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Disability insurance is intended to protect and to provide financial support to those who suffer a disability during the course of their lives. Insurance companies have a duty to act in good faith and to uphold the terms of a disability policy by looking for ways to pay valid claims to their policyholders. However, because disability insurance companies exist to make a profit, they often look for ways out of helping their policyholders in their time of need.
Fortunately, our legal system allows policyholders who have been unfairly denied a disability insurance policy claim to recover their damages through disability insurance litigation. This is possible even in cases where an internal appeals review by the insurance company has upheld the denial of benefits to a policyholder.
Read on to learn about the different types of disability insurance cases, the viable grounds for filing a claim, how to protect yourself from wrongful claims denials, and how to protect your legal rights in the event that your insurance company wrongly denies your claim.
What are the different types of disability insurance cases?
Different types of disability insurance exist and different laws govern each. For example, employer-sponsored disability plans are regulated by ERISA (a set of federal laws established in 1974) and claims issues are handled by a special federal legal system. Privately held long-term disability plans, on the other hand, are typically handled in state courts.
While insured individuals have the right to pursue litigation to recover losses in either case, disability insurance litigation is pursued differently in each case. See the chart below to learn about some of the key differences between disability litigation involving private insurance and employer-sponsored group plans.
Private long term disability insurance
Employer-sponsored disability insurance
|Cases heard in state courts, where the legal procedures and laws are often more favorable to the policyholder||Cases heard in a special federal court system, which may not be as favorable to the policyholder|
|Cases judged by a jury of the policyholder’s peers||Cases judged by a single federally appointed judge.|
|A policyholder is free to recover several types of damages from the disability insurance provider||A policyholder’s right to recover damages from the disability insurance provider may be more limited; in some cases, a policyholder may also seek damages from their employer as well.|
|A policyholder has the right to call in expert witnesses to support their claim.||A policyholder may not be able to bring expert witnesses to an ERISA governed disability insurance case.|
|A policyholder has the right to bring in a broader range of evidence (such as expert witness testimony) to trial.||A policyholder is restricted to bringing only evidence from the existing administrative record to a trial.|
While the laws governing disability insurance litigation are usually more favorable to people with private disability insurance, policyholders of employer-sponsored group plans are still entitled to seek recovery of their losses through litigation. Please see our section on ERISA litigation to learn more about claims involving employer-sponsored insurance.
What are the valid grounds for filing a disability insurance claim?
Policyholders who have been wrongfully denied individual long-term disability insurance coverage, a legal claim is typically filed for one of two reasons: breach of contract or bad faith. Each of these legal grounds is described further below.
In some instances, disability insurance litigation can be pursued on other grounds including:
Breach of contract
When an insurance company fails or refuses to pay a disability claim that is valid under the policy terms, the policyholder can seek recovery for breach of contract. When you are successful in a breach of contract case, you may receive the following:
It is important to be aware that with this type of disability insurance litigation you may not be able to seek compensation for attorney fees, punitive damages, or emotional distress. In order to recover these damages, you must show that the insurance company’s denial of your valid claim was also an act of bad faith.
Please read on to learn more about disability insurance litigation involving claims of bad faith.
An insurance policy is like a contract; and, as with any contract, both parties entering into such an agreement have an implicit responsibility to act in good faith and fair dealing. This responsibility is also known as a fiduciary duty.
|The laws regarding claims of bad faith in disability insurance litigation vary from state to state, so it is wise to speak with a qualified attorney who can advise you of the laws that apply to your case.|
This means that both the insurance company and the policyholder are obliged to be honest, forthcoming, and make all reasonable efforts to honor their obligations under the insurance policy terms.
Thus, when you purchased long-term disability insurance it came with the implicit understanding that the insurance company would honor its obligations by making a reasonable effort to pay you when you have filed a valid claim. When an insurance company wrongfully denies a valid claim or act fraudulently in handling your claim, this is called “bad faith.” Note, however, that a legitimate dispute or disagreement about benefits or coverage does not necessarily constitute bad faith.
If you are able to show that the denial of your claim involved a bad faith act or negligence on the part of the insurance company, you may be entitled to additional compensation. For example, if you can show that the denial of your claim was “unreasonable,” you might be able to seek compensation for out-of-pocket expenses that you lost in pursuing disability insurance litigation, such as attorney fees. These are known in law as “consequential damages.”
Furthermore, if you are able to show bad faith on the part of the insurance company, you may also be eligible for compensation for your mental and emotional distress, which was caused as a result of the company denying you the insurance money you deserved. These are called “extra-contractual damages.”
Even further, in some cases you are able to seek punitive or exemplary damages. While rare, these are designed to punish the insurance company and deter them from committing acts of bad faith in the future.
The following circumstances may compel the court to award punitive damages in bad faith disability insurance claim:
Disability Insurance: What You Can Do To Protect Your Interests
Any individual who chooses to purchase disability insurance should protect their interests by learning why insurance companies deny claims in the first place. According to disability insurance experts, insurance companies often wrongfully deny claims for two reasons: arbitrary internal objectives and disregard of relevant claim information.
In the case of arbitrary internal objectives, insurance companies deny legitimate claims because they are aiming to meet business or profit goals. For example, the company hopes to meet a certain limit on their pay-off of claims. This puts pressure on claims adjusters to reduce or deny claims in an effort to reach these goals. This clearly runs contrary to the interests of the policyholder, which can be considered an act of bad faith.
Not all claims denials are grounds for a legal case. If an insurance company promptly, adequately and appropriately investigates a claim and finds that it is truly not covered under the policy, the insurer has the right to deny the claim.
In other cases, a company may disregard relevant claim information, or turn a blind eye, in order to deny a valid claim. An insurance company may deny a valid claim simply because they have failed to a complete, prompt and fair investigation, which they have a duty to do. This often happens when an insurance company is only looking for evidence that would allow them to deny a claim, while overlooking information that would force them to honor the claim.
To protect yourself in the event of a wrongful denial of your claim, it is a good idea to obtain the claim file from your insurer. A claim file is a record of all the things that have happened in the life of your claim, including what the insurance company has done regarding the claim and what decisions have been made. While an insurance company will usually provide the claim file without too much trouble, some will claim that parts of it are confidential. Fortunately, an attorney can help you to obtain this file.
A claim file can tell a trained attorney if bad faith, breach of contract, or other wrongful action has occurred in your case.
Protecting your Legal Rights
If you feel your disability insurance claim was wrongfully denied by your insurance company, it is a good idea to contact an attorney as soon as possible to learn more about your legal rights and options. Information in a claim file or a denial letter can be difficult for the untrained eye to sift through and interpret. A qualified attorney knows what to look for and how to spot cases of wrongful claim denial. They are also trained to pursue your legal interests in disability insurance litigation, helping you to get the money and other damages you deserve as a result of this wrongful denial.
Our experienced attorneys are available to evaluate your case through a free, no-obligation consultation in which they can determine your best course of action. Please contact us today to learn more about disability insurance and your legal rights.