How Do Insurers Deny Valid Disability Insurance Claims?

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law. This is the second in a series of articles on How Insurance Companies Deny Claims. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at and complete a free consultation form.

In our recent article entitled “The Prevalence of Life, Health and Disability Benefit Claim Denials is Astounding: It’s Worse Than You Thought,” we explained that the U.S. Department of Labor estimates that a whopping 75 percent of long-term disability claims are denied, and that it is so concerned about the alarming number that, in December 2016, it published new regulations governing disability benefit claim denials. (See our article in the Daily Journal re-published on our website at The regulations require disability insurers to ensure independence and impartiality in their decision-making process, and explain more thoroughly the reasons for their benefits decision.

This article, the second in a series of articles on the prevalence of insurer claim denials, explains how disability insurers deny legitimate long-term disability and short-term disability claims. Stay tuned for our next two articles in the series which will explain how insurance companies deny legitimate health insurance claims and life insurance claims.

Long-Term and Short-Term Disability Claim Denials

Disability insurance cases dominate the ERISA (Employee Retirement Income Security Act) litigation landscape today. According to the DOL, from 2006 to 2010, long-term disability claims accounted for 64.5 percent of ERISA employee benefits litigation, whereas lawsuits involving health care plans and pension plans accounted for only 14.4 and 9.3 percent, respectively. It is no secret that insurers and plans looking to contain disability benefit costs are motivated to aggressively dispute disability claims.

How do insurers deny valid disability insurance claims when they are governed by federal law, ERISA? First, they draft a plan term that gives them (the entity funding the plan’s disability benefits), complete discretion to interpret the plan/policy language and decide whether a disability benefits claim is valid or not under the plan/policy terms. In other words, the same entity that is legally responsible to pay your benefits has the final say whether your claim is valid. In many states, but not in California, courts are required to give deference to the insurer’s benefits decision under these discretionary plan provisions unless the insurer “abuses its discretion.” Under the abuse of discretion standard, an insurer’s decision is only reversed if the claimant can demonstrate that the insurer’s actions were “arbitrary and capricious,” a difficult standard for insureds to overcome. In sum, disability insurers are sometimes able to get away with denying valid claims by drafting extremely one-sided plan/policy terms that benefit them at the expense of ERISA plan participants and their beneficiaries.

ERISA disability and life insurance claims can be the most difficult for insureds because this heavily slanted, pro-insurer practice is permitted. While some states, including California, recently enacted statutes prohibiting such discretionary provisions in disability and life insurance plans, most states do not have such claimant-friendly statutes. Because disability insurers are large national corporations, they make company-wide policy and practice decisions on a national level. Thus, even in California, these insurers still decide claims with the understanding that it may be difficult for a court to overturn their benefits decision.

To attempt to insulate themselves from a court finding they acted arbitrarily, disability insurers hire biased medical consultants to review a claimant’s medical records without examining or speaking to the claimant. (Not surprisingly, these medical consultants usually conclude that the claimant is not disabled.) Insurers hire the same doctors, over and over. The doctors implicitly understand their work will dry up if they come to the “wrong” conclusion too often. It is both easy and lucrative for these insurance industry doctors to spend a few hours reviewing a claimant’s file, typically without ever examining the claimant or speaking to them or to their doctors, and then write a boilerplate report that the claimant is not disabled based upon their review of the medical records. Insurers then point to and rely upon the “expert’s” opinion as evidence that they acted within their discretion to deny the claim. Fortunately, in California, these pro-insurer discretionary provisions are in most situations no longer legal and so, with an excellent ERISA lawyer, a claimant has strong grounds to fight back against an invalid claim denial.

There are many other tricks that disability insurers use to deny seemingly valid claims. For example, they review social media of their insureds to see if they can find anything there to support a claim denial. They also regularly hire private investigators to follow and secretly videotape their insureds whenever they venture outside their home, whether to take the trash out, go to the grocery store or to a doctor’s appointment. Insurers use the surveillance to assert that their insureds can work and are not entitled to disability benefits, often overstating the level of activity depicted on tape and the conclusions that can be drawn from it. Courts have ruled that an overstatement of a claimant’s activities in surveillance is improper, and warn that activities observed for a short amount of time do not necessarily translate into full-time work capacity. For example, in Thivierge v. Hartford Life, 2006 WL 823751, *11 (N.D. Cal. Mar. 28, 2006), the district court held that activities observed “for a couple of hours on five out of six days she was under surveillance does not mean that Plaintiff is able to work an eight-hour a day job.” Similarly, in Leick v. Hartford Life & Accident Ins. Co., 2008 WL 1882850, at *7-8 (E.D. Cal. April 24, 2008), the court concluded that surveillance depicting the insured running errands for a few hours during one of her “good days” does not establish her ability to perform full-time consistent work.

Once a policy converts from an “own occupation” to “any occupation” standard for disability – typically after two years – insurers often hire a vocational consultant to analyze the insured’s training, education and work experience. Often, the vocational consultant is an insurance company employee, and thus has a financial incentive to cater to his employer and find the insured capable of working. With very little analysis, the consultant usually determines the insured, despite physical/medical limits that prevent him working in his own occupation, can perform other similar occupations available in the local area for which he could qualify by his education, training and experience. In arriving at this conclusion, the vocational consultant often overstates the insured’s training and overlooks practical marketplace factors that will prevent the insured from realistically obtaining those other jobs (such as age and a significant absence from the workforce). Even if minimally qualified to do another occupation, an employer is unlikely to hire, for example, a 59-year-old that has been out of the workforce for two years and has no direct experience. But disability insurers and their biased vocational consultants simply ignore critical facts like these to achieve their goal of getting another person off claim to make the company more profitable.

Our Take

These are just some of the ways disability insurers find ways to deny legitimate claims. If you have a long-term disability or short-term disability insurance claim that was improperly denied, you need an experienced ERISA disability or bad faith attorney, such as the lawyers at McKennon Law Group PC, on your side. As mentioned in our last article, after litigating hundreds of life, health and disability claims, it is our experience that many insurers do not get serious about paying these types of claims until they perceive a true threat of their insured being represented by highly effective, experienced lawyers, especially where there is “extra-contractual exposure” (i.e., damages beyond the policy’s benefits such as emotional distress damages, attorney’s fees and punitive damages). You cannot count on your insurer acting in good faith or doing the right thing. The Department of Labor statistics and other empirical data show that often they will not unless credibly threatened from an insured with a highly effective and experienced lawyer. Let us try to get your insurer to listen. We have successfully done it for decades.

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