Disability insurance carriers have increasingly used The Employee Retirement Income Security Act of 1974 (ERISA) to their advantage.  While ERISA was supposed to be for the protection of employees, it is actually being used to protect insurance companies and employers.  ERISA leaves insurance policyholders little leeway, because it preempts more stringent state insurance laws and allows insurance companies to insert language into the policies they issue that makes it easier to deny claims.  Despite these disadvantages, the policyholder is not necessarily doomed to fail provided that he or she takes appropriate measures before filing suit—often, consulting with an attorney before filing a claim can substantially increase the odds of receiving benefits.  It is important to understand your policy now, so as to prevent the double disaster of incurring a disability and not being able to recover the benefits that you deserve.

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Under the law in Arizona, the relationship between insurer and insured is a special relationship, giving rise to duties not usually found in other contractual agreements. Rawlings v. Apodaca, 151 Ariz. 149, 163, 726 P.2d 565, 579 (1986); Dodge v. Fidelity & Deposit Co., 161 Ariz. 344, 346-47, 778 P.2d 1240, 1242-43 (1989). Courts in Arizona further recognize that an insurer’s duties to its insured are non-delegable and that an insurer remains liable for actions taken by a delegate:

[A]n insurer who owes the legally imposed duty of good faith to its insureds cannot escape liability for a breach of that duty by delegating it to another, regardless of how the relationship of that third party is characterized. Clearly, an insurer may seek assistance by delegating performance of its duty of good faith to non-servants through whatever organizational arrangement it desires. In doing so, however, the insurer cannot give this delegate authority to deprive its insureds of the benefit of the insured’s bargain. If the insurer were allowed to delegate the duty itself, an injured insured would have no recourse for breach of the duty against either the insurer, from whom the duty is owed, or its delegate, with whom the insured has no contractual relationship. Such a result would render a cause of action for breach of the duty virtually meaningless. Thus, we hold that, although an insurer may delegate the performance of its duty of good faith to a non-servant, it remains liable for the actions taken by this delegate because the duty of good faith itself is non-delegable.

Walter v. Simmons, 169 Ariz. 229, 238, 818 P.2d 214, 223 (Ct. App. 1991) (citations omitted) (emphasis added); see also State Farm Mut. Auto. Ins. Co. v. Mendoza, 2006 WL 44376, at *12 (D. Ariz. Jan. 5, 2006) (“Insurers cannot escape their duty of good faith and fair dealing by delegating tasks to third-parties . . . .”) (citing Walter).

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You have worked as a physician for your entire career.  Your spouse and children rely on you, and you have numerous financial obligations both at home and at the office.  The stress and trauma of a disability can cause you significant problems, including, for example, the financial requirement that you contribute toward business overhead even when you are not raising revenue. To protect yourself in case of total or partial disability, you have purchased disability insurance.

Unfortunately, you suffer an injury or become so ill that you cannot continue your career, and you then file a claim with your insurance agent.  Of course, you expect it to be honored.  Instead, shortly thereafter, you are contacted by an insurance adjuster, not your agent.  Unlike your agent, the insurance adjuster is hostile; the questions he asks imply that you are malingering and have submitted a fraudulent claim.  You try to be cooperative, providing the insurance adjuster with the additional information he requests, but again your claim is denied.  Adding insult to injury, you learn from the adjuster that the insurance company has secretly videotaped your activities and, based on the tapes, believes that you are not disabled at all.  Dumbfounded by the insurance company=s response, you ask yourself if there is anything that you can do to make the insurance company pay the benefits it promised.  The answer is yes.

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Disability insurance policies come in several types. The type of policy you purchase affects your legal rights and the benefits you may receive. Here is an overview of the basic types of disability insurance policies.

Individual Disability Insurance:

As the name suggests, individual disability insurance policies are sold directly to individuals from the insurance company. They provide long-term disability benefits in the event of a disabling injury or illness. These policies are further divided into two categories: General and occupational. General policies insure against injury or illness that prevents the insured from performing all work; occupational policies provide benefits only if the insured cannot perform the material and substantial duties of his or her own occupation. An occupational policy provides greater benefits to the insured, who is entitled to benefits even if he or she is still able to perform work in another occupation. These policies provide fixed dollar amounts of coverage, such as $4,000 or $10,000 per month, instead of a percentage of the insured’s salary.

Group Disability Insurance:

Group disability insurance policies, as their name indicates, are sold through groups. Typically organizations, such as the AMA, will set up and make available these policies to their members. These policies usually provide variable amounts of coverage expressed as a percentage of the insured’s base salary, typically from 50-75%. Benefits may also be capped at a maximum fixed dollar amount (e.g. $7,000 per month) regardless of salary. Lastly, these policies often contain offsetting provisions which reduce benefits by the amount the insured receives from other sources such as Social Security or worker’s compensation.

Employer-Sponsored Disability Insurance:

Employer-sponsored disability insurance policies are provided through corporate employment and are both the least expensive policies and provide the least protection for insureds. They are similar to the group policies in that their benefits are a percentage of salary, but they are governed by the Employee Retirement Income Security Act of 1974 (ERISA). ERISA removes many of the protections of state law such as the right to a trial by jury and the potential for punitive damages if the insurer has acted in bad faith.

Ed Comitz and the disability insurance attorneys at Comitz | Beethe protect the disability insurance benefits of physicians and healthcare professionals nationwide. We provide disability income claim advice, assistance with filing disability claims, including completion of disability claim forms and representation in disability insurance litigation.

In this economy, filing a disability insurance claim can be daunting. Insurers have a strong incentive to deny payment of “high-end” claims (such as those filed by medical professionals) in order to protect their bottom line. A few tips can help to protect your benefits in these tough times:

1. Understand Why Insurance Companies Feel Pressure to Deny Claims

Some of the most expensive disability claims are those filed by physicians, dentists, and other professionals. The troubled economy has hurt insurer’s earnings on their investments, while at the same time the increasing number of professionals’ disability claims means that the insurer increasingly faces a financial squeeze. The easiest thing to do is to deny the most expensive claims. Thus, many insurers closely scrutinize the terms of professionals’ policies in order to find ways to deny benefits, as the long-term financial benefit to the insurance company is significant.

2. Know Some Basic Policy Terms

Own occupation policies provide compensation for a disability that prevents the insured from performing the particular duties of his or her own occupation. Any occupation policies require that the insured be disabled from performing the duties of any occupation for which he or she is reasonably qualified in order to receive benefits. Some policies may combine both of these, paying own occupation benefits for a period of time before converting coverage to the any occupation standard.