Disability Insurance Primer

Massachusetts Disability Insurance Lawyer

New England | Boston-Worcester Corridor | Hartford, Connecticut

Attorneys Terry Low and Anthony Canata practice primarily in the area of employee disability benefits, with a particular emphasis on helping employees and professionals with employer sponsored group disability plans (ERISA and Non-ERISA) and private disability insurance policies to obtain the benefits they need when they become disabled: Disability insurance is what we do. What follows is a primer on disability insurance that addresses many of the questions commonly asked by our clients and explains the process for obtaining benefits for each type of disability insurance.

There are three basic categories of disability insurance:

  • employer sponsored group disability plans subject to ERISA
  • employer sponsored group disability plans that are exempt from ERISA
  • individual disability insurance policies.

Employer Sponsored Group Disability Plans Subject to ERISA

ERISA Plans. Disability insurance plans that are offered to groups of employees by their employer are known as group disability plans. The vast majority of these plans are subject to the federal ERISA statute (Employee Retirement Income Security Act, or alternatively, Everything Ridiculous Invented Since Adam). Plans can be self funded, meaning that the employer pays benefits directly to beneficiaries and typically administers the plan itself. For example, Baystate Health Systems in Springfield, Massachusetts, has a self-funded plan. More typically, plans are insured and administered by insurance companies like Unum, The Prudential, Cigna and others, which means that the insurance company pays benefits to plan participants who become disabled under the plan. The plan itself is a legal contract negotiated between the employer and the plan administrator, or simply written by the employer in the case of a self-funded plan. Employees who become participants in a plan have no direct input in choosing the insurance company that will administer the plan or the language of the plan itself. They often only receive a summary description of the plan, which is created so that they can easily understand the plan provisions without having to read the legalistic plan itself. Nevertheless, as Justice Kagan wrote in a recent Supreme Court decision, "If the plan governs, the plan governs." Courts enforce the plan as it is written, and employees have no say in the way it is drafted.

Plan Basics. The Supreme Court has ruled that ERISA plan administrators are trustees of the plan and have a fiduciary relationship with plan participants. Although this theoretically means that administrators have an obligation to act for the benefit of participants, in practice administrators take advantage of their status as fiduciaries to grant themselves authority to make decisions under the plan. That, in turn, means that judges who review denials made by plan administrators must give deference to the administrator's decision, and only overturn it if the decision was arbitrary and capricious. In other words, judges do not have the authority to determine whether or not a participant is disabled under the terms of the plan, but only have the power to decide the much more narrow question of whether the administrator's decision was reasonable. The net result of this perplexing arrangement is that the very administrator that would have to pay a disability benefit award gets to decide whether or not to award the benefit, and its decision is granted deference by the courts. The insurance foxes are guarding the ERISA disability hen house, and the courts have decided that they are to be trusted.

Initial Claim. In any event, plan administrators have the authority under the ERISA statute to review initial disability claims and to deny claims. There is typically a procedure for submitting an initial claim that requires applicants to obtain attending physician reports from health care providers, fill out activities of daily living forms, sign authorizations so that the administrator can gather documents and contact health care providers directly, and other paperwork. Applicants often find this process tedious, and often experience delays.

Once an administrator has all of the necessary information and the application process is complete, it must notify the participant of an adverse decision within 45 days, but can extend that time period an additional 30 days if necessary for reasons beyond its control. If the administrator finds the applicant eligible for benefits (which presumably would happen within the same 45 or 45 + 30 day time frame), the participant typically has a continuing obligation to provide evidence of disability. This can take the form of providing medical records and/or authorizations, submitting to "independent" medical exams, being interviewed at their homes, etc. They are also often subject to video surveillance, especially in and around the time of "independent" exams and in home interviews.

Initial Denials and the Appeal Process. If the administrator denies the claim, it must do so in a notice that provides information to assist the applicant in appealing the denial, including the reasons for its decision and the steps that can be taken to address these deficiencies. Denials must be appealed within 180 days. Appeals not filed in a timely manner are subject to being rejected, with the result that the applicant is forever barred from appealing the denial. If that sounds rather harsh, it is: welcome to the world of ERISA disability insurance. Plan administrators must review timely appeals and notify a claimant of its benefit decision within 45 days, again with an additional 30 days if necessary and for reasons beyond its control.

The 180-day appeal period is harsh in more ways than one. It is also the only time period during which the claimant may present documents and other information in support of a claim of disability. However, there are no formal rules in place that allow claimants to gather those documents and other information: There is no opportunity to take depositions, make specific document requests, submit interrogatories that must be answered, or take advantage of any of the other procedures and safeguards available in state or federal court for ensuring that both sides have all of the information they need, prepared in a manner that could ultimately be used at a trial if necessary.

Instead, the claimant may gather and submit additional medical records from more recent health care treatments, and/or submit any documents or information that may be helpful in winning the appeal. These submissions are not subject to the formal rules of evidence, and are only limited by the claimant's creativity and resources. The administrator, for its part, often conducts internal reviews of the claim by having a staff doctor or nurse prepare a report. These staff reviewers often call the treating physicians as part of their investigation, and often follow up by sending "summaries" of the conversations that downplay evidence of disability or take other liberties in describing the disability and associated restrictions and limitations. The health care providers, for their part, must edit, ignore, or accept these summary letters, and often are acting without any understanding of the tendency of administrators to set claims up for denials. Alternatively, an administrator may hire a medical professional to prepare an "Independent Medical Exam," or IME. There are doctors who derive much, if not all, of their income from preparing such IMEs, often preparing them for only a handful of insurance companies whose business these doctors rely on to make a living. What is more, they often have limited knowledge of the illness or injury that is the subject of the claim, although they write reports that often become the basis for the denial of benefits. If it sounds like these medical exams are not very "independent," you are starting to see the practices and pitfalls that await the unwary claimant.

Moreover, despite the fact that administrators are fiduciaries investigating claims on behalf of beneficiaries, it is often the case that these administrators fail to request records, fail to connect with treating physicians, fail to procure records from other agencies (like the Social Security Administration), and decide claims based on an incomplete record. It is ultimately the responsibility of the claimant to ensure that the administrator has everything necessary to make a decision, and it is simply a fact that it is in the interest of administrators to deny claims based on limited records rather than proactively seek all relevant and helpful records and information.

As for a claimant presenting a claim, there is no hearing or trial. Ever. The administrator of the claim acts as if it were an agency, like the Social Security Administration, when making its decision. The regulations require it to conduct a "full and fair" review, but there is no requirement that the administrator interview the claimant, take testimony at a formal hearing, or in any way formalize the presentation of a claim. Administrators simply gather and receive records, review the claim, and render a determination.

Appeal Denials and Next Steps. An administrator must give notice of its decision on the appeal, setting forth the basis for a denial, again with 45 days, or 45 plus 30 if necessary for reasons beyond its control. Once the administrator makes a final determination, the claimant can bring an action in federal court to challenge the administrator's decision. Federal litigation in general is challenging and time consuming, often taking a year or more before a case is resolved, and ERISA litigation is no different. However, unlike in virtually any other cases in which one party alleges that another has failed to fulfill its obligations under a contract, there is no discovery process or trial in most federal courts. Instead, the federal courts typically only review the administrative record - any documents and other information submitted to or gathered by the administrator before and during the appeal period - to determine whether the decision was reasonable.

When a claimant wins a case in federal court - and they can be won - it is one of the most gratifying moments for the claimant and the claimant's attorney. But as you no doubt have realized by now, the road is long and treacherous. In the countless cases in which a disabled person fails to file a timely claim or appeal, assumes wrongly that the administrator will gather all necessary medical records, finds after a denial that there is very limited recourse for them in court, comes to understand that administrators have latched on to anecdotal evidence or the report of an "independent" medical examiner, or learns that in some other way their claim is denied and they will not receive the benefit they desperately need, the administrator gets to keep its money and the claimant must find some other way to pay the bills.

Obligation to Apply for SSDI. Most group plans require claimants to apply for social security disability benefits. In fact, administrators often offer to assist claimants by referring them to a company that will represent them. They do this because SSDI benefits are a deductible source of income under most plans, meaning that administrators can reduce the amount of any monthly benefit they pay by the amount of any SSDI benefit. The administrator thus has an incentive to help claimants obtain SSDI benefits. This does not mean, however, that the administrator will respect the Social Security Administration's decision. Administrators make their own determination of disability based on the definition of disability in the plan, and it is not uncommon for them to deny a claim even though the claimant has been awarded SSDI benefits.

Employer Sponsored Group Disability Plans Exempt from ERISA

The ERISA statute provides an exemption for certain categories of employers, including church plans and government plans. Employers that are exempt from ERISA generally provide disability plans through insurers in the same way that nonexempt employers do. As a result, the plans offered by exempt employers are typically identical to ERISA governed plans and are administered in the same way. The application process and the appeal process are therefore typically the same as described above. However, since exempt plans are not subject to ERISA, they are treated under the law like any other contract between two parties. Although claimants should follow the procedures provided in the plan, their recourse when they are denied benefits is to file a lawsuit for breach of contract and other available remedies (such as consumer protections laws) in their state court. They can then proceed to request documents, send interrogatories for the administrator to answer, take depositions and ultimately have a trial. In other words, they get to prove their case in a court of law in the same way that virtually every other legal conflict between private parties is resolved in our legal system.

Administrators handling exempt claims are so used to having the law in their favor when they are administering ERISA governed plans that they often treat exempt claims in the same way. But lawyers for exempt claimants have the whole panoply of legal tools at their disposal to pursue the claim on behalf of their clients, often getting to expose questionable decisions and practices of the administrators along the way. If you are a participant in an exempt plan, you may experience the same frustration in dealing with the plan administrator, but you will have much more leverage if you have to go to court.

Private Disability Insurance Policies

Private insurance policies and the law that applies to them are much more familiar to lay people and lawyers alike. They are private contracts between the individual buying the policy and the insurance company that is selling it. They are subject to state laws, which often have additional protections for buyers of insurance through state law regulations of insurance companies. These policies are typically much more expensive than group plans offered by insurers, and the purchasers of these plans are typically high income earners such as doctors and lawyers who have much more bargaining power and therefore obtain policies much more favorable to them. Simply put, private disability insurance policies are a completely different animal, bought by a different category of consumer and treated very differently by insurers when they are presented with a claim for benefits. The dollars at stake are much larger, the playing field is much more level, and knowledgeable lawyers are in a much better position to control the litigation and to force a favorable resolution.

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Law Offices of Terrence A. Low and Anthony J. Canata

4 Market Street
Northampton, MA 01060
Phone: (413) 241-7749
Toll Free: (866) 752-1891
Fax: (413) 727-8312
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