People acquire disability insurance as a safety net to provide financial support should they become disabled from working. Short- and long-term disability insurance policies fall into two buckets. On one hand, group policies such as those available through employers are in most instances governed by a federal law known as ERISA, while individual, privately purchased policies are largely controlled by state laws.

While we often write in this space about claim disputes under ERISA, today we turn to legal remedies for denied or terminated private, individual disability insurance benefits under state laws. A person normally buys a private policy through an insurance agent, agency or company.

Lawsuits based on state laws

State contract law as well as state insurance law largely govern legal remedies under private disability policies. If the insurer denies a claim, terminates benefits or drags its feet in deciding a claim causing unreasonable delay, the policyholder can file a lawsuit in their state court and sometimes in federal court.

The policy language or state law may mandate that the claimant give the insurer a demand for payment before they file a lawsuit. The claimant should act quickly so as not to miss any lawsuit filing deadlines, called statutes of limitations.

The claimant and their insurance company may be able to negotiate a fair financial settlement of the dispute and avoid trial, but if not, they can present at trial medical and vocational evidence – from both individuals who have observed the claimant’s symptoms or the claimant’s problems at work, and from medical and vocational professionals – of how their impairments interfere with the ability to live and work.

Causes of action

Depending on the state’s laws that apply, the policy details and the circumstances of the dispute, the private disability insurance policyholder who has been denied benefits may have the right to file legal claims based on:

  • Breach of the insurance contract
  • Bad faith insurance claim handling or breach of the duty to act in good faith and fair dealing in contract
  • Violation of a state consumer protection act
  • Violation of a state deceptive or unfair trade practices act
  • Breach of fiduciary duty
  • Violation of state insurance statutes or regulations concerning policy terms, unfair insurer practices and other aspects of the policy or relationship with the insured claimant
  • Intentional or negligent infliction of emotional distress
  • Fraud, misrepresentation or deceit
  • Negligence

Potential damages

Depending on the applicable state law and the policy language, some of the money potentially recoverable may include:

  • Lost benefits for breach of the insurance contract, plus interest
  • Punitive damages meant to punish the insurer for especially serious wrongdoing in a bad faith claim
  • Legal fees
  • Court costs
  • Fines for certain state insurance law violations
  • Compensatory damages for certain losses

This is an introduction to basic aspects of a complex area of private disability insurance law to raise awareness among disabled claimants of their potential legal remedies for denial, termination or delay of benefits.