A disability insurance policy pays benefits when you are unable to work because of injury or illness. This allows you to meet your financial obligations, such as mortgage payments, or medical bills, while unable to work. Disability policies usually pay a fixed amount for a set period of time, such as five years or up to age 65. The amount paid is usually 40% to 60% of your income.
Disability policies have different definitions of disability. Some policies pay benefits if you are totally disabled from your usual occupation. Some policies do not pay benefits even if you are totally disabled from your usual occupation, if there are any other occupations for which you are qualified that you can still perform.
However, if the insurer contends that you are not totally disabled because there are other occupations you can still perform, even though you are not qualified for those occupations, then the insurer is not using the proper legal standard.
Additionally, total disability from your job does not mean that you cannot perform any part of your job duties, but that you can no longer perform the most “substantial and material” duties of your job because of your illness or injury. Again, if the insurer contends that you are not totally disabled because you can still perform some of the minor tasks in your occupation, the insurer may not be using the proper legal standard.
Disability policies usually require that the disability occur within a certain period of time after an accident. However, under California law, the disability relates back to the time of the accident as long as the accident caused the disability.
Within the first two years after a policy is issued, the insurer may refuse to pay your disability claim if it discovers that there are misrepresentations of important facts in the application. After two years, some policies state that the insurer may still refuse to pay if the policyholder intentionally concealed important facts; other policies provide that the insurer may no longer refuse to pay. In addition, although some policies provide for guaranteed renewal each year, other policies can be canceled by the insurer at the end of the policy year.
Insureds are especially vulnerable when disability insurers refuse to pay, because it becomes difficult, if not impossible, for a disabled person who cannot work and earn to meet monthly financial obligations. It is one of those situations when the policy holder is at the mercy of the insurance company.
There had been instances when the insurer denied benefits on technical but unreasonable grounds. The insurer submitted the policyholder's medical records for review by its own paid doctors, who then concluded that the insured is not disabled. In other instances, the insurer conducted surveillance operations of its own policyholder and argued that the disabled person can perform other jobs. In one case, a disabled chiropractor's monthly benefit of $8,100 was stopped based on the insurer's frivolous argument that she can perform bookkeeping work.
As a result of unfair denials, there have been several cases where juries awarded multi-million dollar verdicts against disability insurers that wrongfully refused to pay claims. Unfortunately, some claims never reach the courthouse because the policyholders were unable to obtain the right legal help. The reality is that these wrongful refusals exist in the world of insurance claims and policyholders should obtain experienced representation when they happen.