Chances are that you have heard an anecdote or two about Lloyd’s of London, the insurance company known for, among other things, issuing policies that involve coverages other than the usual for automobiles and houses. A whisky company, for example, once bought a policy from Lloyd’s that would cover the cost of a reward to anyone who managed to haul in the Loch Ness Monster. Famous singers have had Lloyd’s insure their voices.

Similar stories involve promising or well-established athletes purchasing injury or long-term disability insurance coverage from Lloyd’s. As the Orange County Register recently reported, former University of Southern California wide receiver Marqise Lee did just that, taking out a $5 million policy that would pay benefits to him in the event that an injury or other disability caused him to be less valuable in the eyes of National Football League (NFL) professional teams come draft day.

Lee’s decision appeared prescient, as the player wound up spraining the MCL in one of his knees in September – when the college football season was in full swing. He missed a few games and reportedly played at less than 100% in some others. He was subsequently drafted in the second round by the NFL’s Jacksonville Jaguars, who offered him a four-year contract worth over $5 million.

Lee’s policy with Lloyd’s, however, promised to pay him the difference between the value of his rookie contract and $9.6 million, up to a difference of $5 million.

Like so many other insureds, Lee filed a claim for benefits based on his injury.  Lee filed a claim with Lloyd’s to collect the difference between his rookie contract and the $9.6 million baseline, which came to a little more than $4.5 million, by filing a proof of loss claim based on medical information about his injured knee. Lloyd’s, in response, argued that Lee’s claim either misrepresented, concealed or left out critical information that would have, in effect, nullified the policy.  Lloyd’s argument, that Lee did not disclose his entire relevant medical history, is a common argument made when a claimant files for disability insurance benefits, even if the claimant did disclose his or her entire medical history.  Legally, it is called policy “rescission,” a tactic many insurers use inappropriately.

Lee subsequently filed suit in California against underwriters from Lloyd’s, asking to be awarded damages of $4.5 million and claiming that Lloyd’s made the choice to deny the claim “in bad faith” (that is, in violation of the implied covenant of good faith and fair dealing that is inherent in every insurance contract) and “with a conscious disregard for Lee’s rights.”  Lee’s lawsuit also seeks punitive damages in excess of $4.5 million, “to make an example of the defendants and in order to deter similar conduct.”

Lloyd’s has tried to get the case heard in New Jersey, rather than in California. The Garden State is said to have laws that are more advantageous to insurance companies – one more reason why you should considering consulting an attorney, who can advise you of your options for surmounting little-known obstacles to resolving your case.

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of the law.  This article is the second of two articles focusing on lump sum buyouts of a disability insurance claim.  The first article discussed the various times the opportunity to enter into a lump sum buyout might be available to an insured, and some factors to consider when contemplating a disability insurance buyout.  This article focuses on how to value the claim and the various factors considered when calculating the buyout sum.

As detailed in the first article, an insured receiving long-term disability insurance benefits might desire to negotiate a lump sum buyout with the insurance company, where the company makes a one-time, lump sum “buyout” of claim and policy.  However, the most important question for an insured to consider is “what is my disability insurance policy worth?”  This is a complicated question that can only be answered by assessing a variety of different factors.

First, the most important factor is the net present value (“NPV”) of the policy, which is calculated using monthly benefits payable under the policy and the benefit period.  For example, if an insured is receiving $5,000 per month, and has ten years left on the policy, it may appear as if the policy is worth $600,000 ($5,000 times 12 months times 10 years).  However, the policy is not worth $600,000, but rather the NPV of $600,000, that is, how much money today is needed to have $600,000 in ten years.

Determining the NPV of a claim can be complicated, and insurance companies have actuaries on staff whose job it is to calculate the value of policies.  One of the most important factors in assessing the NPV is the discount rate to apply.  The higher the discount rate, the lower the NPV and vice versa.  Thus, an insurer will always attempt to use an unreasonably high discount rate to lower the NPV.  Insureds will want to use a low discount rate.  However, using a discount rate is further greatly complicated by assessing whether the policy has a cost of living adjustment provision that allows the benefits payable under the policy to increase by the rate of inflation.  Accordingly, an insured is best served by consulting an attorney who is experienced in calculating the value of a disability insurance policy and negotiating lump sum buyouts with insurance companies.  Indeed, because insurers are susceptible to allegations of heavy handed tactics in undervaluing a disability insurance policy, most insurers will require that you consult an attorney before engaging in such negotiations.

Other factors that determine how much the insurance company is willing to pay in a lump sum buyout include, but are not limited to, the insured’s mortality/life expectancy and whether there is any chance the insured will be able to return to work.  Typically, insurers will only consider a lump sum buyout if they believe the insured is permanently disabled.

The application and interpretation of these factors can be critically important in determining the value of a disability insurance policy, and, not surprisingly, the insurance company is going to make every argument possible to reduce the value of the policy.  This is why it is important that insureds who are negotiating a lump sum buyout of a disability insurance policy hire attorneys, such as the McKennon Law Group, who have significant experience negotiating lump sum buyouts.  That experience will help to ensure that the insured receives the largest amount possible.

For example, a client of the McKennon Law Group had a disability insurance policy that paid her benefits for her life, not just age 65 (like most policies).  During negotiations of the lump sum settlement, the insurance company argued that, given the insured’s medical condition, she was unlikely to live beyond her late 60s or early 70s.  Given this determination, along with an unreasonably high discount rate, the insurance company placed a very low present value on the disability insurance policy.  However, the McKennon Law Group was able to convince the insurance company that its position regarding the insured’s life expectancy was seriously flawed, by presenting evidence that the insured’s parents were still alive and were about 90, and by obtaining letters from the insured’s doctors that her conditions were not expected to decease her otherwise long life expectancy.

In summary, an insured should not expect that the disability insurance company will offer a lump sum equal of the full value of the disability insurance claim.  Indeed, typically lump sum buyouts fall between 65% and 85% of the value of the policy.  However, by hiring experienced counsel, the insured can greatly increase his or her opportunity to collect a lump sum buyout at the maximum payout possible.

Like long-term disability insurance policies, it stands to reason that an insurance plan that is intended to pay insurance benefits for long-term care would be a relatively safe investment for your or a loved one’s future. After all, again like long-term disability insurance policies, many such policies are sold to people years before any anticipated long-term care needs present themselves. With premiums having been faithfully paid for many years, you might think there would not be a problem when the time comes to use the benefits. But, alas, we are talking about insurance companies and their motivation to deny claims.

Unfortunately, as Forbes magazine reported recently, the world of long-term care insurance can be fraught with red tape that can prevent claims from getting paid. And while long-term care policies have changed in how they are written over the years, every long-term care insurance policyholder should receive the benefits that they are due.

Part of the problem lies in the fact that policies from the 1990s were written differently than today’s policies. As a result, some people with older contracts—the ones that would appear to be the strongest because they have been paid into the longest – sometimes encounter significant trouble.

Various ways in which some insurers seek to deny claims include the following.

Some insurers require that the facility that is providing long-term care meet certain licensing and personnel requirements. Still others require that the facility meet certain criteria even if the criteria are not specified in the policy.

Something known as the “gatekeeper provision” is fairly common in older long-term care policies. This provision requires that a policyholder have a prior hospital say, a nursing home confinement or even both before claims are paid for long-term care. Many states, however, have outlawed these kinds of provisions.

Insurers have also been known to say that they will not pay benefits for so-called personal care such as errands a caregiver runs for the policyholder, or for tasks such as light housekeeping. A number of policies exclude care provided by family members, as well, but the policy’s specific wording should be carefully checked. Care provided by a spouse may not be covered, but that care given by, say, a grandson, could be.

At times, insurers will deny benefits because a policyholder neglected to pay premiums due to a cognitive impairment. However, many states require a certain period of time to cover such lapses, and if a physician’s statement can be obtained attesting to the cognitive impairment, the policy can be reinstated.

As you can see, long-term care insurance policies can present unique challenges or disabilities. Feel free to contact us for a free consultation regarding your specific situation.

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of the law.  This article is the first of two articles that will focus on lump sum buyouts of a disability insurance claims.  This article will discuss the various times the opportunity to enter into a lump sum buyout might be available to an insured, and some factors to consider when contemplating a disability insurance buyout.  Part two will focus on how to value the claim and the various factors considered when calculating the buyout sum.

Long-term disability insurance claimants currently receiving long-term disability insurance benefits from their insurer might have the opportunity to receive a lump sum buyout, where the insurance company pays the insured a one-time, lump sum payment to “buyout” the claim and policy.  In exchange for that payment, the insured gives up his or her rights under the policy forever and the insurance company has no obligation to make any additional payments.  A lump sum buyout is potentially available even if the disability insurance coverage was provided by the insured’s employer and the claim is governed by the Employee Retirement and Income Security Act of 1974 (“ERISA”).  However, given the amount of money involved, there are a many things an insured should take into account when considering a lump sum buyout. 

Long-term disability insurance is designed to provide benefits to insureds who have lost the ability to earn an income due to an accident or illness.  After a disability insured provides the insurance company with medical evidence sufficient to convince the company that he or she can no longer return to work, disability insurance benefits are paid on a monthly basis.  However, if the insured is permanently disabled, rather than dealing with the insurance company every month until the benefit termination period (typically age 65 or the Social Security Retirement Age, depending on the terms of the Policy), the insured may be able to arrange a lump sum buyout of the policy.

Once the payment is made, the insured no longer has an obligation to prove to the insurance company that he or she remains disabled.  In addition, the lump sum buyout provides the insured with a sum of money to invest or otherwise use for necessary expenses.  A lump sum buyout can also provide peace of mind.

While a lump sum buyout is not advisable in every situation, there are certain instances in which a lump sum disability insurance policy buyout might be worth considering.  To be sure, an insurance company will only be interested in contemplating a buy out if it feels it can save money in the long run.  That being said, there are two primary times in which a lump sum buyout might be available.

The first situation where a lump sum buyout can be available is when the insured has been receiving benefits for some time, and the underlying medical condition is accepted by the insurer as being permanent and not expected to improve.  In this situation, with its ongoing liability clear and beyond any reasonable dispute, an insurance company might be willing to consider making a one-time payment, rather than paying its employees to continue to monitor the claim.  This situation can be beneficial to the insured, even with the knowledge that the lump sum buyout will be less than the insured would receive by choosing to continue to accept payments on a monthly basis.

The other situation in which a lump sum buyout might be available is after the insurance company determines that the insured is no longer entitled to ongoing disability benefits and denies the claim.  In this situation, the insured will need to hire an experienced attorney to handle the claim and to potentially file a lawsuit to recover the benefits that are owed.  A buyout can be achieved prior to litigation or after a lawsuit is initiated.  For example, the insurance company maybe be receptive to a lump sum buyout, after the Complaint is filed, during a mediation, when costs are about to be expended for discovery, right before trial or even after trial.  Each of these events represents an opportunity to obtain a lump sum buyout from the insurance company.

If an insured is approached by the insurer regarding a possible lump sum buyout, or even if the insured approaches the insurer about a buyout, the insured is best served by consulting with an attorney who is very experienced in dealing with these issues.  Attorneys who have experience negotiating lump sum buyouts with insurance companies can help ensure that the lump sum settlement is for the largest amount possible.  While the thought of receiving a large check from the insurance company sounds attractive, the insured needs to make sure, not only that he or she is making the right decision, but that the he or she is receiving the maximum payout possible.

When a disability insurance claimant is receiving disability insurance benefits, it is very likely that such benefits are his or her only source of income.  Accordingly, the insured should be careful that he or she is making the right decision with respect to a lump sum buyout.  If a lump sum settlement is a possibility, the experienced attorneys at the McKennon Law Group can help identify and consider all of the available options.

In December 2014, a Northern California woman filed a lawsuit against disability insurer Unum Life Insurance Company alleging that the company wrongfully denied her claim for long-term disability (LTD) benefits under the long-term disability insurance plan issued to her employer and governed by ERISA (Employee Retirement Income Security Act). An LTD plan is intended to provide financial benefits to workers when they are unable to perform their job duties because of a disability – even if the injury or illness is unrelated to their employment.

The plaintiff, alleged that Lyme disease rendered her unable to work, and that she was therefore entitled to LTD benefits. Her claim was filed pursuant to a group disability insurance policy sold to her former employer by Unum. The LTD Policy provided LTD benefits to full-time workers. She filed a claim with Unum in April 2012, and her claim was initially approved, with Unum concluding that her disability began September 2011.

However, in December 2013, Unum is alleged to have notified the insured that she no longer met the definition of disability, and had the ability to return to work for her former employer. The insured appealed that decision and provided additional medical documentation of her Lyme disease to Unum supporting her disability claim.

The lawsuit alleges that, despite this additional documentation, she was again denied any further benefits under the Unum LTD policy – without an adequate explanation from the company. The insured also claimed that Unum violated ERISA by failing to provide a reasonable and prompt explanation for why her claim for LTD benefits was denied.

Are such actions common among insurers? Yes. Unfortunately many Americans regularly and faithfully have money deducted from their paychecks in order to cover premiums for their disability insurance benefits under LTD plans. However, when it comes time to collect those benefits due to a disability or illness, many insured find themselves in the midst of a battle that threatens their ability to pay their mortgage, car loans or other bills.

Various companies have been known to use certain tactics to avoid paying disability benefits. Among them: Changing the terms of policies after a claim is filed; failing to adequately investigate a claim; using biased physicians; refusing to examine an insured, instead relying on “paper reviews” by a so-called “independent” consultant; misreading or ignoring important medical documents and records; and, simply refusing to acknowledge that a disability exists.

In these circumstances, however unfortunate, it is critically important to have an attorney on your side to represent your interests vigorously and fairly – one who has previously represented insurance companies and now wants to fight for you. Contact us to request a free consultation today.