Disability Insurance Claim Advice
Total Disability: To Be or Not To Be — That is the Question
Self Funding Magazine, June 1, 2012
By Arthur L. Fries, RHU
It is far better to be “in the know” than to know not. Not understanding begs the question, so understanding the definition of total disability may tell you how to act in the life of a disability claim.
Because there are so many definitions of total disability that confuse the buying public, perhaps those who draft disability contracts will reform and create wording that can be more readily understood. But alas, that is probably not meant to be.
For many years I successfully sold disability policies and since 1995 I have acted in a consulting capacity for claimants related to their disability policies. I am a Fellow in the American College of Forensic Examiners, the Forensic Expert Witness Association and a Fellow in the American College of Disability Analysts. In addition, I have attended many annual meetings conducted by the American Conference Institute for both plaintiff and defense attorneys. I have read thousands of disability contracts. Yet, as much as I think I know, I sometimes feel that “I know not” because of the confusion brought on by the lack of conformity in the disability industry as it relates to definitions.
So, the purpose of the article will be to give you my best opinion; but even a best opinion is sometimes left for the courts to decide. Although insurance companies and I will often “agree to disagree,” I will attempt to walk you through the maze of wording that encompasses the definition of total disability.
Before we get into the various definitions of total disability, you should be aware of the various types of disability contracts provided by the Insurance Industry:
- Non-Cancellable – An individual policy which provides a guarantee related to the premium, wording and renewability, usually to at least age 65.
- Guaranteed Renewable – An individual policy, the same as above but without the guarantee in premium.
- Group – A plan offered to 2 or more individuals in which there is an employer/employee relationship. When 10 or more individuals are covered, underwriting is waived as it relates to medical questions. There are no guarantees re: premium wording or renewability.
- Association – A “group type” plan offered to members of the same profession or occupation in which there is no employer/employee relationship. Example: dentists in the U.S.A. Also called “franchise plans” and here also there is no guarantee re: premium, wording or renewability. That said, I’ve seen some association plans in which the wording and renewability was guaranteed (not the premium), but that only applies when the “master contract” remains in force with the same insurance company. A change in insurance companies can negate the guarantee related to policy wording and renewability. Often a group plan will “offset” and subtract from the monthly benefit any monies received from another “group” plan. But there is inconsistency in wording whereby it is not clear whether the plan is a “true group” (employer/employee relationship) or a “group type” (association plan) and this leads to further confusion when a claim arises.
- Self-Funded Plan – Similar to a group plan but the employer assumes the risk of paying the benefits, with a Third Party Administrator often handling the claim.
- Union Plan – Available to union members (e.g., an airline). With all other types of plans the benefits cannot be changed once a claim begins. Yet, I’ve been shocked to see a union plan in which a member was on claim and the union had the right to change the benefit period during the claim.
With all of the above types of disability plans (except #6), the insurance company may not single out an individual and make changes. Any changes would have to apply to all members who have the same “policy form” or to all members of the “group.”
There may be variations of the above types of contracts, but the above mentioned are the ones I have seen most commonly in the industry.
NOT ABLE TO PERFORM THE SUBSTANTIAL AND MATERIAL DUTIES OF YOUR OCCUPATION
Your occupation means what you were doing prior to going on claim, not what you did a year ago, two years or five years ago. If you were a dentist with cervical or low back issues or bilateral carpal tunnel syndrome or any combination of these medical symptoms, you would be totally disabled if you could not work as a dentist. This, of course, always assumes that if you work at another occupation it meets the “smell test” and you are not in conflict with your symptoms. Thus, a dentist with carpal tunnel and cervical symptoms working at a new job sitting in front of a computer on a daily basis would not meet the smell test and would be in conflict with their symptoms (leaning forward and excessive use of hands).
To further complicate the situation, insurance companies may interpret a policy differently at claim time compared to when the policy was created many years prior. Example: You are a surgeon and when you purchased your individual disability policy in the 1980s you were told by the broker/agent, “If you can’t do surgery, doctor, you will be considered totally disabled and you can work in any other occupation. And with your ‘specialty definition’ you can even work as a general practitioner.” But whoaaaaa…now we see insurance companies providing their own definition of what this means, often with opinions that are not in the contracts they drafted. The policy doesn’t discuss how much surgery or how much income must come from surgery. Yet, opinions are made based upon these ambiguities. And as indicated earlier, your claim could be in jeopardy if you are working at an occupation that is in conflict with your symptoms. Or, you may be participating in social or athletic activities that are in conflict with your symptoms. And none of these conflicts are discussed in your policy! And, if you are a professional, the insurance company wants your procedure codes, usually for at least one year prior to going on claim, to verify how active you were in your profession. I have still yet to find any wording in a disability contract that talks about procedure codes.
SAME WORDING AS ABOVE BUT WITH ADDITIONAL WORDING THAT STATES: “AND NOT WORKING IN ANOTHER OCCUPATION”.
With most insurance companies, if you have a partial (residual) wording in your policy and typically you have at least 20% loss of earnings, the insurance company will treat this as a partial claim and not a total claim. If you do not have a partial wording you will not be paid anything.
YOU HAVE BOTH A PARTIAL AND TOTAL DISABILITY DEFINITION FOR YOUR OCCUPATION, IN THIS EXAMPLE YOU ARE A TRIAL ATTORNEY WITH A LOW BACK PROBLEM.
You have a seven-day trial approaching. You see the judge beforehand and tell him that because of your low back issue you can only attend the trial in the mornings because by on o’clock in the afternoon your pain threshold will have increased whereby you have to take medication (Vicodin, Percocet, etc.) in amounts that will affect your focus. Therefore, you will not be able to attend the trial in the afternoon and they can close the court for that period of time. This of course, will be unacceptable to the judge, who will request that the attorney be there for the entire day or find a replacement.
In this example, it could go either way. In the State of California, court precedent indicates that in addition to the policy language you must also be able to perform your occupation in the usual and customary way with the same degree continuity. In the case of the attorney not being able to work in the afternoon, that could fall into the added court precedent language.
FOR THE FIRST TWO YEARS NOT ABLE TO PERFORM THE SUBSTANTIAL AND MATERIAL DUTIES OF YOUR OCCUPATION. THEREAFTER UNABLE TO PERFORM THE DUTIES OF ANY OCCUPATION FOR WHICH YOU MAY BE ELIGIBLE BASED ON EDUCATION, TRAINING OR EXPERIENCE.
After two years the insurance company takes a second look at you. In many situations you may not be able to do your prior job but your symptoms do not prevent you from working at a different job. In this case benefits will cease. Sometimes there is a variation of the above in which it states that after two years the definition is the same, but also states that any job must be one in which you have the potential to earn at least 60% of your prior earnings. Thus, a surgeon who previously earned $400,000 a year being able to work as a professor of surgery after two years and earn $80,000 per year would still be able to collect 100% of the monthly benefit.
NOT ABLE TO PERFORM THE SUBSTANTIAL AND MATERIAL DUTIES FOR THE BENEFIT PERIOD STATED ON THE DECLARATION PAGE (TO AGE 65) IN YOUR OCCUPATION.
A lifetime benefit also applies. It may have been added by amendment (rider), but the wording changes to include the “your occupation” definition but adding, “…and not working in any other occupation.” In this situation you have the choice to work or not work. If you choose to work past age 65, benefits will cease. If you do not work at another job, benefits will continue.
There are still other variations of the above and many disability policies further restrict the amount of the monthly benefit by placing additional contractual language in the policy such as:
- An Earnings Clause
- A Relation to Earnings Clause
- An offset provision(s).
- Indicating that partial disability includes your occupation as well as working in any occupation.
- A maximum amount payable for mental symptoms or self-reported symptoms (sometimes per claim and sometimes as a policy aggregate).
- A fraud clause.
- Many other clauses too numerous to mention.
As you can see, total disability can be a challenge for the claimant to understand and for the insurance company to interpret. But having a better understanding of the contractual language can help you in planning your future life wherever that may lead you.