Long Term Disability (LTD) are by far the most common type of “welfare benefit” claims we see in ERISA practice and litigation. The explanation for that is simple. They present the highest dollar exposure for the LTD insurers and are thus subject to intense scrutiny and are often contested. Although the protections of ERISA for the average plan participant are often few and far between, in the area of LTD benefits, some courts have been somewhat vigilant in protecting claimants.
The amount of a person’s LTD benefit is a stated percentage of pre-disability earnings, which sometimes includes commissions and bonuses but not always. From this gross benefit amount is subtracted certain “other income” offsets, such as state unemployment, workers compensation, or social security benefits to yield the net monthly benefit. The maximum payout period for LTD benefits is usually to age 65 or the age of retirement, which differs depending on your year of birth. However, most policies have certain stated “limitations”, such as “mental/nervous” disorders, which are typically limited to a payout period of two years.
LTD coverage kicks in after a waiting period, also known as an “elimination period” (e.g. six months), after which benefits are paid if the claimant is “totally disabled”, as defined by the plan. Most plans have a two-tiered definition of “disability”. For example, during the first two years of coverage, a claimant may be considered disabled if he is unable to perform the duties of his “Own Occupation” (“Own Occ.”). After that initial period, the definition of disability may change and the claimant will be considered disabled only if he is unable to perform the duties of “Any Occupation” (“Any Occ.”). Under that standard, a claimant is said to be disabled if he cannot perform the material duties of any occupation, consistent with his education, training and / or experience. But what exactly does that mean? The answer is often unclear and as a result this issue gives rise to most LTD disputes. It is not uncommon for LTD plans to cut off benefits as soon as the claimant falls under this second-tier “Any Occ.” definition. The insurer or claims administrator may contend that there must be some job out there somewhere that the claimant can do. Examples of these hypothetical jobs are often set forth in “Transferable Skills Analysis” (TSA) reports.
Even claimants who do make the “Any Occ.” cut may still have their benefits abruptly terminated at some point in the future, often without warning. The reason is obvious. It’s one thing to pay out benefits for two or three years. It’s quite another to be “stuck with” a claimant for perhaps 20 or 30 years. The dollar liability exposure increases exponentially, once a claimant passes into the “Any Occ.” phase. But an age old question arises as to how disabled you have to be in order to be considered “disabled” under an LTD policy’s definition of “any occupation” disability? The question pre-dates ERISA by many years and has been the subject of many LTD disputes. (See: Just How Disabled is “Disabled”, When it Comes to “Any Occupation” Disability?).
To the uninitiated, the term “Any Occ.” can be misleading. The first thing you must understand is that “any occupation” doesn't really mean any occupation. If it did, then as long as a disabled nuclear physicist could sell pencils on the street, he would not be entitled to LTD benefits. State courts have very clearly rejected excessively stringent interpretations of “total disability” definitions in private LTD insurance policies, and at least to some extent federal courts have followed suit in interpreting ERISA plans.
For example, long before ERISA was ever enacted, it was well settled as a matter of California state common law that “Any Occ.” clauses in LTD plans are not to be interpreted literally. Instead, such definitions are given a “common-sense” interpretation, which takes into account various factors. In essence, cases held that “total disability” results whenever a claimant is prevented from working with reasonable continuity in his customary occupation or in any other occupation in which he might reasonably be expected to engage in view of his station in life and his physical and mental capacity. Courts have also held that LTD plans must consider all of the relevant circumstances, including the claimant's age, educational background, training, and availability of suitable employment in the claimant's geographical area. A total state of helplessness is not required in order to meet the definition. Instead, a claimant is considered “totally disabled” if he cannot perform the substantial and material acts necessary to the prosecution of a business or occupation in the usual or customary way.
One court has held that before denying benefits, LTD plans must consider alternative arrangements, such as rehabilitative employment and the possibility of return to work on a trial basis, and that failure to do so is in and of itself an abuse of discretion. Another court has held that in order for an LTD plan to find a claimant not disabled, under an “Any Occ.” definition, there must be evidence as to the actual existence of jobs for those of the claimant's qualifications or potential qualifications, in light of his or her impairment. But unfortunately, other court decisions have been less favorable.
If your claim for LTD benefits has been denied, DO NOT JUST GIVE UP. Speak to an attorney, experienced in this area of law, immediately.
LONG TERM DISABILITY CLAIM DENIALS
ERISA-Governed LTD Claims
By: Michael A. McKuin
Revised: August 2019
ERISA Disability Lawyer