the conversation. If so, ask for a copy of at least the transcript, if not a copy of the tape also.
4. Ask the claims handler, especially after your claim is denied or terminated for any videos made while conducting a surveillance of you and any report made by the investigation firm which conducted the surveillance.
5. Be prepared for the “visit” of the claims representative. Make them schedule in advance.  If they show up, advise the representative that you will speak with them at a convenient time if they will schedule.  Talk with your attorney about how to handle the interview.  You may want to record it (which I strongly suggest).
6. Don’t supply tax returns if requested. Unless the policy requires it, you are not required to do so.  You can supply earnings information through your CPA or bookkeeper, or through forms from your employer or business.  Tax returns are “private” and do not have to be provided.  Simply politely decline and find out what information they want, and request that they send you something written that is specific as to the information needed. 
7. Keep your physician informed of what is going on. He or she needs to know that they may be questioning your claim.  Your treating doctor will be supporting you in your quest for the policy benefits. As such, it is important to keep him or her “in the loop,” so if there is direct contact, your physician will be prepared for it.

Your insurance company has collected your premiums which you paid for the “Promise of Protection.”  The solicitation materials which you received when you were considering purchasing a long-term disability policy made statements on which you relied and which enticed you to buy this coverage.  Those promises of this protection from total disability and income loss were important to you.  Your expectations were that you would be paid your monthly benefit if totally disabled.  Take steps to make sure your insurance company lives up to its promises and does not unfairly refuse to pay your claim, forcing you to sue to get what is rightly yours.

^[1]See also, “Keep that insurer from blocking your disability claim,” found at Medical Economics Archive, August 6, 2001.

^[1] Mr. Kornblum has practiced as a trial and appellate lawyer for over 37 years in San Francisco.  His firm, Guy Kornblum & Associates specializes in representing insureds and policyholders in all types of insurance disputes, including those involving long term disability claims.  He has handled over 1000 cases involving long term disability claims, and has litigated a number of cases involving “cutting edge” issues.  He can be reached at gkornblum@kornblumlaw.com.   Or you can contact him through his website at www.kornblumlaw.com.  He invites your comments and inquiries.