Your disability insurance: Will it be there if you need it?
You buy a disability insurance policy. You pay the premiums. If you suffer a heart attack, brain tumor, or cancer, your insurance company will pay your benefits, right? Too often, the answer is “no.”
Some insurance companies engage in “reverse underwriting.” This is a procedure insurance companies use - after you file a disability claim - to compare all of your medical records with your initial application for the disability policy. Such insurance companies are looking to see if there is any chance they can argue that you made a misrepresentation on the application. In other words, they are looking for an out.
Consider the case of one of my clients who worked as a psychiatrist, until a brain tumor forced him to quit practicing. He underwent numerous surgeries and was left with permanent physical and psychiatric impairments. The insurance company did not dispute that he was disabled from performing his job as a psychiatrist. However, his initial application stated that he had never received any psychiatric treatment. The insurance company discovered that - as part of his psychiatric residency - he had (of course) received psychiatric analysis and treatment for symptoms arising from the analysis. The psychiatric analysis was obviously part of his training to become a psychiatrist and had nothing to do with the brain tumor. Nevertheless, the insurance company ceased paying benefits, rescinded the policy, and demanded that he reimburse the company for all benefits previously paid. Numerous pleas to the insurance company were ignored. It was only after a lawsuit was filed that the insurance company capitulated and agreed to reinstate the policy, pay all past-due benefits, and continue paying benefits in the future.
Generally, in order for an insurance company to void a policy, it must prove that the policyholder made a misrepresentation that was (1) untruthful, (2) material to the risk insured by the insurance company, and (3) reasonably relied upon by the insurance company. Material to the risk does not mean that the misrepresentation is related to the cause of the disability. Rather, the question is whether the misrepresentation would have affected the decision of the insurance company in issuing the policy in the first place, or in calculating the premiums.
This is an important distinction. For example, consider an applicant who mistakenly answers “no” to the question, “Have you ever been diagnosed or treated for angina pectoris?” Assume that many years ago, she experienced chest pains on one occasion and was treated with nitroglycerin. Even if she ultimately becomes disabled due to injuries from a car accident that are totally unrelated to any heart condition, the insurance company may be able to void the policy due to “misrepresentation” (assuming the insurance company can meet all other requirements to establish a misrepresentation defense).
It is extremely important, therefore, that every question on applications be answered thoughtfully and fully. Too often, these applications are completed by the insurance agent who is more interested in the policy being written than in your receiving benefits at some time in the future. Invariably, additional medical questionnaires are also completed by paramedics who are not trained with respect to insurance law. These paramedics may misinform applicants as to the level of disclosure necessary to protect themselves.
If you are applying for a new policy, it is prudent to create your own list of every health-care provider who has treated you or examined you, all diagnoses, all treatments, and all medications for the period of time requested by the application. Then, you can answer many questions on the application by simply referring to your list.
It is better that the insurance company refuse to insure you than obtaining the insurance and paying the premiums, only to learn that your insurance policy is void. The insurance agent may laugh at your level of detail, but the insurance company can hardly complain that you are disclosing too much information.
Under the law, trivial matters need not be disclosed because they are not “material.” However, do you really want to risk a lawsuit over the insurance company’s interpretation of what is trivial after you have submitted a claim for benefits? More detail, rather than less, is the smart way to go.
Lack of “timely notice”
Another defense raised by insurance companies may be based on lack of timely notice of the claim. For example, some insurance policies require notice within 30 days of the onset of a disability or a “covered loss.” The insurance company may argue that the 30 days should run from when the disabling condition commenced. However, most people do not think about making a claim for disability benefits as soon as they become aware of a medical problem. Most policies have waiting periods before benefits commence, so many people do not even think of giving notice to the insurance company within 30 days, since they are not entitled to any benefit until the 91st day (assuming a 90-day waiting period). An insurance company that attempts to escape its obligations in this fashion may be misconstruing the policy or relying on ambiguous language in the policy. Prompt notice to the insurance company of any condition that may be disabling would completely avoid the dispute.
Partial disability benefits
The problem of timely notice is even more acute when it comes to “partial” or “residual” disability benefits. Many policies that insure professionals provide for benefits if the policyholder is partially disabled and earning less money than before the accident or illness occurred. Many people don’t think of their disability benefits when they are merely forced to reduce their work schedule.
Each policy is a contract that has unique terms. For example, in some policies, even where no disability persists, a policyholder may be entitled to partial disability benefits if he or she were disabled, continues to see a physician regularly, and loses a certain amount of income each month.
The bottom line
The bottom line is that it is extremely important to read your policy and know your rights. Unfortunately, insurance policies are not usually written with this purpose in mind. If you are not familiar with the terms of your policy or your entitlement to benefits, consult an attorney without delay. You have nothing to lose except the benefits to which you may be entitled.
Scott B. Gorman, Esq., is a founding member of the law firm of Gorman & Gorman. His offices are located in Cherry Hill, New Jersey, and Philadelphia, Pennsylvania. He has spent the majority of his professional time over the last 25 years litigating claims against insurance companies. You may contact him at firstname.lastname@example.org.