Are Disability Insurance Policies a Scam?

Your average everyday financial guru doesn’t tend to agree with insurance agents all that often, but one area in which they both tend to be pretty in-sync is the subject of disability insurance.

I’ve always found this sort of amusing. Disability insurance is arguably the most important financial product one can own prior to retirement and yet it’s probably the most under-purchased financial product in existence.

Perhaps this has to do with its steep price tag. High quality disability insurance is expensive, and who wants to buy a pricey insurance product that covers a life event we’d all much rather not have to experience? Sound logic be damned, because I’ve heard this one too many times in the past.

Maybe it’s the brutal medical underwriting process that precludes the purchase from an otherwise hungry crowd of potential purchasers? I used to jokingly say, “oh you’ve had hangnails before? Declined.”

Or maybe it’s really because…it’s all a scam.

Insurance Companies Steal your Money!  More at 11

This seems like a good time to bring up a reality of disability insurance that was its introduction to me. One of the quirks to disability insurance is that it does experience a slightly increased degree of litigation. The reason for this stems from the fact that what defines a claim is a little more complicated than other insurance products.

Take life insurance for example. You are either alive or you are dead—unless you happen to be a feline inside a box owned by a physicist at which point in time it’s impossible for you to read the Insurance Pro Blog or apply for insurance of any sort. Life insurance claims are therefore generally pretty straightforward.

Disability claims on the other hand are a tad trickier, and it’s for this reason that certain technicalities can be problematic for both the insured and the insurer. And it’s due to this trickiness that a certain breed of attorney finds opportunity.

Disability Attorneys: the Good, the Bad, and the Ugly

Let’s start by my stating that I’m not about to do what I’m going to do with the rest of this article because I feel some need to knock the legal profession down a rung or two. In fact, I’m quite content with 95% of the attorneys out there. And I fully admit that they are often very necessary when it comes to bring equity suits against an insurer when the insurer loses its mind and starts to behave badly—it happens I’m under no delusions.

But I do take issue with the allusion that because an isolated event takes place, we now must assume that it’s a standard operating procedure within the industry. There are a handful of personal injury attorneys out there who wish to paint the picture that all insurers who issue disability insurance are in the business of pushing you, the little guy, around. Here’s an example:

httpv://youtu.be/7yi1Moi51Vc

Hmmmm…really?

So the video starts with Guardian’s impressive financial stats. They very quickly note that Berkshire Life “merged” with Guardian in the beginning of the last decade, but failed to mention that this “merger” really means an acquisition took place, and that Berkshire still exists as a fully functioning insurance company domiciled in the Pittsfield, MA and is permitted to conduct business in all 50 states of the United States. It’s also worth noting that Guardian’s success is not necessarily Berkshire’s success. While Berkshire is the second largest provider of individual disability insurance in the country and does happen to be a very financially stable company, it is no where near as large—and dare we say…powerful?—as Guardian. Seemingly minor oversight, but worth noting.

The attorneys do not site the cases they reference in the video, which would have been nice, so I had to take the initiative and go in search of it. I admittedly wasn’t all that thrilled with the thought of the task. As I’ve mentioned already, the likelihood of litigation over a disability insurance policy is high as it is, and since we’re talking a dentists (one of the top 3 occupation classes written by Guardian/Berkshire) I could only imagine how many lawsuits probably existed.

So, how many lawsuits does one have to sift through if they google “Guardian Berkshire Life Dentist lawsuit New York,” a few hundred? Nope, just one. In no time I found the case they were referencing. And a quick review of the facts as detailed in the court documents ensured we were talking about the same case. They were referencing Shapiro V. Berkshire Life.

Now, we don’t know what sort of reduction in benefits Berkshire was talking when it comes to the residual benefit; I’m guessing a good bit since the lawsuit was filed. By the documents there seemed to be some confusion on Berkshire’s behalf regarding how this individual was earning his income post disability and, not surprisingly, the suit was granted summary judgment. Also noteworthy though is that the plaintiff took an additional swing at Berkshire, with an additional lawsuit claiming Berkshire acted deceptively in the sale of its product, a suit for which summary judgment was also granted, but this time for Berkshire Life which dropped the second lawsuit filed by the plaintiff. So while there’s no argument that Berkshire made a mistake by trying to pay only the residual benefit, it wasn’t trying to intentionally mislead and simply collect premiums.

The second case was just as easy to find as the first, Adelberg v Berkshire Life. This case is a wonderful example of a contract of adhesion. The term is a legal paradigm that states ambiguities within a contract that has one party dictating terms with the counter party either accepting or rejecting (i.e. having no authority to amend terms of the contract) are ruled in favor of the non-dictating party. Almost all individual life and health contracts written in the United States are contracts of adhesion.

But it doesn’t End there

If you wander on over to one of the web sites owned and managed by law firm that put together the above video (along with several other videos for every U.S. insurer known to man) you’ll find profile pages for all U.S. insurers. Each profile is pretty much the same, and all note that the insurer in questions has settled several lawsuits for denied disability claims. They even provide a handy link for you to review all of these settled lawsuits. Only problem is, all of those links simply refresh the page your on. I tried all of them; none of them brought me to any information about claims denial lawsuits. Perhaps those pages are still under construction.

What about the Cases?

If you search either case, you’ll find other personal injury attorneys who have used both cases to paint the picture regarding evil insurance companies that take your premium and deny your claims. It’s also worth noting that both cases are well over a decade old. There has to be a juicy booboo somewhere out there made by one of the disability insurance carriers that took place after the death of 3.5 floppies.

So what’s important to understand here is that yes there will be ambiguities when it comes to disability insurance, and yes insurers will review and questions their obligation to the policyholder. They have to. There is a fiduciary responsibility to share holders (or policy holders if the companies is a mutual) to act in their best interest. And carelessly paying out claims without questions is a huge potential violation of the responsibility.

This doesn’t nullify the importance of disability insurance, and it certainly doesn’t mean that most of the insurers out there are nefariously plotting against the little guy/gal to suck whatever they can out of him/her. Mistakes happen, and an attorney may be necessary when those mistakes take place, but experience shows me that simply reaching out to the company’s more senior management tends to resolve problems much more efficiently. Disability insurance is not a scam, nor is it riddled with annoying claims denials.