Beware of disability claims coded as sick vs. injured

Insurance company bait-and-switch trick cuts off LTD benefits at age 65

Many professionals and high earners purchased long-term disability insurance decades ago. They were relieved that the LTD policy kicked in later when they had to stop working because of a disabling condition.

Until they turn 65 and get blindsided with a termination of their “lifetime” benefits. This scenario is happening more frequently. It traces to a deliberate insurance company tactic at the time the claim is filed – coding the disability as illness rather injury. Read more about this disturbing trend – and what rights you may have.

Manipulating the fine print is a bad faith action

It is common for long-term disability policies to have stipulations for certain situations. For example, the policy may pay reduced benefits if a person becomes disabled after the age of 60. This is reasonable; the likelihood of disability increases with age.

But back in the 1990s and 2000s, many policies for long-term disability insurance were written with a very significant clause. The policies provide lifetime benefits if the person becomes disabled by injury, but terminates those benefits at age 65 (or some other age) if the person was disabled due to sickness. Frequently, such claims are purposely – and secretly – coded by the insurance company as illness or pre-existing condition. The claimants do not find out until years later when their “lifetime” benefits are abruptly cut off.

A real-life scenario

Pillsbury & Coleman LLP represents an oral surgeon who was battered by big waves aboard a boat in his 50’s. He had to stop practicing medicine because he developed a herniated disk from the accident. His insurance carrier paid benefits for eight years without informing him that his claim was coded as sickness rather than injury.

When they tried to terminate our client’s benefits at age 65, Terry Coleman and his team filed a lawsuit for insurance bad faith. The insurer argued that he had a degenerative disk disease, a pre-existing "illness." Yet even the examining doctor acknowledged it could be injury.

The insurance company has a major incentive; we estimate they would save $2.5 million in ongoing benefits. Multiply that by thousands of other policyholders with similar fine print in their LTD policies.

California law protects the elderly

Calfornia has strong protections for those who try to prey on senior citizens, including fraud and misrepresentation in contracts and insurance policies. Insurers have little defense in the face of these elder fraud statutes.

The challenge is keeping the case in California state court. Many disability policies are governed by the federal ERISA law, in which case the lawsuit may be removed to federal court, where plaintiffs have very limited rights to appeal or sue over claim denials or terminations.

Read your policy and know your rights

We are starting to see the bubble of claims – professionals who submitted disability claims five or 10 years ago and who are just now learning that the insurance carriers coded their injury claims under illness. Sadly, many claimants do not fight this. You have rights!

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