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Disability Insurance Policy Coverage and Denials

Recently, more and more disability insurance companies are denying claims on the basis that the individual or employee is not covered under the policy. More specifically, insurance companies are asserting that at the time the individual became disabled the policy at issue did not cover them because the person was not part of a covered class; became disabled just before or after their company changed policies and was therefore precluded from coverage due to a pre-existing condition or because the new coverage had not yet taken effect; because they were not Actively Employed; and/or for a myriad of other coverage related reasons.

In order to determine whether or not an individual is covered under a Disability Insurance policy or plan at the time he or she became disabled, it is necessary to look at the provisions defining the terms of coverage. If the individual appears to be covered the next step is to look at any policy exclusions or limitations on that coverage - for example, pre-existing limitations, active work requirements, temporary vs. permanent employees, whether the disability was self-inflicted. Under most state laws, exclusions are generally construed narrowly while exceptions to exclusions are construed more broadly in order to find coverage.

DI Law Group has received numerous calls from individuals whose insurance carriers are mistakenly denying benefits based on lack of coverage. In one case, our client's employer was sold while he was out on short term disability. The new employer canceled the previous short term and long term disability policies and procured new ones with a different carrier that offered lower benefits. When our client exhausted his short term benefits and became eligible for long term disability benefits (LTD) with the same insurance company, he was advised by his employer that LTD benefits were not payable under the old policy as it was no longer in effect and that because his disability occurred just prior to the new policy taking effect he was not eligible for LTD benefits under that policy either, as his disability was considered a pre-existing condition. In this particular client's case, our review of the prior LTD policy and the new LTD policy led us to the conclusion that the policy in place at the time of disability was the governing policy and thus benefits were payable (and ultimately paid) under the terms of the prior policy. In other cases, the policies, when read in conjunction with each other, require the new insurance company to pay benefits.

In a similar case, another client became disabled 6 months after her company was bought out by a new company. Thus, she had a new employer and was considered a "new" employee. At the time of the buyout, the old company's disability policies were canceled and coverage under the new company's policies became effective immediately. When our client applied for disability benefits with the new carrier she was advised that because she had been a covered employee for less than 1 year and had treated for her disabling condition within the 3 month period prior to the date the new employer's policy became effective, her disability fell under the pre-existing limitation and benefits were denied. Again, the employer and the insurance company's narrow reading of the policy were incorrect. Because our client had no gap in coverage between the end of her coverage under her prior policy and the effective date of coverage under the new policy, her disabling condition was exempt from the pre-existing limitation. Thus, we were able to help her procure short term and long term disability benefits under her employer's new and more generous disability policies.

As noted above, there are numerous coverage related explanations an insurance company will put forth when denying benefits. Another common issue involves the Actively at Work provision and how it is applied to full time employees with varied hours or full time employees who reduced their hours just prior to going out on disability. Under many employer sponsored disability plans a "covered class" includes all active full time wage, hourly and salary employees; Active Employment is defined as a specific number of hours worked per week. Thus, when either a full time employee with varied work hours or a full time employee who reduced her hours just prior to going out on disability becomes disabled, insurance companies will often wrongly deny benefits asserting that the employee was not "actively at work" at the time of disability and thus not covered under the disability plan. This also occurs when an employee quits due to his or her disability and is thus accused by the carrier of not being an employee on the date of disability and therefore not covered under the disability plan.

Over the years DI Law Group has resolved countless coverage disputes in our clients' favor, as insurance companies seem to have a habit of narrowly, and erroneously, interpreting coverage provisions in a way that precludes coverage. As indicated previously, it is important for any insured to have a clear understanding of their policy's terms so that coverage is secured and the benefits due and owing under that policy are paid.

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