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The United States District Court for the Eastern District of Michigan has held that an insurer must advise a long-term disability claimant of its internal appeal requirement within the actual plan document in order to establish a failure to exhaust defense.

In Wallace v. Beaumont Healthcare Employee Welfare Benefit Plan, No. 16-cv-10625 (E.D. Mich. January 18, 2017), Reliance-Standard Life Insurance Company moved to dismiss the plaintiff’s complaint on the basis that she failed to exhaust her internal administrative remedies prior to filing suit.  The court denied the motion, holding, in part, that Reliance Standard had not included an appeal requirement within the express terms of its disability insurance contract. A statement advising of a right to appeal a denied claim in a letter is insufficient to secure a dismissal, according to the court. The court cited the opinion of another federal court in Montoya v. Reliance Standard Life Ins. Co., No. 14-cv-02740 (N.D. Cal. Mar. 2, 2015) which also found Reliance Standard’s long-term disability form contract lacking any requirement of an internal appeal. The Wallace court held:

Having reviewed the Reliance policy, which Plaintiff attached to her Amended Complaint, this Court finds no discussion of an exhaustion requirement. The only requirement for bringing a legal action set forth in the policy reads: “No legal action may be brought against us to recover on this Policy within sixty (60) days after written proof of loss has been given as required by this Policy.” The policy does not incorporate the terms of any other document. To the contrary, it expressly states that the policy represents “the entire contract.” Nevertheless, even if this Court construed the denial of benefits letter as a plan document, it would hold that the letter did not mandate exhaustion as a prerequisite to bringing suit.

 

The court’s ruling in Wallace underscores the importance of carefully reviewing a claimant’s long-term disability contract for a disability insurer’s own compliance with ERISA when an exhaustion defense is raised.  The court’s ruling also increases access to disabled employees whose claims for disability benefits have been wrongfully denied or terminated.

The Sixth Circuit Court of Appeals has cited the “spirit of ERISA” in reversing a district court decision granting summary judgment against an employee pursuing a disability claim.  In Waskiewicz v. Unicare Life & Health Ins. Co., 802 F.3d 851 (6th Cir. 2015) the plaintiff-employee was suffering from mental illness when she was discharged by her employer.  At the time of the discharge, Ms. Waskiewicz was insured through a long-term disability insurance plan established by her employer.   Ms. Waskiewicz did not timely file her claim, in part owing to her medical condition. The district court dismissed her claim, finding that she had failed to comply with her disability plan’s notice of claim requirements.

The Sixth Circuit reversed the district court finding that, given the claimant’s mental condition, the court’s reading of the language appearing in her disability contract was too strict.  The Court held:

While she did not comply with the notification deadlines outlined in Section 4.02 of the Plan, that failure is not surprising given that she was suffering from severe mental illness and was unable to comply due to the very disability for which she sought coverage.

An insurance policy can hardly be said to provide employee disability “insurance” at all if it protects against sudden disability but not if the employer immediately discharges the employee because of the disability before she gets a chance to apply for the benefits.  Waskiewicz, 802 F. 3d at 855-866 (emphasis in the original).

Notably, the Court held:

Common sense convinces us that the denial of benefits in this case runs contrary to the spirit of ERISA, which is designed to protect employee benefits, not subject them to arbitrary termination—in this case retroactive termination—after the benefit has otherwise accrued.  Id., 856.

The Court’s holding recognizes the unique role that an ERISA plan plays in the financial planning of employees. The Court’s recognition of the “spirit” of the ERISA law may require a court to consider the law’s intended purpose – the financial protection of employees through their employee benefits.  Occasionally, this may require a court to look past strict contractual interpretation and focus on the aims of ERISA.

10 Practical Considerations for the Long Term Disability Claimant Considering a Lump Sum Settlement of an Insurance or ERISA Claim

A beloved client who suffered from a serious and debilitating illness finally seemed to get a break. After years of pursuing his claim, including time spent in active and aggressive opposition in a federal court, the defense offered to settle. The insurer agreed to pay the client a lump sum settlement in order to resolve the matter in exchange for a release of further liability. The client was relieved. The battle was ending, and there was financial relief on the way.

As with most settlements, there is a delay between an agreement to resolve a dispute and funds being received. Typically, the lag is a month, perhaps a bit longer. During this time, the client seemed anxious, but patient. He inquired frequently about the status of his check, but he was always patient, courteous, and appreciative. Finally, the big day arrived. The check was in. He let us know he would leave his house and be coming to the office right away. Driving was extremely difficult for him, if not inadvisable, but he was undeterred.

We met in the office, went over the formalities, and he collected a sizable check representing the entire settled value of his claim. We asked if he needed any assistance getting back home, or whether he was sure he could drive himself. He said we had nothing to worry about. He would not be going too far.

The next morning, there were several messages in my voicemail box. They were from a family member of the client, each with increasing urgency and anxiousness. I had a slightly sinking feeling. Before I could call back, the family member called again. He was exasperated. He told me that the client had taken the funds to a newly opened casino in Canada and spent every last penny of his settlement gambling. He revealed the client did not have the $2 dollar toll for the bridge to return to the U.S.  Now, the client was calling family and friends to pick him up and bring him back over the border. We never knew the client had a gambling problem.

Three words come to mind: shocking, true, and preventable. While admittedly this is an extreme example, it is instructive for our clients and for us when dealing with large sums of money that come from large disability settlements.  Here are ten practical considerations when thinking about whether to take a lump sum:

1.  Consideration hiring a legal expert to understand the release agreement.

A lump sum payment in a long term disability case will involve settlement paperwork. Settlement documents fully resolving a disability claim are critically important documents and must be carefully reviewed to insure that their terms are not overly broad or release other types of benefits not covered by the release. Often times, the settlement documents are prepared as general releases, meaning they extend to claims beyond the specific insurance contract.  These documents must be revised in order to ensure that the release is properly limited.

2.  Consider the income tax consequences of a large settlement.

Sometimes, a lump sum long term disability settlement will have no adverse income tax consequences.   Other times, there are potentially significant income tax consequences.  In such cases, there are steps that may be taken to lessen the tax burden. Consult an experienced professional to see exactly which steps may be taken to minimize the income tax implications of a large settlement. There are strict rules that must be followed to insure that a claimant may be able pay income taxes over time, rather than at the time of the lump sum.  Even a large tax liability may be made more manageable with proper settlement drafting and financial planning.

3.  Consider the hardship in the claims administration process.

Long term disability insurance companies have contracts or benefit plan provisions requiring a claimant to submit “continuing proof of loss” or “proof of continuing disability.” These “proofs” are likely standardized forms requiring a claimant to set forth the activities of daily living and also forms for completion by attending physicians. One of the advantages of a lump sum settlement of a large long term disability claim is that this process will come to an end.

4.   Consider your own financial tendencies and habits.

Prior to being placed on long term disability, consider whether you were  a spender, a saver, or somewhere in between.  The challenge with a large settlement or a lump sum buyout is that there is a significant amount of money which is easily accessible. Disability claimants who receive buyouts typically do not purchase new cars or homes. Their behavior may change in more subtle, yet expensive ways. For example, if a refrigerator breaks, rather than paying for a service call, a claimant may opt to purchase a brand new appliance. Over time, these changes in behavior can eat away at the proceeds. The key inquiry is whether a claimant can responsibly handle large funds in a disciplined way.

5.   Consider what would happen if somehow you lost it all.

A long term disability claimant receiving a monthly disability income replacement check has likely figured out a way to live off of that sum. A claimant has been living on a fixed income. The monthly disability checks are used to pay housing expenses, clothing, groceries, prescription and physician copays, and the like. With a lump sum settlement, those costs do not cease.  Instead, they must be paid from some other source such as the settlement funds, an annuity, divided income, or even some form of new employment.  Consider how you would live if the proceeds of the lump sum were used up entirely.  How would you pay your bills? Some claimants may be able to answer that they would attempt to work in a very sedentary capacity. Others might not be able to answer the question at all.  It is well worth considering.

6.   Consider how you will handle the settlement funds when they are received.

Before ever receiving a settlement check, a long term disability claimant should know how the settlement funds will be handled.  Will the settlement funds be immediately placed into a structured settlement like an annuity, or will they be invested with an investment firm, or will they simply be placed into a savings account of some type? These considerations should be made well before any large settlement is ever reached.

7.   Consider your response to “loan” requests from family members and friends.

A long term disability insurance claimant should be aware that even though they are addressing their own serious health issues and financial challenges, upon learning of a large settlement, others may actually approach the claimant seeking personal loans. This, too, can eat away at a large settlement. A good way to avoid this situation is to tell others that the resolution of the matter cannot be disclosed owing to confidentiality.

8.   Consider how your life would be different if the disability claim were resolved.

Long term disability is one of the most stressful events in all of life. It is the intersection of health and finance, and neither are working out well. Adding to the stress is the regular interactions with claims adjusters, insurers, and examiners.  One of the great advantages of a settlement is that this process will be removed from your life and you may be better able to focus on the future.

9.   Consider your current state of health.

A long term disability claimant should give consideration as to the cause of the disability. If claimant’s state of health is precarious, and there is a possibility that full amount of benefits may not be collected, this should be given due consideration. Conversely, if the disability claimant’s condition is chronic, but unlikely to be life-threatening, the issue of how many years of disability remain is an important consideration. A lump sum settlement may not be in the claimant’s best interests.

10.  Consider how the funds will be invested.

A claimant should give proper consideration how the a large settlement will be invested and by whom. A claimant’s receipt of a substantial sum of money tends to be followed by offers from financial advisors. A large settlement must last for several years, if not decades. A large settlement can appear much smaller when the number of years it covers is actually considered. Proper financial planning is key to having a successful resolution of a long term disability claim on a lump sum basis.

In celebration of its sixteenth year of service to the public, J.J. Conway Law announced that the firm has received trademark approval for its motto, “Conquer Tomorrow.” The United States Patent and Trademark Office awarded the firm trademark protection for exclusive use of the words, “Conquer Tomorrow.” The firm’s motto will now bear the ® trademark symbol.

J.J. Conway, the firm’s owner, stated, “We are so grateful to the wonderful creative professionals and intellectual property counsel who helped us with this process. The words ‘Conquer Tomorrow’ represent the aspirational approach to law for which our firm stands. We want to be there with our clients every step of the way as we solve their legal concerns, moving together from place of challenge to a future of hope.” Conway added, “The creative team was so helpful and our legal counsel so dedicated, we cannot thank them enough for what they have done for our practice.”

J.J. Conway Law is an employee benefits law firm representing clients in the matters involving ERISA, pension, long-term disability insurance, healthcare, life insurance, as well as other benefits matters. Based on Royal Oak, Michigan, the firm represents clients throughout the United States in ERISA and employee benefits matters.

Years ago when our firm was in need of the services in a business transaction, we met in an office with a professional, and he outlined everything that needed to be done. He was thorough, and the process seemed like it would take a considerable amount of time.  At the end, I asked him what the entire project would likely cost.  Since he was going to be compensated on an hourly basis and was not sure of the actual amount of time required, he replied, ‘They are professional services.  No one wants to pay for them.  But, we will be fair.’

Implicit in his words was the acknowledgment that for most people, professional services are an unbudgeted expense.  Naturally, that worries people.  This is especially true for persons who are experiencing a legal problem with their disability insurer.  At the same time they are addressing a health issue, they are now required to seek out legal services.

After two decades of law practice, we have come to understand the costs inherent in pursuing an ERISA disability case.  Although, litigation can always lead to unexpected detours, the costs of an ERISA disability case can often times be estimated. Typically, a rough estimate of legal services from the filing of the claim to the completion of a case can be provided to a client.

From there, three different financing options are available to clients.  First, legal fees may be paid hourly and invoiced on a regular basis explaining the work that has occurred to advance the case.  Second, legal fees can be “contingent.” This means that rather than paying an hourly fee, a percentage of the benefit may be paid to compensate for the legal work performed.  A contingent-fee has the advantage of protecting a claimant against further losses, since a fee is only charged if the case is won or settled.  Third, a fee may be financed over time with various options available to the client.  Each case is different.  Each need is different.  Customized fee arrangements are available to address the individual needs of each client.

We have all been there at some point in our lives.

A promise is made. A promise is broken. We feel cheated, and maybe even a little hurt. When you feel that you operate from a place of honesty, and others do not, the entire experience can be disillusioning.

In their simplest form, disability insurance contracts are promises.

In several years of assisting clients with their disability insurance claims, I have made a few observations that I would like to share.

Our clients are responsible. Our clients work hard. They made choices about their financial future they believed were correct. They played by the rules.

It is not you. It is the insurers. Insurers change the rules. It has almost become part of their normal operating procedures. Often times, that is why an insurance company’s sales department is separated from its claims department. Promises made by one part of the organization may be more easily broken by another part of the company. Here, the law serves a purpose. The law is here to hold insurers accountable. Nothing more. Nothing less, either.

Disability insurance cases involve two of the most emotional issues that many of us will ever face. Disability insurance cases involve the intersection of health and finances. Our firm understands this, and we approach these cases with this firmly in mind.

Below are a list of our guiding principles:

Total Investment. Our approach is spend considerable time at the outset, getting to know our clients and the individual facts of their case. While we are selective in the number and types of cases that we litigate at any one time, this is because once we sign on, we are fully invested.

Winning Your Case. We strive win cases. We cannot guarantee legal outcomes, of course, because a host of different factors may affect a case’s outcome. That fact does not change our focus. We want to win on the quality of our written and public presentations. We routinely face huge law firms with plenty of resources and armies of lawyers. We want our presentations to win because we are on the right side of the issues and the law. We are committed to submit quality presentations on behalf of our clients. Every time. No exceptions.

Individualized Service. We strive to provide the individual level of client service that our clients have come to expect of us through the years. We are in constant communication with our clients.   We return all phone calls and email messages within one day. We are proud of our courtroom record, and we regularly review the hundreds of letters that we’ve received from satisfied clients to keep us focused on our commitment. Most of these inspiring letters say the same thing — what was promised in the beginning is what was delivered at the end. You should know, as our clients have attested, that once we sign on, there is no hand-wringing.

We are with you.

That is our commitment to you.

We look forward to serving you.

Copyright 2015 by J.J. Conway. All rights reserved.

 

Disability insurance claimants are attracting online ‘friends’ they could do without. There has been an increase in the number of cases involving the premature termination or denial of long-term disability insurance benefits owing to a claimant’s imprudent use of social media. Now, the administrative service contracts of many disability insurance plans include, as a performance of these services, the actual monitoring of the Facebook, Twitter, and other online accounts of disabled claimants. In other words, plans are now paying investigators to watch everything a claimant posts online.

 

Cases involving ERISA disability insurance claims reflect this reality. For example, in Wicks v. Sun Life Assurance Co. of Canada, U.S.D.C. Case No. 2011-cv-01086 (W.D. Mich. 2013), the insurer hired a paid private investigator to closely monitor postings on the plaintiff’s Facebook page. The private investigator, while monitoring the plaintiff’s online Facebook postings, apparently captured images where she had boasted about building a loft in her child’s college dormitory and taking extended vacations. Because the plaintiff’s disability claim was based largely on subjective complaints of her physical limitations, the complaints were deemed inconsistent with her Facebook postings. The Court upheld the denial of the disability claim.

 

This is a tough situation. Losing the ability to work is, itself, a hardship, particularly in our society where so much of our identity is derived from our employment. For a person receiving disability insurance payments to replace lost income, the question ‘what do you do for a living?’ may cause feelings of pain, embarrassment, and even anxiety. Disability claimants do not want to be ‘disabled.’ Most work well beyond a time when they should, out of the social stigma attached to no longer working. The idea that a mother of a college age child, who is occupationally disabled, would boast on Facebook that she somehow contributed to building a loft for her child makes a certain sense when you understand the world of disability. For her network of social contacts, she may have been simply announcing, ‘I still count,’ or ‘I matter.’

 

Still, the post cost her dearly. The plaintiff in Wicks lost her benefits, and from the facts, it appears she had several years until retirement. Despite the fact there might be different motivations as to why a claimant posts certain comments online, the minimal or discontinued use of social media during a claim of disability is highly recommended.