If your disability insurance company has denied your ERISA-based disability claim once and then subsequently reinstated benefits, either through your successful appeal or through your victory in court, there is nothing preventing it from cutting off your benefits again in the future. In fact, in the Eleventh Circuit (Alabama, Florida and Georgia), if your policy is an ERISA policy, your insurer has every incentive to cut your claim off as many times as possible. This article does not apply to disability policies not governed by ERISA.
ERISA Provides a Financial Incentive to Disability Insurers to Deny Claims
In the Eleventh Circuit, your disability insurer can deny your claim under ERISA, subsequently overturn the denial through its internal appeal process, and not have to pay you one penny of interest on the benefits it wrongly withheld from you. This is due to to caselaw which holds that an ERISA disability claimant cannot sue its insurer for interest on benefits alone. It only allows (and does not require) a court to award interest when the claimant successfully sues for a denial of benefits. Because you cannot sue your insurer for a denial of benefits until you have appealed its decision (to the insurer itself) and lost, an insurer can avoid being sued by reinstating your claim on appeal.
A disability insurer has everything to gain and nothing to lose by cutting your benefits off, even if it stands no chance of disproving your disability. Once the insurer cuts you off, it stops sending out benefit checks. It holds on to this money and makes interest on it through investment. It then waits for you to appeal the denial of your claim, which must be done within 180 days of you receiving its denial letter. If you fail to meet this deadline, the insurer wins and never has to pay you again. If you do appeal, the insurer has up to 90 days under ERISA to review your appeal and render a decision. So, the insurer can cut off your benefits, hold on to your money for 90 days (plus however long it took you to send in your appeal), and then at the end of the 90 days reinstate your benefits and send you a check for the unpaid benefits without interest. The insurer just gave itself a 90-day, interest-free loan on your money, which it invested and from which it profited. In essence, ERISA and the Eleventh Circuit have given disability insurers a financial incentive to deny valid claims: free money with no risk.
Because ERISA preempts almost all state law protections against this type of unethical behavior by insurers (such as “bad faith” lawsuits), disability insurers can deny as many valid claims as they want, as often as they want, with no risk. Of course, if insurers were to take this practice to an extreme level they would face changes in ERISA law due to public outcry. So, as long as they are not too obvious about cutting off valid claims, they can count on ERISA to continue to provide them with free money.
Nothing Prevents a Disability Insurer From Denying a Claim More Than Once
Now that you understand the financial incentive behind disability insurers denying valid claims, prepare for even worse news — they can cut your claim off more than once. If your disability insurance claim was denied and you successfully had it reinstated through the insurer’s appeal process, the insurer can and likely will deny your claim again in the future. There is no law preventing it from doing this. Even if you successfully sued your disability insurer in federal court, the court will only order the insurer to pay your benefits from the time you were cut off through the day it issues its judgment. It cannot order the insurer to continue to pay you benefits after this date. There are practical reasons for this. The court cannot assume that just because you are disabled today that you will still be disabled a year from now. Some medical advance may come along in the interim that removes your disability. Unfortunately, this means that even after you win in federal court, you are not safe from your disability insurer wrongfully denying your benefits again in the future.
A Lump-Sum Payment of Your Disability Benefits is The Only Way to Avoid Being Denied Benefits Again
If your long term disability insurer offers you a lump-sum buyout of your disability benefits, you should strongly consider it. Obviously, I recommend that you see a disability insurance lawyer before making such an important decision. There are many factors which determine whether a lump-sum offer is fair and reasonable. It is not simply a matter of adding up the number of months of benefits you have remaining and multiplying it by your monthly benefit amount. The lump sum must be reduced to present value first. This is not an exact science, as it involves estimating a fair interest rate to arrive at a present value figure. The higher the interest rate used, the lower the lump sum you will receive. There is usually room for negotiation with your insurer over a fair present value calculation.
Know that your insurer will not offer you the full present value of the claim (it has no financial incentive to do so). It will reduce the present value lump sum offer based on its odds of being able to successfully cut your benefits off in the future, which could be significant. There are too many factors involved in calculating a fair lump sum offer to cover on this blog, but I wanted you to know that while I usually encourage lump-sum settlements of disability claims (as it gets the insurer out of your life), this is a complicated issue to negotiate which is best left to an experienced disability lawyer. A lump sum buyout is the only way to insure that your disability insurer cannot deny your benefits again in the future.