Disability insurance claim denied: justly or unjustly?
Article Type: Case study
Subject: Disability insurance (Laws, regulations and rules)
Claims adjustment (Insurance) (Cases)
Author: Schneider, Larry
Pub Date: 06/22/2009
Publication: Name: The Forensic Examiner Publisher: American College of Forensic Examiners Audience: Professional Format: Magazine/Journal Subject: Health; Law; Science and technology Copyright: COPYRIGHT 2009 American College of Forensic Examiners ISSN: 1084-5569
Issue: Date: Summer, 2009 Source Volume: 18 Source Issue: 2
Topic: Event Code: 930 Government regulation; 940 Government regulation (cont); 980 Legal issues & crime Advertising Code: 94 Legal/Government Regulation Computer Subject: Government regulation; Company legal issue
Product: Product Code: 6323000 Income Loss Insurance; 9105313 Special Disability Insurance; 6412000 Claims Adjusters NAICS Code: 524114 Direct Health and Medical Insurance Carriers; 92313 Administration of Human Resource Programs (except Education, Public Health, and Veterans' Affairs Programs); 524291 Claims Adjusting SIC Code: 6351 Surety insurance; 6411 Insurance agents, brokers, & service
Geographic: Geographic Scope: United States Geographic Code: 1USA United States
Accession Number: 201548835
Full Text: Financial planners all say that protecting one's income is the cornerstone of financial security, and no one who needs to protect their income should be without this form of protection. However, once the coverage is obtained and a claim is submitted, knowing how to pursue getting paid with the least amount of hassle becomes just as important!

Many articles have been written on disability insurance, but to the best of my knowledge, none have focused on the own-occupation definition for total disability as this has attempted to do. This focus will demonstrate the definition's differences from definitions generally provided by the carriers and also will give the reader some insights as to why claims are denied, both appropriately and inappropriately. It's important to realize that while attorneys are outstanding in their respective fields, unless they have the insights from hands-on experience, they are somewhat handicapped in their endeavors; again, this article will provide those necessary insights.

Hiring a claims consultant can save your clients many thousands of dollars and help avoid unnecessary time and effort.

Based on my qualified observations and activity, it is my strong belief that disability income insurance claims have increased dramatically over the last several years, along with a disproportionate number of inappropriate denials. The claims departments of too many insurance companies have been told to "tighten-up." Claims that once would have been routinely paid are now being denied due to industry trends, contractual misunderstandings, and consumer lack of knowledge and inability to contest. The increase in claims partly has to do with the fact that policies routinely issued in the 1980s (with very little financial underwriting, e.g., no tax returns etc.), when carriers' profits were high, have now come back to haunt them; as a result, many carriers exited the marketplace, and those that remained "tightened-up" on many levels.

During my 35 plus years of experience as a disability income specialist and expert witness/consultant, I have been called upon by attorneys and claimants in dozens of cases to either testify or submit written opinions on denied claims. As a result, most were ultimately settled in favor of the claimant.

A claim could be judged invalid for a variety of reasons including, but not limited to, 1) elimination period not being satisfied, either due to the inadequate number of days, or days not being consecutive; 2) definitions, terms, and conditions for benefit payments not being satisfied; 3) renew-ability; and 4) exclusions. It seems that one of the biggest reasons for claims denial has to do with satisfying the definitions of total disability, some of which are commonly used by the industry and primarily based on occupation. These definitions include the following:

* Own-occupation--This pure own-occupation definition allows payment to be made so long as the insured can't do the duties of their original occupation, even if the insured is working elsewhere. As long as it is another occupation, then payment may be collected. Some carriers even offer an own-occupation medical specialty definition, based on specialties recognized by the American Medical Association (AMA). This definition could be for the FULL benefit period, or for part of the benefit period. See below for examples.

* Own-occupation, not gainfully employed elsewhere--A policy with this type of split definition pays benefits (sometimes as per above for a period of time and then changes), but only if the insured can't do the duties of his or her occupation and is NOT working elsewhere. Whether or not to work then becomes the choice of the claimant. If they do work elsewhere and there is a loss of income, residual benefits will then kick in (assuming this option is part of the contract and its terms/conditions are satisfied).

* Own-occupation, unable to work elsewhere--This is another example of a split definition that gives true own-occupation (see the first definition above) for a period of time, usually 2 to 5 years, then changes to unable to work elsewhere (by reason of education, training, experience, and sometimes prior economic status). This is one of the least desirable definitions of all because it gives the carrier some control in minimizing the impact of the claim.

* Loss of earnings--This is the same as a residual (proportionate) definition. An example might be if an insured has a 30% loss of income while disabled (and is under the care of a physician). Then they will be paid 30% of the monthly benefit. While this policy does pay proportionately, please note that the insured also starts off-with an initial minimum 40% shortfall in view of the fact that the carrier's participation tables only allowed approximately 40-60% of pre-disability income to be covered/issued. Issued amounts in many cases are currently capped at $10K-15K/month, depending on occupation and income. Note: Additional coverage past these amounts ($50K/month or higher) is available in a secondary market.

Another major reason for claims denial other than contractual language has to do with misstatements and/or omissions made by the claimant on the application. I can safely say that in some cases, these misstatements and/or omissions have been unintentional due to the poor wording of the questions appearing on the application. In my extensive experience as an expert witness, I've stated several times that the claim starts with the application. Who then is at fault? Is it the carrier for poorly constructing the wording of the questions, or is it the fault of the applicant who intentionally withholds pertinent information that could negatively impact the underwriter's decision as to whether or not issue a contract as applied for? Some critical areas of the application that affect a claim and could be inadvertently answered incorrectly or dishonestly have to do with occupation/duties, health, income, and other pertinent facts. Incidentally, when a claim has been submitted, some of the "honest" mistakes made by the applicant MIGHT be overlooked after 2 years as outlined in the contract's incontestability clause, unless there is other wording or state statutes to override that clause.

What may not be overlooked, however, are fraudulent misstatements or omissions such as health or income (see above). Can someone honestly say that they forgot they had a back operation or a heart attack 2 years ago? With the same view in mind, let's not forget the agent's role in completing the application. Did the agent record all answers exactly as they were answered, or was there some hidden agenda or motive for writing them down in such a way so that the policy would be issued as "applied for" (without a declination, rating, or an exclusion)? In this case, did the agent really do the proposed insured a favor, or were these omissions for the personal gain of the agent?

As you can see, the above (contractual language) comments are largely based on invalid claims, and as a result these fall into the category of being appropriately denied. What about those claims that have been inappropriately denied? Some of the denials I worked on were seemingly based on straightforward and uncomplicated reasons. Others, because of the contract's convoluted language and integrating benefits/riders/exclusions/etc., were more complicated. One seemingly straightforward claim was submitted by an internist whose attorney asked me to evaluate the denied claim for recourse/damages. The policyholder had submitted a claim, unaware that the policy had lapsed due to a change of address. The claims department initially denied the claim due to the policy not being in force. What then was the basis for the claimant's appeal? Upon closer scrutiny, the contract clearly stated that all policy changes must be submitted in writing. The claimant's agent verbally made the change, and the submitted change was incorrect. Why then did the carrier initially continue to deny? That was for the carrier's attorney to justify. However, as stated in my report, they had no basis for a denial (except wanting to escape the liability of a very "rich" contract). The report contained several additional reasons and analyses supporting the internist's claim for substantial damages, which ultimately got the claim paid.

I worked on another case relating to the definition of total disability. In this particular case, the agent's client was a cardiologist who also did invasive procedures as a small part of his duties. To protect future income, he purchased a disability policy after reading the agent's brochure (on which "your own-occupation/specialty" was printed). After the policy was issued, the insured asked the carrier for an own-occupation specialty letter, since he wanted his sub-specialty as an invasive cardiologist to be part of the own-occupation definition for total disability. This request, according to the plaintiff, was clearly stipulated to the agent. The specialty letter was finally issued; however, it only made mention of cardiology. When the cardiologist complained to the agent that "invasive cardiology" was not addressed as requested, he was told not to worry. To further compound a potential claim, his policy only had benefits covering total disability, i.e., no benefit for a residual claim. At some point in time, a claim was submitted and was paid even though the doctor was back to work and presumably on the basis of not doing invasive procedures. The doctor finally went off claim. Time went by and a new claim (same basis as before) for disability benefits was submitted but was denied! The carrier stated that his claim did not satisfy the definition for total disability. This is technically correct since the issued specialty letter didn't address his sub-specialty. However, my report pointed out that because such a big issue was made of the sub-specialty, the carrier had an obligation to clearly state that the sub-specialty had to be AMA recognized.

I worked with a dermatologist who went out under a claim using her group LTD certificate, which, due to its low cost, has many contractual restrictions and limitations protecting the carrier rather than the claimant. She was paid $6,000 a month; after only 24 months these benefits stopped even though the policy's stated benefit period was to age 65. Why did the benefits stop? Again, definitions! In this case, the carrier invoked their split definition for total disability, which meant that after 24 months it changed to a more restrictive definition. The results of my report revealed that the claims department had misinterpreted their own definition, which allowed my client to finally receive her payment.

What actually happens when a claim is submitted for payment? After the claim is reviewed for completeness, the initial application is pulled and compared with the information appearing on the claim form for any inconsistencies. To support the claim, APSs (Attending Physician's Statements) will be ordered. Other pertinent application documentation (such as tax returns) will once again be reviewed and evaluated to determine if any inconsistencies exist. If the claim is valid and approved, payment will follow. On the other hand, due to the terms of the policy, correspondence will address those issues if necessary. If the claim is invalid due to fraudulent statements/omissions, etc., and it is within the contestability period, the policy will usually be rescinded and all premiums from the policy's inception will be refunded. If it is invalid and has passed the incontestability period, the claim might be paid unless the carrier strongly feels there was an intent to commit fraud; in this case rescission/denial is still likely. While fraud might be hard to prove, the courts have gotten more lenient in favor of the carrier, and the carriers have gotten more aggressive in protecting their rights. In any event, if it is a long-term appropriate claim, the claimant could expect possible surveillance and/or a possible buy-out of the claim.


I strongly believe that the denial of inappropriate claims must stop so that litigation is only for acts of bad faith (on the part of the carrier) and fraud (on the part of the claimant). All other disputes can usually be handled by arbitration. If the current method of disputing an inappropriately denied claim doesn't stop, the insurance company, with its deep pockets, will surely win over the disadvantaged! It has been my experience that some carriers habitually take this approach by excessively denying legitimate claims. To minimize any delays in getting paid, the following steps should be followed:

* Try to get all questions in writing.

* Send all correspondence by registered mail.

* Consult with a claims expert to assist with (at the very least) completing the claim form and in understanding the terms of the contract.

* Delay seeking counsel unless it is very evident that the carrier is acting in bad faith, since many valid claims will ultimately be paid without the expense of an attorney.

Larry Schneider is a disability specialist with over 35 years experience. Over the years he has had over 30 articles published, lectured many of the nation's leading associations (CPAs etc.), and appeared on television to discuss the contractual differences between policies offered by the insurance industry. In addition, he is an expert witness/consultant for claims that have been inappropriately denied and a national resource for hard to place applicants, as well as a brokerage for standard cases. He has developed a Turn-Key System for selling disability insurance, which is in use by many carriers. Additional information regarding Disability Insurance Resource Center and his full CV can be seen by visiting the DIRC website at www.di-resource-center.com. Schneider can also be contacted at info@di-resource-center.com or at 800-551-6211.
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