Long Term Disability

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Insurance companies, like any other business, don’t improve their bottom lines by giving away money.  In the field of long term disability insurance, federal law has supplied insurers with a plethora of tools to disallow or terminate injured workers’ disability benefits and, without experienced legal counsel, an injured employee has little to no chance of overcoming that advantage to reverse a benefits claim denial. 

Insurance Lawyer PennsylvaniaThe number one bonanza for the insurance industry is federal preemption.  Most insurance policies, such as your vehicle or home owner’s policy, are subject to state legislature enacted bad faith laws, which allow individuals to sue their carrier for failing to handle claims in good faith.  If the policyholder can show that the insurance adjuster denied or underpaid the claim without good reason, the policyholder can not only recover the fair value of the claim, but can also recover attorney fees and punitive damages far in excess of the value of the original claim.  For example, in one case a car owner, whose motor vehicle insurer refused to pay a $1500 property damage claim, settled his resulting bad faith claim for more than six figures.  Unfortunately for injured workers, however, a bad faith claim cannot be brought for the denial of long term disability benefits because, for most policies the premiums are paid by the worker’s employer and are thereby governed by federal law, which preempts the state bad faith statutes.

The Employer Retirement Income Security Act, known as ERISA, is a federal law that governs employer provided insurance benefits.  That statute does not provide for penalties for bad faith denial of benefits.  Federal judges have ruled that ERISA preempts all state law, including bad faith claims.  Therefore, if the premiums for a long term disability policy are paid as part of an employee qualified benefit, and most are, and a court decides that a claim for long term disability benefits was denied without good cause, the insurance company will simply have to pay the benefit, but will not be subject to a penalty.  This is a bit like capturing a burglar only to learn that his only punishment is that he has to give back his stolen loot.  Without the threat of a bad faith claim, an insurance company has nothing to lose in denying a long term disability claim.

The second advantage for the insurance industry is the deference given by ERISA to the adjuster’s decision.  Federal judges (all ERISA claims end up in federal court) can reverse an adjuster denial of benefits only if the adjuster’s decision was arbitrary and capricious.  This means that the court will rule for the claimant only if there is nothing in the record to support the adjuster’s decision to terminate or deny benefits.  The record that matters is the adjuster’s file and no other records.  If reasonable minds could differ with respect to the disability decision, the insurance company wins.  Further, no right to a jury trial exists; the case is decided by the judge alone.

Long Term Disability Lawyer PhiladelphiaA third advantage is the social security set-off.  Virtually all long term policies have a contractual provision which reduces the long term disability monthly benefits by any amount the beneficiary’s social security disability benefits (SSDI).  Because virtually the same disability standard applies to long term disability and social security claims, a recipient of private disability insurance benefits will also be entitled to SSDI, which will reduce the amount the insurance company must pay.  This is corporate welfare at its finest.  Indeed, insurance companies regularly beneficiaries obtain SSDI just so they can get the set-off.  In litigation, the insurance industry uses the set-off as settlement leverage.

Despite the insurance industry’s statutory protections, decisions denying or terminating long term disability benefits have been successfully challenged and resolved for lump sum settlements.  Legal involvement at an early stage is the key.  Because the courts will only review the documents in the adjusters file, it is essential to obtain and submit to the adjuster supporting medical records before the insurance carrier issues its final denial.  All insurance policies provide for internal review of the adjuster’s initial decision.  This provides a window for claimants to supplement the record with favorable evidence.  However, to prevail, a claimant still will need counsel to file a federal law suit.  In our experience, insurance carriers will not negotiate unless a law suit has been filed, the judge is ready to rule and the risk of it losing has been created.  At that point, the insurance company may be willing to settle for a lump sum amount proportional to the claimant’s total life-time benefit discounted to present value.