What is the single greatest mistake long term disability claimants make?

Preparing their own internal disability appeal.

It is that simple.

A case worth hundreds of thousands of dollars can be converted to zero – near instantly – when a disability insurance claimant attempts to prepare his or her own administrative appeal.  There are several reasons for this, as discussed below.

No. 1.    Disability Claimants and Disability Insurers Have Grossly Unequal Resources

There is a complete disparity of resources when disability claimants attempt to take on their disability insurers.  Viewing this from the claimant’s perspective, what resources are typically available to the average insured person?  Presumably, there is a home computer or tablet, a printer, access to an internet fax program, and copies of pertinent medical records.   All these instruments and evidence can be used to assemble a homemade disability appeal.

By contrast, however, a disability insurer is often a multi-billion-dollar company, publicly traded on the stock market, with profit motivations designed to satisfy shareholders, including institutional investors.  It has significant financial resources – all of which are at the ready to be deployed against a disability claimant.  This is just the macro-picture of the disparity.

On the micro-level, disability insurance claims departments are populated by claims adjusters who have been trained to handle and process disability claims, oversee medical exams, and have been taught how to selectively read medical exam records.  Disability insurance companies have in-house physicians, nurses, and large expense accounts to pay unfriendly experts who routinely perform thousands of reviews and exams favorable to the insurers. Finally, the disability claim is one of typically 300 to 400 other claims these claims adjusters oversee simultaneously.  In short, they know how to deny a claim and are not able (or willing) to dedicate a material amount of time to review your medical as a true fiduciary should.

No. 2.    Not Fully Understanding the Reason for the Denial

A disability insurance denial is usually a lengthy letter. These letters contain required notices, citations to insurance contract language, several addresses, claims identifying information, and so on.   Sandwiched in-between all this writing is the rationale for denying the claim.  The rationale is the “why,” or explanation for why, a sought-after disability benefit is not being paid.  This can be confusing, even to the lawyers who work on these claims regularly.

For example, based on the language a disability insurance company uses to deny a claim, a claimant might mistakenly believe that the insurer is claiming they are not actually suffering from an illness when, in fact, the insurer is really disputing whether a person who is ill can still work.  Another often confusing rationale is the challenge to the supportive medical evidence.  By way of further example, is the insurer saying the evidence is non-existent or inadequate or is the insurer seeking another type of evidence altogether?  Furthering the opportunity for confusion, an insurer typically will not explain to a claimant the difference between objective and subjective evidence.  Misunderstanding why a claim is being denied can doom it.

No. 3.    Overlooking Critical Supporting Documentation

Medical records are obviously key evidence in supporting a disability claim.  The trouble is that medical records, alone, are rarely enough to the win a case.  The records require in depth explanation.  The records must be tied to showing a physical or mental limitation.  Often the records, themselves, provide foundation evidence for other documentation – such as a Functional Capacity Examination (FCE) or vocational rehabilitation analysis.  These are areas of expertise to which a claimant may not have ready access to make their case. Leaving out this crucial documentation can also doom a claim during the appeal process and leave a lawyer little to work with if the case eventually goes to court.

No. 4.    “Writing a Letter”

When was the last time you wrote a letter and the reader was so moved to start paying you instantly?  Has that ever occurred?  Has it even occurred to anyone you know personally?  In short, it does not happen.  As fine a person as you may be, no one will ever approve a disability benefit based on a written letter – no matter how beautifully composed or compelling in narration.

Somewhat cynically, disability insurers love receiving ‘a letter’ explaining why a person cannot work.   So long as that letter is not accompanied by medical evidence, the insurer will always be able to deny the claim based on no ‘proof of loss’ or ‘proof of claim.’  A disability claimant will likely never be treated better by an insurance company than in the 30-day period following their ‘writing a letter.’  The case is over, the insurer knows it, but the insurer does not want you to know it – yet.

The Bottom Line

While disability claims are not (lawfully) supposed to be adversarial, they truly are.  It is you against them.  You forget that rule at your peril.  No claims adjuster is there to help – their intention, and job, is to keep costs down by paying on claims as infrequently as possible.  They do their job the way that you did your job – they aim to do it well.  And doing it well means denying your claim.

The Ninth Circuit Court of Appeals ruled yesterday that, contrary to prior Circuit precedent, the presence of an arbitration provision in an employee benefits plan could compel arbitration.  See, Dorman v. Charles Schwab Corp., Case No. 18-15281 (9th Cir., Aug. 20, 2019).  The plaintiff had filed a class action suit in district court alleging that the defendants, plan fiduciaries, administrators, and employers, had improperly selected proprietary funds for inclusion within the offerings of multiple 401(k) plans, despite their poor performance, and to the detriment of the plans and individual participants.

Relying principally on the holding of American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), the court ruled that Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), was no longer good law and ERISA claims could be subject to contractually-mandated arbitration.

The relevant arbitration provision, contained within the plan document itself, was wide-reaching, stating that “[a]ny claim, dispute or breach arising out of or in any way related to the Plan shall be settled by binding arbitration….”  The provision also included a waiver of class or other collective action, “even if absent the waiver [the plaintiff] could have represented the interests of other Plan participants. The arbitration provision within the second plan at issue was materially identical.

The plaintiff sought to recover under both ERISA Section 502(a)(2) and (3), “seeking plan-wide relief on behalf of a class comprising all participants in, and beneficiaries of, the Plan at any time within six years of the filing of the Complaint.” The complaint’s claims were focused on violation of ERISA’s prohibited transaction rules through demonstrated preference of inclusion of investment funds affiliated with Schwab, despite mounting evidence of poor performance across benchmarks.

The district court had previously denied the motion to compel arbitration, holding the provisions were inapplicable since enacted after the plaintiff’s participation in the plan ended and that “the claims were ‘claims for benefits’ that were expressly carved out of the arbitration agreement in the Compensation Plan.” Further, the district court ruled that even if the agreements were applicable, they were unenforceable as the plaintiff’s claims were “brought on behalf of the Plan,” not for individual relief, and an individual “cannot waive rights that belong to the Plan, such as the right to file this action in court.”

While the Dorman opinion cites Munro v. University of Southern California, No. 17-55550 (9th Cir., Jul. 24, 2018), multiple times throughout as complimentary, the outcome in Munro was, notably, the opposite of that within Dorman – the Ninth Circuit held that the Plaintiffs, who had been required to sign arbitration agreements as part of their employment contracts, were asserting claims squarely on behalf of their plans and, accordingly, arbitration clauses executed on behalf of the individuals themselves, pursuant to employment contracts, would not compel arbitration of claims clearly brought on behalf of the plans.

Under the Munro court’s holding, employees

seek[ing] financial and equitable remedies to benefit the Plans and all affected participants… including a determination as to the method of calculating losses, removal of breaching fiduciaries, a full accounting of Plan losses, reformation of the Plans, and an order regarding appropriate future investments” are clearly “bringing their claims to benefit their respective Plans across the board, not just to benefit their own accounts as in LaRue.

Munro slip op. at 12-13. The Dorman court was arguably facing a distinguishable analysis on two separate fronts – while the obvious difference is the fact the plans at issue in Dorman contained the relevant arbitration agreement (rather than individual employment agreements, as in Munro), the scope and direction of the separate plaintiffs’ claims would also seem to be critically different.  The Dorman plaintiff was seeking relief which could, conceptually at least, be segregated into an individual claim – ultimately, the recovery of losses sustained on his individual retirement account(s) owing to alleged fiduciary breach, versus the clear plan-wide relief sought in Munro.

But take for instance a hybrid-hypothetical, somewhere between both Dorman and Munro – a class of plaintiffs seeking to litigate claims clearly brought on behalf of their plan (removal of breaching fiduciaries and reformation) yet faced with an arbitration provision contained within the relevant plan itself and barring class-wide or collective arbitration.  Consistent with the Munro holding, an ERISA plaintiff seeking judicial remedy which exists for the benefit of a plan may not alone settle a claim.  Id. at 11.  If arbitration was compelled, would a plan-appointed representative step-in or is that not the position already occupied by a plaintiff bringing a derivative action? Would a split of the individual claims and the ‘clear’ plan relief-related claims be compelled, resulting in the possibility of two distinct resolutions on fact?

The Dorman court also addressed, in a separate memorandum, the effectiveness of an arbitration provision in barring class-wide arbitration of 502(a)(2) claims brought by a plaintiff.  However those claims are, as articulated in the memorandum, and under LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008), “inherently individualized when brought in the context of a defined contribution plan….”  Dorman, et al. v. The Charles Schwab Corporation, et al., No. 17-cv-00285, ECF No. 53, at 5-6 (Aug. 20, 2019).

Despite the protections ERISA offers a beneficiary, every now and then relief available outside of the statute tempts a plaintiff to argue against ERISA qualification – in this instance, the plaintiff was a former President and CEO of Safelite Group, Inc.  In 2005, Safelite’s Board of Directors created the Safelite Group, Inc. 2005 Transaction Incentive Plan (“TIP,”) which provided substantial bonus payments to the five Safelite executive participants, dependent on their securing a strategic buyer for the company.

After a likely buyer emerged, the size of the TIP participants’ tax obligations in the event a purchase went through became evident, prompting the board to adopt the Safelite Group, Inc. Nonqualified Deferred Compensation Plan (the “NDCP”).  At the date of its creation, only the four executives who were participants in the TIP were eligible for the Safelite NDCP.

The NDCP allowed its participants to defer two types of income – compensation and TIP amounts.  These deferments were made by individual election forms indicating percentages of TIP Amounts, base annual salary, and bonuses sought to be deferred, as well as the year or years distributions were desired.

Between 2006 and 2014, the plaintiff deferred a total of $9,111,384 – until a federal audit revealed some of his elections failed to comply with a tax statute regulating deferred compensation plans.  The plaintiff brought suit against Safelite, asserting breach of contract and negligent misrepresentation.  In federal court, Safelite asserted in its motion to dismiss that plaintiff’s claims were preempted under ERISA as the NDCP constituted an “employee pension benefit plan” under ERISA Section 3(2)(A)(ii), 29 U.S.C. § 1002(2).  The district court granted the motion but permitted the plaintiff 28 days to amend his complaint.  With no amendment, the district court entered final judgment and the plaintiff appealed.

On appeal the court considered (1) whether the Safelite Plan was an employee pension benefit plan covered by 29 U.S.C. § 1002(2)(A)(ii), and (2) whether the Safelite Plan was exempt from ERISA pursuant to DOL regulation 29 C.F.R. § 2510.3-2(c).


Did the NDCP Qualify as an Employee Pension Benefit Plan?

Under ERISA and Sixth Circuit precedent, an employee pension benefit plan must “by its express terms or as a result of surrounding circumstances,” either

(i) provide retirement income to employees, or

(ii) result in a deferral of income by employees for periods extending to the termination of covered employment or beyond…

29 U.S.C. § 1002(2)(A). The court noted that ERISA’s overarching purpose in the scope of EPBP’s is to “protect[ ] monies belonging to plan beneficiaries while such funds are held and managed by others.”  Accordingly, any state law remedy which duplicates or supplements ERISA’s available remedies is preempted.

Attempting to move the plan outside of the scope of preemption, the plaintiff argued that in order to fit within the “results” stratum, a plan “‘must require’ deferrals to the termination of covered employment or beyond.”  The court was not persuaded, noting the difference between “results” and “requires,” as well as Congresses’ use of the actual term “require” within other sections of ERISA.

Was the NDCP an exempt bonus plan under DOL regulations?

DOL regulations exclude “payments made by an employer… as bonuses for work performed, unless such payments are systematically deferred to the termination of covered employment or beyond….” 29 C.F.R. § 2510.3-2(c). The court interpreted the regulation as “envision[ing] bonuses, not pay for regular compensation, such as annual salaries.”  Id. at p. 8.  “A bonus plan may defer payment of bonuses and remain exempt, ‘unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.’” – Systematic deferral would suggest the payments were not ‘merit’ based but rather an ERISA-exempt proxy for retirement income.

Hoping to slot the plan into the exception, the plaintiff disputed whether the plan actually resulted in a deferral of income by employees for periods extending to the termination of covered employment or beyond.

The court noted that the NDCP “expressly provides for employees to defer income from several sources to the future” and accordingly fit within the meaning of 29 U.S.C. § 1002(2)(A)(ii) and fell outside the ambit of the DOL exclusion.  Id. at 10-11 (Emphasis added). The inclusion of multiple sources of income in the NDCP (general wages and other incentives outside of the TIP amounts) factored into the court’s decision, leading the court to conclude that the “Safelite Plan [was] not designed as a bonus plan and instead distributes deferred amounts of non-bonus income, [therefore] it is not a plan providing for payments made ‘as bonuses for work performed.’”  Id. at 11-12.

Analytics Brings the Past Back to the Future

While the majority opinion was directed toward assessing the ERISA-qualified nature of the plan at issue, the concurrence diverged considerably – advocating for the utility of “corpus linguistics,” crediting it with focusing “on the common knowledge of the lay person by showing us the ordinary uses of words in our common language.”  Id. at 15 (Thapar, J., concurring).

Specific arguments in Safelite may have been novel, but there exists at the very least tens of cases interpreting the provisions at issue here – more interesting perhaps is the potential application of corpus linguistics to the interpretation of plan terms.  Consider an arguably ambiguous term or phrase in a plan which an insured asserts led him or her to reasonably expect a greater level of coverage than that actually provided.  Rather than expecting attorneys and judges to unwind years of legal experience and analyze the language at issue from the perspective of a hypothetical, reasonable reader (one lacking any formal legal training), could not analytics aid in evaluating the general import of a term or phrase at its time of publication?

The concurrence endorses this possibility of a greater incorporation of corpus linguistics into legal analysis, drawing upon millions of examples of everyday word usage” to divine the “ordinary meaning” of language at a particular point in time – with the

corresponding search results… yield[ing] a broader and more empirically-based understanding of the ordinary meaning of a word or phrase by giving us different situations in which the word or phrase was used across a wide variety of common usages… corpus linguistics is a powerful tool for discerning how the public would have understood a staute’s text at the time it was enacted.

* * *

[T]he entire practice of law – and certainly the practice of interpretation – involves judgment calls about whether a particular source is relevant.  And at least with corpus linguistics, those calls can be vetted by the public in a more transparent way.

Responding to another concurring opinion’s suggestion that corpus linguistics is redundant when compared with dictionaries, Judge Thapar notes that rather than a meaning arrived at in an indistinguishable point in time, “corpus linguistics… help[s] pinpoint the ordinary uses of a word at the time a statute was enacted.”

While Judge Thapar was not advocating for contract interpretation to devolve into administration by “automatons of algorithms” (and neither are we), perhaps it is time to introduce a more formulaic – and arguably representative – portrait of the idealized ‘reasonable insured’ into the traditional legal algorithm.


For the full opinion, see, Wilson v. Safelite Group, Inc., No. 18-3408 (6th Cir., Jul. 10, 2019)