Different laws apply to each of two types of disability insurance policies. The first kind of policy is governed by the federal law ERISA, short for the Employee Retirement Income Security Act of 1974, which applies to almost all policies offered through employment.
The second kind of disability insurance policy is an individual, privately purchased plan. State laws govern most private disability insurance, which is the subject of this post. State law remedies vary widely among the states.
When a claimant applies for short- or long-term disability under a disability insurance plan and the insurer denies the claim or a beneficiary has their disability benefits terminated, the insured has some complex legal questions to determine immediately. First, is the policy an ERISA-governed plan or a private plan?
When an insurance company denies a disability claim or terminates benefits, usually the clock begins to run on the right to request that the insurance company review the denial or termination. The claimant must immediately determine what appeal rights the policy, which is a type of contract, provides as well as any deadlines for requesting appeal.
Often, the claimant must adhere to any appeal or review procedures under the policy to preserve the right to appeal to a court. This may not be the case in all private policies, but it is crucial to understand the policy requirements as early as possible to be sure to preserve legal rights. A claim denial in a private policy governed under state law may be filed in state or federal court, depending on the circumstances.
Example of a private policy appeal
A decision out of Arizona illustrates some of the legal remedies available under state laws. In that case, a federal appeals court affirmed the decision of a federal trial court after a jury trial. The trial court held that the insurance company had terminated the claimant’s disability benefits in bad faith under Arizona state law and awarded the claimant compensatory damages of $1.29 million for emotional distress and $2.5 million in punitive damages.
The claimant had been receiving disability benefits under a private policy for disability from a head injury and depression.
Compensatory damages are meant to compensate the claimant for specific, measurable losses. The appeals court applied Arizona law and said that the compensatory damage award for emotional distress was not “grossly excessive or monstrous” given that the evidence reasonably suggested that the insurer’s termination of the claimant’s disability benefits could have “aggravated [his] emotional distress.”
Punitive damages are to punish the wrongdoer and set an example that deters other defendants from engaging in similar harmful behavior. Punitive damages normally are available only if a defendant has engaged in malicious or extreme behavior. Looking at Arizona case law, the appeals court said that sufficient evidence supported the jury finding that the employees involved in terminating the disability benefits in this case “acted with an evil mind,” making punitive damages appropriate.
The Arizona decision applied that state’s law of insurance bad faith, awarding compensatory and punitive damages. If ERISA had governed the policy at issue, the court would not have been able to consider a bad faith claim, nor could it award these kinds of money damages. Instead, an ERISA appeal seeks to have the denial of benefits reversed.
In addition to a bad faith insurance claim, other state law claims that may be available, depending on the jurisdiction, include:
- Breach of contract
- Violation of state consumer protection laws
- Violation of state deceptive trade practices laws
- Specific violations of a state insurance code
- Intentional or negligent infliction of emotional distress
- Fraud or misrepresentation
- Breach of the duty of good faith and fair dealing
An attorney can provide valuable guidance and advocacy at any stage of this process.
How can DI Law Group help?
A delay or denial of a disability claim can be financially devastating. DI Law Group represents long term care and all disability insurance claimants at every stage of the insurance process. If you have any questions regarding your insurance claim, our team of attorneys would be happy to provide you with a free consultation. Please contact us at 888-644-2644 or visit our website.