Disability Insurance Trap

Historically, disability insurance disputes were a matter of contract handled by local trial courts. With the advent of ERISA, however, employer provided short-term and long-term disability disputes became a matter of federal law. Most disability policies are part of an employer provided benefit package and so most times today this federal law applies. Unfortunately, the 6^th Circuit Court of Appeals, which issues federal law decisions that govern in Michigan, devised a procedural rule for disability insurance cases that significantly and adversely impact workers who are denied, or cut off from, disability insurance benefits.

To understand the trap, a discussion of disability insurance procedure is in order. Typically, ones doctor takes one off from work. This usually involves a disability slip for the employer. Through human resources or by the employee, an initial contact is made to the disability insurance carrier. The carrier sends a form to the doctor, or to the employee to take to the doctor, to fill out concerning the disability. Usually benefits will start on receipt of the doctor’s report. At this point, everything is fine and the employee is happy with the employer provided economic protection.

Usually after a few payments, unless it is a clearly serious injury, the insurer will either have a doctor review the medical provided by the treating doctor or schedule the employee for a medical exam with a doctor the insurer chooses. It should be kept in mind that a number of doctors routinely examine for insurance companies and defense lawyers. These doctors, who are usually known to either be conservative or outright cheats, then report their findings.

These reports usually are contrary to the findings of the treating doctor and result in a letter cutting off benefits to the employee. In the cut off letter is a statement concerning the employee’s right to appeal the cut off decision. The employee usually takes the cut off letter to the doctor, the doctor writes a letter restating what was said in the original form, and both wait for the appeal to reinstate benefits. Almost always, both are shocked when the appeal is denied. This outrage leads to the seeking of legal help to overturn this obviously misguided and uninformed insurance company’s decision, in federal court.

What the employee and the doctor did not realize is that the case was already lost at the appeal stage. This needs to be said again because it runs contrary to the court processes with which the general public is familiar. THE CASE IS WON OR LOST AT THE APPEAL STAGE. THE EMPLOYEE SHOULD HAVE A LAWYER’S OR KNOWLEDGEABLE REPRESENTATIVE’S ASSISTANCE FOR THE INSURANCE COMPANY APPEAL.

Since this is contrary to the usual practice, how did it come about? In 1998, the 6^th Circuit decided Wilkins v. Baptist Healthcare System, Inc. and created a new procedure for disability insurance cases. This case ruled that once the claimant goes to federal court, no new or additional evidence may be presented. The federal court will only review evidence that was presented to the insurance company prior to the denial of the appeal. Herein lies the trap. Lawyers are trained to present evidence to try and win a case. However, in disability cases, once the appeal is denied and the employee gets a lawyer involved, no new evidence can be presented.

The claimant and his/her doctor are not trained to present evidence and usually the administrative record (the insurance company file) has only a little bit from the claimant and the doctor – often in conclusory fashion. The insurance company file also has the detailed report from the insurance company doctor as to why benefits should be denied. The court will not let the employee testify and no further testimony is allowed from the treating doctors. The lawyer has no chance now to use another examining doctor to support the treating doctor and refute the insurance company doctor.

Where the insurance plan gives the insurance company administrator discretion, as most plans do, the court will overturn the insurance company decision only if the decision is arbitrary or capricious. This is the hardest standard of appellate review and almost always results in the federal court agreeing with the insurance company’s decision.

TO AVOID THIS TRAP, employees and their representatives need to rethink the application process. The internal insurance company appeal is really the trial stage in these cases and a full presentation of the lay and medical facts are needed at this stage to have any chance of winning in federal court. Without this full presentation at the internal appeal stage, the case will almost always be lost in court because no new evidence can be added at that stage. Thus, a full evidential presentation must be made before the internal appeal process is completed. A lawyer or knowledgeable representative, like a union benefit expert, should always be used at the internal appeal stage. If that is not done, the case in federal court will be both frustrating and probably futile.

In practice, the Wilkins rule has been used to justify the disability insurance company’s denial of benefits, in most cases. Being forewarned is the only way to avoid this trap and the devastating financial result that follows. Going for help after the appeal is denied is too late. YOU NEED HELP WHEN YOU FILE THE INTERNAL INSURANCE COMPANY APPEAL.