Disability Insurers Cannot Use Ambiguities in Insurance Policies to Avoid Being Sued When They Wrongfully Deny Disability Benefit Claims

When terms contained within an insurance policy fail to make provisions clear, plain, and conspicuous, insureds are often left to wonder what their rights under an insurance policy are and whether they are complying with the terms of their policy.  The Ninth Circuit Court of Appeals has long recognized that in cases governed by ERISA, “ambiguities in insurance contracts must be construed against the insurer.” McClure v. Life Ins. Co. of North America, 84 F.3d 1129, 1134 (9th Cir. 1996).  Despite this long-standing and binding rule, long-term disability insurance policies issued by disability insurance companies continue to contain ambiguous provisions and insurers continue to use these ambiguities to their advantage and deny valid claims for disability benefits.

Recently, the Northern District of California refused to accept a disability insurer’s argument that the insured’s disability claim was barred by a limitation contained in the long-term disability insurance policy, stating that legal action must be brought within three years from the time proof of claim is filed. Nancy Hart v. Unum Life Ins. Co. of America, No. 15-cv-5392-THE, 2017 WL 565026 (N.D. CA. Feb. 13, 2017).  The long-term disability policy at issue in Hart contained a provision stating that a legal action can be brought “up to three years from the time proof of claim is required.”  Unum sent Ms. Hart a letter terminating her claim for long-term disability benefits, indicating that she had 45 days to provide proof of continuing disability and 180 days to appeal the denial decision.  Unum argued that the three year contractual limitation in Ms. Hart’s policy was triggered when the 45-day deadline to provide “proof of continuing disability” expired, as the term is interchangeable for the term “proof of claim.”  Under this argument, Ms. Hart’s lawsuit against Unum would have been barred by the limitation within the Policy.  Ms. Hart argued that the policy limitation was not triggered until the 180 day deadline to appeal the denial of her claim expired, and therefore her complaint was timely.

The District Court determined that the long-term disability plan failed to clearly demonstrate that there was no distinction between the terms “proof of claim” and “proof of continuing disability.”  The Court noted that even though both terms were found within the same section of the Policy, Unum failed to make it “clear, plain, and conspicuous” that in applying the contractual limitation there is no distinction between the two terms.  Because of this, the Court found that the termination letter did not trigger the three-year contractual limitation to file a lawsuit by asking Ms. Hart to provide proof of continuing disability within 45 days.

The Court went on to determine that even if “proof of claim” and “proof of continuing disability” were interchangeable, Ms. Hart is not barred from filing her lawsuit because the letter’s inclusion of two different deadlines, the 45-day deadline to provide proof of continuing disability and the 180-day deadline to appeal the letter’s decision, created an ambiguity that must be interpreted in favor of the insured.  The Court observed that the Ninth Circuit has held that an insurer must utilize language from its own policy to inform an insured when the contractual time limitation for legal proceedings would begin to run, and ambiguities would be construed against the insurer.  The Court concluded that the insurer “should not be allowed to take advantage of the very ambiguities that it could have prevented with greater diligence,” and the Court denied Unum’s motion for summary judgment determining that Ms. Hart’s lawsuit was filed timely because it was filed within 3 years from the 180 day deadline to appeal Unum’s denial decision.

When a claim for disability benefits is denied, insureds can often feel overwhelmed by the confusing provisions contained in their policies and they can also feel obligated to accept the denial justifications provided by their insurers.  However, it is important to understand that insurers will often interpret policy provisions in their favor in order to justify a denial of a claim, even if the provision is unclear or could be subject to multiple interpretations.  The Hart decision illustrates why it is important to have experienced disability, health and life insurance attorneys like the attorneys at McKennon Law Group, PC on your side when your claim for insurance benefits has been denied.  If your claim for insurance benefits has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

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