Long Term Disability Denials: Two Potential Standards of Review
As a long term disability attorney, one of the first things we discuss with clients is the standard of review that will apply to their case. When you file a case in court to recover long term disability (LTD) benefits, there are two standards under which a judge will review your case.
The first standard is known as “de novo” review. De Novo means anew. This is the standard you want because it allows the judge to examine all the evidence presented to the insurance company and to decide whether you are disabled or not. This is probably what you expect would happen in any lawsuit, including the one you would file to recover long term disability benefits.
Unfortunately, the de novo standard is the exception - it is not the rule. Most cases involving long term disability benefits are not reviewed under the de novo standard. Instead, they are reviewed under the second standard, which is known as "abuse of discretion". The abuse of discretion standard arises when the insurance company puts in its LTD policy what is known as a "discretionary clause." In layman's terms, this clause says "we have the discretion to determine your benefits."
The practical effect of the discretionary clause and the abuse of discretion standard of review is that the judge will only consider whether the insurance company's decision-making process was reasonable. So, the judge may agree with you that you are disabled. The judge may even agree that you qualify for benefits. However, under the abuse of discretion standard, the judge is not allowed to reverse the decision to deny benefits so long as the insurance company's process for making that decision was reasonable.
That's right. The way the abuse of discretion standard works is that the insurance company's decision is upheld (even if it was flat-out wrong!), so long as the process can be defended as reasonable. The judge will only overturn the denial if the insurance company was both wrong and unreasonable.
Abuse of Discretion Favors Insurance Companies
The abuse of discretion standard strongly favors the insurance company and makes many long term disability denials very difficult to overturn.
You many be wondering how such an unfair rule became the law of the land. The rule arose in a United States Supreme Court case that was interpreting an employer-sponsored group insurance policy. As we have noted, most of these group LTD plans are governed by a federal law known as ERISA (The Employee Retirement Income Security Act of 1974).
ERISA was created to make it easier and more affordable for employers to offer group benefit plans to employees. To accomplish this, Congress gave the insurance companies who wrote such plans the power to approve or deny benefit claims. The thought was that these decisions are best kept out of the courts and left to those who know the claims best, the claims adjusters. Of course, the insurance companies have a financial interest in minimizing claims and benefit payments, and this fact likely played a role in the creation of this law.
Since the Supreme Court has upheld the discretionary clauses and abuse of discretion standard they create, nearly every ERISA policy in the country uses some kind of discretionary language. While this standard was intended to expedite claim decisions and keep them out of the court system, it has had the perverted effect of allowing the insurance companies that underwrite these policies to make wrongful denials of coverage. This has had the opposite effect of forcing more and more claimants into the court system.
Unfortunately, due to the difficulty in overcoming the abuse of discretion standard of review, many claimants with valid claims are unable to reverse the denials and are left without benefits when they need them most.
Check Your Long Term Disability Policy
Does your long term disability policy contain a discretionary clause that gives the insurance company broad discretion to deny claims? If so, tell your employer that it should change its policy. If you are not sure, send your policy to our Kansas City long term disability attorney. Our attorney and legal team would be happy to review your LTD policy to confirm if this language exists and the standard that will apply to your benefit claim.
If you have received a denial of long term disability benefits, contact us at 816-203-0143 and we will review your denial letter for free. There is no obligation to hire our firm, but we will provide you with guidance on next steps to consider if you are thinking about appealing the denial. If you have been denied benefits, we strongly recommend you hire an attorney experienced in ERISA claims due to different nuances in this law, such as the abuse of discretion standard.
No matter what you do, act promptly. Long term disability claims are subject to very short deadlines. Call us today!