So, You Thought You Had Disability Insurance? by Ray Bourhis

Insurance companies are corporations, and corporations exist to turn a profit. In the 1980's, when interest rates were sky high, insurance companies competed heavily with each other for your premium dollars in order to invest those dollars at high rates of return. This was particularly so with disability policies.

This stiff competition drove insurance companies to:

• make policies non-cancellable (without ever raising the premium) and payable until age 65 or life;
  
  
• make the policies occupation specific (as opposed to policies that say you are only disabled if you are unable to perform any occupation);
  
  
• broaden the conditions that are covered (including herniated disks, heart conditions, psychological illnesses and cancer);
  
  
• include the cost of living increases; and
  
  
• under-price the policies.

The gamble paid off. Premium dollars poured in and insurance companies realized substantial profits on their investments. But gambling is always risky business. When interest rates plummeted in the 1990's, so did the profits of insurance companies.

Major insurance companies were forced to increase reserves (the amount insurance companies must put aside to pay present and future claims) by hundreds of millions of dollars. In 1993, one of the largest disability insurance companies in the United States took a "charge" of over $430 million. The president was replaced by a banker with no previous experience running an insurance company. He, in turn, appointed a finance and tax expert (who also had never handled an insurance claim) to run the entire claims department.

The claims handling department began to change. Incentives were provided to some executives (including huge stock options) to increase profits. Employees, who are obligated to treat claimants fairly and with patience, were instead given awards titles "The Hungry Vulture's Award," with the slogan "Patience my foot, I want to kill something." Some people were told to destroy documents that might embarrass or incriminate the company in court.

For many months confidential memorandums passed between top executives, proudly proclaiming that company profits were increasing due to benefits "terminations." The vice- president of claims actually set termination "goals," bragging that his implementations would increase profits by $30-$60 million per year.

This effort to increase profits in the 1980's was not limited to a single insurance company. Many companies from eh 1980's were desperate to capture the market share, and did so by writing favorable policies, particularly in high-market states like Florida and California. But in the 1990's, these same companies became equally desperate to avoid paying the benefits they had promised.

Policyholders who suddenly found themselves unable to engage in their occupation were surprised by the response of the insurer after filing a claim. Many claimants were followed by sub-rosa investigators, photographed by video cameras peering out of darkened van windows, or snooped on by strangers poking around in their garages or staring through bedroom windows.

There's more. "Independent Medical Examinations" were scheduled and performed by hand-picked doctors, often chosen for their skill in forensic (courtroom) work and their likelihood of favoring the insurance company's point of view. The opinions of treating physicians were ignored.

Other innovative techniques were utilized, all with a single goal, as so eloquently put by one former insurance company vice-president, "Look under every rock" for any "loophole or excuse" to terminate benefits.

And still there's more. Insurance companies neglected to train claims adjusters to that adjusters would not know or understand their obligations to policyholders. No training materials, guidelines or instruction programs were given to teach adjusters how to handle a claim, define policy terms, or describe medical conditions.

Some insurance companies even delegate their entire claim investigation responsibility to outside adjusting firms in order to distance themselves from the fact-finding process. And others purposely avoid conducting simple medical or occupational tests that might confirm the claimant's disability.

When all else fails and the insurance company must conclude that the policyholder is disabled, the company may state their intention to deny or terminate benefits, but then offer to "buy-out" of the policy. "Buy-out" beware. In one recent case, a particularly aggressive insurance company offered to pay a professional harpist $10,000 to "surrender" her policy. The present value of benefits she would be entitled was $200,000, and the insurance company knew this.

In another case, the company offered to buy-out a dentist's policy for $300,000 knowing that his future benefits were worth over $4 million. It bluffed that if he refused, the company would deny his claim and close the file. He called their bluff.

Unfortunately, in many cases, disabled policyholders simply give up or under-settle for nickels on eh dollar because they are too ill or injured to deal with the insurance onslaught.

With all this in mind, take heed of the following questions and answers. They may assist you in protecting yourself against the very company you pay to protect you.

Q. What do I do when I purchase a disability policy?

A. (1) Save everything! Promotional brochures, policies, letters; etc. Simply open a file or a drawer and save all of your insurance information.

(2) Demand a copy of the policy before you purchase it and keep it with your other insurance information.

(3) Fill out the application yourself. Fill it out carefully and accurately. One of the first things an insurance company will do after you file a claim is review the application to see if there are any errors or misstatements. IF there are, the insurance company may use this to cancel the contract and return your premium rather than pay the benefit amount.

(4) Ask the agent whether the policy you are purchasing is "occupation specific" or "any occupation." Inquire into how long benefits are payable, how benefits are calculated, and whether benefits increase with inflation.

(5) Ask the agent what conditions, illnesses or impairments are excluded from coverage.

(6) Take careful notes.

Q. What is "own occupation" disability coverage?

A. "Own Occupation" means that you are unable to perform the substantial and material duties of your own occupation at the time you become disabled. If you cannot perform those duties in the usual and customary manner because of a disability covered by your policy, then you may be disabled.

Q. How many of the substantial and material duties of your occupation must you be unable to do in order to qualify for benefits?

There is no numerical test. The issue is whether your illness or injury precludes you from performing your job normally and with reasonable continuity. For example, an insurer, in the interest of saving money, cannot require that an individual, who suffers from permanent back pain after a failed spinal surgery, to go back to work in pain.

Q. What are other common types of disability policies?

A. "Modified Own Occupation" policies are becoming more common. These policies usually protect from disability in your own occupation for five years. Thereafter, they convert to "any occupancy" policies.

"Any occupation policies, though important, aren't as specific as "any occupation" policies. They protect you when you are disabled from performing any occupation based on your experience, age, education and training.

Q. How do I know whether a particular sickness, illness or injury is covered?

A. You have to look at the particular policy language (and exclusions).

Q. How do I prove that I am disabled?

A. The most important proof is to have honest, board-certified physicians or psychiatrists (if your policy covers psychological disabilities) certify you as disabled. The physician should also state what your limitations and restrictions are and why you cannot perform your occupation or another occupation. It is extremely helpful to have objective findings of disability, such as x-rays, MRIs, MMPIs, functional capacity evaluations, etc.

However, even with qualified physicians and objective evidence, some insurance companies will deny or terminate benefits based on conflicting opinions of in-house medical consultants or hand-picked "independent medical examiners." Insurance companies often employ such tactics to justify underpaying a claim or offering a buy-out of the policy. When this occurs, do not be deterred. Your treating physician should respond in writing to medical opinions challenging your disability.

Q. How do I know if I am disabled?

A. Good question. It all depends on the definition of disability contained in your policy. Some policies distinguish between "own occupation" and "any occupation" and "total disability," "partial disability" and "residual disability." Subtle differences can make a big difference in the method used by claims adjusters to evaluate your claim.

This means you want to know what the definition of disability is and you want the doctor to comment on it. Insurance companies may later quiz doctors. Unless doctors know the definition of disability, their innocent comments will be taken out of context and used to justify claim denials and terminations.

Q. What are the consequences when an insurance company denies or terminates my benefits in bad faith?

A. When an insurance company unreasonably denied or terminates a claim, it may be forced to pay what it owes from the past (plus interest); what it owes in the future; payment for emotional distress; some attorneys' fees; other costs and expenses; and, if the requisite intent is present, punitive damages.

Q. What important steps should I follow when filing a claim?

A. (1) Before filing a claim, reread your policy, carefully.

(2) Put a copy of all of your correspondence with the insurance company in your insurance file or drawer. Take notes of conversations, including the name, date and substance of each conversation. If representations or promises are made, it helps to put them in writing and send a polite confirming letter.

(3) Do not exaggerate anything. Be completely truthful at all times. Maintain your duty and cooperate with their investigation, but also remember that they cannot probe into every crevice of your life.

(4) Answer questions carefully. For example, there is a big difference between, "List the duties of your occupation in order of importance: and "List the important duties of your occupation."

Q. Can insurance companies hire private investigators to follow me and tape my activities?

A. Yes. And it does happen, often.

Q. What should I do when my claim is denied or terminated?

A. Write a rational letter to the claims manager setting forth your position, and ask for the company to reconsider its decision. Ask your treating physician to respond. If necessary, ask an attorney specializing in such matters to review the letter.

Sound serious? It is. To some people insurance is a bottom line.

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