What Do You Mean, “My Disability Policy Doesn’t Cover That?”

As complex as it can be, there's one simple thing about Social Security claims - they all follow the same rules.  Someone can come to me to talk about Social Security benefits, and I'll know the rules that apply because the same rules apply to everyone. The same is not true for private disability insurance policies – these often have sneaky little exceptions and exclusions that nobody told you about when you signed up for long term disability (LTD) coverage at work, or purchased a disability policy from an agent. Knowing about these exceptions ahead of time may help you avoid a nasty surprise later.

One of the most common differences between Social Security’s disability program and employee LTD plans is the “pre-existing conditions" exclusion. Most LTD policies contain a clause that says that if you leave work with a disability less than one year after you signed up for LTD coverage, then any medical conditions you received treatment for in the months before your coverage took effect are excluded. Most of the time, this hits new employees, but sometimes strange circumstances cause it to affect long-time employees, too. Recently, I reviewed the case of a woman who had worked in the same place, and had LTD coverage there for years. However, in the last year she worked before becoming disabled, her office became a division of a larger company. Along with that change, everyone got enrolled into the new company’s benefit plans. Because they were new enrollees, they were subject to the new company’s pre-existing conditions clause, and there was no way around it. This was something the woman’s employer could have avoided, if the company had been thinking about it and asked for the right exceptions to be put into the policy, but because they didn’t, this woman had to abandon a benefit she’d been paying for for years.

Pre-existing conditions exclusions hit any kind of condition, as long as it falls within the timeline described in the policy. One other type of exclusion that’s becoming more and more common in LTD policies is a specific exclusion for so-called “hard to prove" conditions. For years, most LTD plans have limited “mental and nervous conditions" to two years of benefits – i.e., if you’re disabled because of a bad back, you may be able to receive benefits until you turn 65, but if you’re disabled because of depression, or bipolar disorder, or schizophrenia, you can only get two years of benefits. Some people ask me how this can be legal when it’s so unfair. The answer, unfortunately, is that fairness has nothing to do with it. Except for a few key terms having to do with appeal rights, the law doesn’t regulate the terms of these plans.

Many LTD policies now also have duration limits or complete exclusions for “subjective symptoms," which, when interpreted the way some companies do, would exclude just about everything short of an amputated limb. A “subjective symptom" is anything you tell your doctor about that he can’t definitely prove with a test or procedure. Pain is the prime example of a subjective symptom – if you have a herniated disc in your back, your doctor can see the disc on an MRI, and he knows that such a condition is likely to cause pain, but the pain itself can’t be measured or proven. The same goes for pain due to other conditions, like migraines or fibromyalgia.

One recent court case from Georgia had an employee challenging a limit on “neuromusculoskeletal or soft tissue disorders" (which probably encompasses the majority of disability claims). The challenge was based on the fact that the employee had no opportunity to negotiate or change the terms of the LTD plan (that’s called an “adhesion contract"), and that the coverage was not what a “reasonable employee" would expect to get when he signed up for LTD coverage. The court recognized the truth of those arguments, but held that it didn’t change the terms of the plan. “The fact that the Plan is a contract of adhesion or that … employees would be surprised to learn that their disability coverage is not what a reasonable employee would think, is of no consequence. [The Employer] is the master of its plan and no … provision [of the law] bars it from excluding coverage for neuro-musculoskeletal disorders."In other words, these policies can contain all sorts of exclusions that may be unfair or surprising to employees, but the courts will enforce them as they're written in most cases.

Insurance companies are getting more creative with these exclusions, and employers don’t seem to care what they’re offering to their employees, so it falls on the employees themselves to make sure they’re being adequately protected. Anyone who has disability insurance, whether through work or purchased from a private insurance agent, should carefully review the exclusions and limits in those policies. In certain cases, it may be best not to count on the coverage you got from work and get your own, better, policy from a private agent. Other people may be able to avoid the application of certain terms, like pre-existing condition exclusions, by hanging on and staying at work a few months longer before filing a disability claim. In any case, forewarned is forearmed. Everyone should know what his or her policy does and does not cover before they need to file a claim.

--Jeremy Bordelon

What does "disabled" really mean?

People often do not realize that in the legal world, “disability" is a term of art, with a very specific meaning. In fact, it has several different specific meanings, depending on the context. “Disabled" has one meaning for the purposes of the Americans with Disabilities Act, another for the purposes of worker’s compensation, still another when talking about things like exemptions from jury duty or from testifying in court, and there are probably a dozen others. Not surprisingly, “disabled" has a very specific meaning in the context of a Social Security Disability or Long Term Disability benefits claim. In most circumstances, though, in order to be considered “disabled," and entitled to disability benefits, a person need not be comatose, or bed-ridden, or entirely unable to care for themselves. A disabled person, for the purposes of disability benefits, may be able to live a relatively normal life – he is just unable to work – sometimes not at all, sometimes just at his or her last job.

In some cases, the question of just “how disabled" someone needs to be gets even narrower. What about part time work? Some jobs are available part time, others aren’t. Even if a disabled person could, theoretically, do his old job on a part time basis, could he keep it up for the long term? Could he live on what he earns part time? How many hours per week do you need to be able to do before you are “not disabled?" These are often questions that come up in disability benefits cases, especially for people who are right on the cusp – they aren’t able to work enough to support themselves, but they aren’t completely incapable of work, either.

The Social Security Administration has its own definition of disability and its own set of regulations detailing the disability process, which I won’t discuss in this post. But many people have purchased short-term and long-term disability insurance, either through an employer or through a private insurance broker, in an attempt to protect their income from disability even more. That is what insurance is designed to do, after all. Insurance protects something. If the insured thing ever fails, the insurance pays you money. If you get in a car crash, auto insurance pays. If your house burns down or is damaged in a storm, homeowner’s insurance pays. If something happens to your body, medical insurance pays. And if something happens to your ability to earn a livelihood, and your working income disappears or significantly drops, then disability insurance should pay.

Most group disability insurance policies (the ones people typically sign up for at work) will pay 60% of a disabled person’s pre-disability income if they are unable to work. Most policies contain a definition of disability that states that, at some point during the claim (either in the beginning or after a few years of benefits) the claimant must be disabled from “any occupation." I.e., you must be “unable to perform any occupation" to receive your disability benefits. If that is the case, and the claimant is theoretically capable of some part-time work, then what happens? Should someone be denied all of their 60% LTD benefit because they could still theoretically earn 10% of their pre-disability income? No, of course not. That would be contrary to the purpose of the insurance plan, which was designed to protect 60% of the person’s income. It would be similar to your car insurance carrier refusing to pay for any repairs to your car after an accident if it is “still driveable."

The disability insurers themselves do not always agree with this. Many times, a person will be denied benefits in just the manner I described above – e.g., a former lawyer who suffers a traumatic brain injury is no longer able to work as a lawyer, but might be able to work as a parking lot attendant. Since he can still do something, the insurer might say that he is not disabled from “any occupation," and might refuse to pay anything. Similarly, consider the example of an airplane mechanic who can still do his job, but can only do it for a few hours per week. He might also be denied by his disability insurer because he can still do something. Both denials would be wrong, because they are contrary to the purpose behind the insurance plan – protecting a certain amount of income.

When faced with these types of cases, the courts have intuited that “any occupation" is not a literal term. For example, in one court case, the disability plan language stated that a person is disabled when she “is prevented from engaging in any occupation or employment for remuneration or profit." Analyzing this language, the court said that the “any occupation" standard should not be interpreted in an excessively literal manner, but must mean an occupation that allows the claimant to earn a reasonable income:

Analogous insurance cases consistently agree that the term “total disability" does not mean absolute helplessness on the part of the insured. The insured can recover benefits if he is unable to perform all the substantial and material acts necessary to the prosecution of some gainful business or occupation. Gainful has been defined by these courts as profitable, advantageous or lucrative. Therefore, the remuneration must be something reasonably substantial rather than a mere nominal profit.

Helms v. Monsanto Co., Inc., 728 F.2d 1416, 1420 (11th Cir. 1984). This holding has been expressly adopted by other courts, as well. In another case, the disability plan defined total disability as the inability “to be gainfully employed anywhere." Following Helms, the court held this required a “reasonably substantial income":

We now further adopt the holding in Helms that gainful employment is that employment from which a claimant may earn a reasonably substantial income rising to the dignity of an income or livelihood, even though the income is not as much as he earned before the disability.

Tracyv. Pharmacia & Upjohn Absence Payment Plan, 195 Fed. App’x 511, 519 (6th Cir. 2006). See also Demirovic v. Building Service 32 B J Pension Fund, 467 F.3d 208, 215 (2nd Cir. 2006) (“any gainful employment" means employment allowing a claimant to earn a reasonably substantial income from it, rising to the dignity of an income or livelihood, though not necessarily as much as she earned before the disability"); Torix v. Ball Corp., 862 F.2d 1428 (10th Cir. 1988) (similar finding).

One court pointed out that a disability benefit plan should be construed "with a view toward effectuating its general purpose." Wulf v. Quantum Chemical Corp., 26 F.3d 1368, 1374 (6th Cir. 1994). As an example of how this should work, assume a plan is designed to replace 60% of a worker’s pre-disability income if she is no longer able to work. She files a claim under that plan, and her doctor says that she might be able to work up to two hours per day at her old job, but could not sustain full-time work. Two hours per day is one quarter of a full eight hour work day, so the worker might be able to earn up to 25% of her pre-disability income, assuming her doctor is correct about her abilities, and assuming she could actually find a job that would allow her to work that schedule for the same hourly wage she used to earn. The LTD policy requires her to be disabled from “any occupation," and the terms of the policy do not delve deeper into nuances of partial disability and part-time work. Nevertheless, it would be wrong for the insurer to deny her the 60% disability benefit under the policy just because she has a theoretical capability to earn 25% of her pre-disability income. That would make no sense, and would defeat the purpose of the insurance.

“Any occupation," in the context of a disability benefits plan, is not literal, but implies an occupation providing a reasonably substantial income under the circumstances. An employee benefit plans,in particular, should be construed with a view toward effectuating its general purpose. So when a long-term disability insurance plan is designed to protect, for example, 60% of a worker’s pre-disability income, it is contrary to the purpose of the plan to deny benefits because the worker could earn 10%, 20%, or even 50% of her pre-disability income. The insured interest – the thing the insurance was designed to protect – was 60% of the worker’s income. If she is unable to earn that much, then an ability to engage in part-time work should be insufficient to render her “not disabled" under the LTD plan. Just “how disabled" does she need to be? Look to the terms of the plan to find out.

--Jeremy Bordelon