What to Do If You’re Injured and Your Claim for Disability Insurance is Denied

Disability insurance is a type of insurance that ensures earned income for an individual against the risk that the individual is injured or disabled in a way that prevents them from performing a core aspect of their job. Disability insurance ensures that the individual and her family is guaranteed an earned income in the event the individual is unable to work or must work in a reduced capacity (thus reducing earning potential).

However, insurance companies are for-profit entities, and the only way they make money is by charging people for insurance and hoping they never have to pay claims out. Disability insurance is particularly expensive because it can result in financial obligations for decades. Therefore, insurance companies are incentivized to investigate and deny insurance coverage for their policyholders.

This post will go over the basics of disability insurance and how it is different from other forms of accident-related insurance. It will also review how disability insurance works for professionals and executives and why it is a good idea –even if you aren’t in a job that has a high likelihood of life-altering injuries. It will then discuss the California laws governing the providing and granting of insurance, specifically, bad faith denial of coverage. It will also review the mechanics of bringing a bad faith insurance claim. Finally, it will conclude with an estimation of the damages you could receive if you are successful in your claim and other benefits.

What is Disability Insurance?

Disability insurance (sometimes called income protection or disability income insurance) is a form of insurance that provides guaranteed earned income in the event an individual is injured in a way that creates a barrier to doing their job. The injury can be physical, psychological, or illness. For example, if a private investigator for art fraud experiences extreme mental trauma in performing her job and suffers from PTSD thereafter, impacting her ability to perform her work functions, she could qualify for disability income if her earnings are reduced because her position is terminated or she is forced to accept a lower-paying job.

In the United States, there are two basic types of disability insurance: government and private. In California, there are federal programs, Social Security (disability insurance and supplemental income), the California State Disability Insurance program, and private insurers. These programs are administered by the government and funded by tax collection. Private insurers are administered by private companies and are supported by payments. Payments can be made monthly, quarterly, semiannually, or annually.

Why Do You Need Disability Insurance?

Ultimately, the most valuable asset you own isn’t your house, car, or jewelry, it is your ability to work and earn a living. Unless you come from an extremely wealthy family, you are likely obligated to work to earn income and support your family. Disability insurance replaces a part of your income in the event you are injured and unable to work or are required to work in a reduced capacity. Disability insurance can be long-term or short-term. Some programs offer coverage for less than a year and others provide insurance for the remainder of your life or the term of your policy.

For example, if you driving to a site visit and are involved in a car accident on the way (so, you are driving for work) which severely injures you leaving you unable to work for 90 days. Your job isn’t permitted to fire you because you can return to work but they aren’t obligated to pay you while you are out on medical leave. So, what do you do during those three months? If you are covered by a disability insurance policy, it can provide you with replacement income until you are fit to return to work. In fact, in accordance to the Social Security Administration, 25 percent of now-20-year-olds will experience an injury which leaves them unable to work for 90 days or more before they reach age 67. A substantial amount of disability claims are paid out due to back injuries, heart attacks, diabetes, cancer, and other similar issues.

What Types of Private Insurance Can You Get?

Private insurance is divided into two types:

  1. Short term: short-term policies usually replace between 60 to 70 percent of your income and pay out for a few months or up to a year. Short-term policies also have shorter waiting periods before disbursing funds, usually two weeks.

  2. Long-term: replace between 40 to 60 percent of salary and those benefits end only when the disability ends, after a term of years, or when the individual reaches retirement age (i.e., the age they would stop “earning” an income). The typical waiting period is 90 days before disbursing funds.

Disability insurance also offers other benefits such as job retraining. Furthermore, supplemental disability insurance is often a good idea for professionals and executives because the group policy you get through your job is usually capped at 60 percent or less of your income. So, group policies aren’t ideal for high-earning individuals. Furthermore, disability insurance is income replacement which means it is subject to taxes so the amount you get to take home is closer to 40 percent. Moreover, group disability insurance doesn’t transfer when you change jobs (although, coverage may continue if you pay out the term). Therefore, supplemental insurance income provides benefits that can increase your income replacement up to 80 percent, which is much more manageable when combined with an emergency fund and pairing back expenses and can be taken with you when you change jobs.

How is Disability Insurance Different from Other Types of Accident-Related Insurance?

The marquee difference between disability insurance and other forms of insurance is that it is designed to replace your earned income. For example, accident insurance pays a lump sum and is intended to help offset the cost of dealing with the accident –similar to car insurance. Also consider long-term care insurance, which is designed to provide care for you or a family member in the event you suffer a life-altering injury or illness that requires round-the-clock care. Long-term care insurance isn’t about giving you an alternative source of income but about ensuring that you have adequate care through your injury. In short, the key difference between disability insurance other forms of insurance is that replaces your earned income, including all the benefits and detriments of earned income (like paying taxes).

Disability Insurers Owe a Duty of Good Faith and Fair Dealing

In California, insurer so we their policyholders a “good faith” obligation to deal fairly. Every insurance policy requires insurers to act fairly and in good within executing its policies which requires the insurance company to give as much deference to the interests of the policyholder as it does to its interests. This obligation generally requires the insurer to do the following things:

  1. Investigate a claim;

  2. Render a good faith judgment on whether the injury is a covered disability; and

  3. Pay claims that are valid in a timely manner.

How Does an Insurer Breach the Duty of Good Faith and Fair Dealing?

An insurer can breach the obligation to act in good faith and fairly by doing any of the following actions:

  1. Failure to promptly investigate the claim;

  2. Unreasonable denial of a claim;

  3. Misrepresent facts or terms of a policy to the holder;

  4. Lack of reasonable standards to investigate claims;

  5. Unreasonable delay in paying the claim; and

  6. Failure to adequately explain grounds for denial of a claim.

Insurance companies are obligated to act in good faith when interpreting their policies. When it comes to disability insurance, the key issue to decide is whether the injury or illness you suffered is one of the covered injuries and therefore necessitates supplemental income. It is unlawful for an insurer to either delay investigation of your claim, to low ball your refer, or to place their interests above yours in disbursing the claim. These rules include forcing you to hire a lawyer to deal with your claim –it is supposed to be an easy and painless process that is easily understood by all parties involved. In short, your insurance company must be fair to you.

Furthermore, insurance companies may not unreasonably deny your claim. Unfortunately, if an insurance company denies your supplemental insurance claim, you must file a lawsuit to recover your policy benefits (you might also get your attorney’s fees and legal costs). The reason they may have to repay your attorney’s fees is that, if they deny your claim in bad faith, then you cannot be made whole if you have to pay attorney’s fees out of your policy benefits. Moreover, your insurer could use the potential cost of attorney’s fees to induce you to accept a lower policy benefit to avoid the cost of an attorney. However, you are unlikely to recover attorney’s fees if the insurer denied or reduced your claim in good faith (for example, if there was an issue or error on your initial policy or claims forms).

Another common issue that comes up is the misrepresentation of your policy terms or the facts giving rise to your disability to deny your claim. However, don’t think that your agent or claims adjuster is there to lie to you and misrepresent facts. Agents and adjusters are there because they are good at their job. But, keep in mind the motivations behind the insurance company –it is a private company and is driven by profit. Agents and adjusters answer to managers and executives who are paid bonuses if profits are up (i.e. if policies are signed and benefits are not paid out). Some companies keep their agents in the dark regarding the specifics of the policies they are selling to ensure that they are eager about selling policies but unable to give details because, the insurance company is bound by whatever the agent tells you is being offered when you buy insurance. Agents are vague to avoid binding the insurance company in policy and jeopardizing their future relations with the company.

Finally, a common breach of the duty of good faith and fair dealing occurs when your insurance company tries to rescind your policy after you have submitted a claim on the grounds that you misrepresented your application –yes,your application from back when you first obtained the policy. If the insurance company does this, they likely violated the law and could be subject to damages. For example, a common question is, have you been to the doctor or treated for a serious illness? You probably interpret this to mean a serious surgery or other major procedure, not that time you went to the doctor for sleep medication because you had a transpacific flight. However, if the insurance company learns that you went to the doctor and didn’t report it, they could use that as grounds for denying the claim.

How are Ambiguities Interpreted?

Ambiguities are interpreted in your favor and against the insurer. For example, most policies differentiate between two types of injuries:

  • Partial disability; and

  • Total disability.

Partial disability is an injury that prevents you from performing some of your essential duties. Total disability is an injury that prevents you from performing all of your important duties. It isn’t up for debate what is an injury and whether it impacts your ability to work –however –what could be skewed against your interest is whether an injury is “total” or “partial” disabling. Your insurance company is incentivized to skew your injury to partial disabling because then it can pay out a lower amount of your earned income, since you can still earn some money from your job.

This terminology is one example of the incomprehensible language that insurance companies use to make their policies inscrutable to average people. Do you think they can’t find people who don’t speak or write in plain English? Of course not, they use this language to obstruct the terms of the policy and make it harder for their policyholders to file claims. However, you can turn the tables against insurance companies by identifying ambiguous language because then the interpretation must be decided in your favor.

What Do I Do If Coverage Is Too Low?

Consider this scenario, you’re injured but the supplemental income offered is too low to offset your costs –what happens? Frequently this occurs because the agent recommended that you insure for less than your full income (to lower the monthly cost and sell you the policy). In this case, the insurance company is still required to disburse benefits but probably not for your entire loss –only some of it.

How are Exclusions Handled?

Disability insurance policies are all written in the same way. First, a brief paragraph or two is provided describing what is covered then numerous pages are written listing the various exclusions, limitations, and exceptions. Therefore, when a claim is denied, your insurance company will scour your policy for one of the exceptions or exclusions. Keep in mind, if you get one of these letters, that the burden is on your insurance company to identify the proper exclusion -not on you. Many insurance companies deny claims by listing general exceptions or exclusions which, if challenged, would result in the company overturning their original conclusion. You aren’t beholden to the insurance company’s conclusions, you can and should challenge them to identify the policy term and law which supports the denial or reduction of your claim.

What Damages Can You Recover?

Damages refer to the money you receive as compensation for the bad act committed against you. As regarding disability insurance, you can recover policy benefits, costs of securing your benefits (if it was in bad faith), and potentially damages for the emotional distress caused by having your benefits held in abeyance and punitive or treble damages if the denial was particularly egregious.

Punitive damages are monetary awards that are designed to punish the offender to discourage future bad behavior. Punitive damages are usually calculated as a multiple of the base damages. Treble damages refer to statutory damages which is usually times three base damages. The threshold for collecting treble damages is lower than punitive damages.

Damages for emotional distress are harder to calculate, but if you can prove that the insurance company intentionally denied your claim and it resulted in emotional distress or mental anguish, you can recover money damages. The amount is awarded by the jury and is based upon your testimony.

Help Finding an Insurance Appeal Denial Lawyer Near Me

If you need help finding a professional to assist you with appealing an insurance coverage denial, contact Stop Insurance Denial Law Firm at 310-878-1771 for assistance.Stop Insurance Denial Law Firm is a plaintiff’s firm that represents residents throughout Los Angeles County and Southern California. If you or a loved one needs representation, call Stop Insurance Denial Law Firm now.