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Under Tennessee law, all life and disability insurance policies must include an “incontestability provision” stating that, after a period of no more than two years, the policy “shall be incontestable.”  In essence, an incontestability provision prohibits an insurance company from voiding the policy because of misrepresentation in the policy application (other than an intentional or fraudulent one). Although Tennessee law requires the incontestability period to begin no more than two years after the issuance of the policy, insurers may allow for shorter periods in their policies.

Why are incontestability provisions required under law? Tennessee courts have explained that the purpose of an incontestability provision is to provide a “statute of limitations in favor of the insured” by setting out a limited period for the insurer to examine the validity of the policy.  An incontestability provision gives an insurer an incentive to scrutinize an application carefully on the front end, before it begins accepting premiums.  Without incontestability provisions, an insurer could overlook questionable statements on an application for coverage knowing that, years later, if the insured makes a claim for benefits, it could rely on any misstatements to deny coverage.

Even with an incontestability provision, an insurer may be able to void a policy and deny coverage based on any intentional misstatement in an application for insurance. For insurers, however, it can be difficult to prove that the person who completed the application intentionally provided incorrect information, as is necessary to establish fraud.  Often, claimants and beneficiaries will be able to argue successfully that any misrepresentations made on an application for life insurance were oversights or misunderstandings.

An incontestability provision can make a critical difference in a claim for benefits. Say, for example, the owner of a life insurance policy incorrectly states in the application that the person whose life is insured by the policy has not been diagnosed with hypertension. Until the incontestability provision is triggered, the insurance company may be able to withhold death benefits on the basis that the owner’s misrepresentation voids the policy.  Once the incontestability provision is in effect, however, the insurance company cannot use the owner’s misrepresentation as a reason to deny benefits, unless they can show that the misrepresentation is covered under an exception to the incontestability provision for fraud.

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In a trial contesting an insurer’s denial of total disability benefits, jurors, in some cases, might think that an award of total disability benefits would be an unfair windfall for the plaintiff.

To address a hidden bias like this, plaintiff’s attorneys may try to admit into evidence the amount of insurance premiums the plaintiff paid over the life of the policy.   In many cases, the amount the plaintiff has paid in disability insurance policy premiums over a number of years is quite significant.  Our firm has had focus group participants provide us with feedback that convinces us that many jurors are less likely to think that awarding total disability benefits to the plaintiff is undeserved if they understand how much the plaintiff paid for this type of coverage.

Can plaintiffs maintain that the amount of premiums they paid constitutes relevant evidence, if this fact is not in dispute? To put it another way, why should this evidence be admitted if the jury does not need to hear it to determine liability?

Whether courts will admit evidence of premiums paid depends on the court. We are not aware of precedent on this issue which is binding in a district court in Tennessee.  What we have are unpublished (which are non-binding) cases from federal district courts outside of the Sixth Circuit (the circuit in which Tennessee is located) that go both ways.

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In a dispute over long-term disability benefits, it’s important to determine if the disability policy falls within the scope of the Employee Retirement Income Security Act of 1974 (ERISA).

ERISA is a federal statute that applies to claims for employee benefits, including disability benefits.  All else being equal, a claimant will have an easier time overturning a denial of disability benefits if the employee’s disability plan is not governed by ERISA. That is because claimants making claims under policies governed by ERISA face significant hurdles not faced by claimants who have non-ERISA policies.

The most consequential difference between ERISA and non-ERISA disability cases is that federal courts decide ERISA cases under the “arbitrary and capricious” standard of review.  What that means is that courts will not overturn a denial of disability benefits unless they find that the denial was without a factual basis.  This is a highly deferential standard of review and requires a court to uphold a plan administrator’s denial of benefits if it is supported by only modest evidence in the record.

As well, ERISA claimants cannot recover extra-contractual damages that otherwise may be available under state law.  In addition, ERISA claimants typically cannot avail themselves of discovery to learn more about their denial of benefits.  Rather, they can only rely on what is in the administrative record, or the claim file, in arguing that they are entitled to long-term disability benefits.

Because it is so important to know if a disability case will be subject to ERISA, one would think that it would be relatively easy to figure out if the policy at issue is subject to ERISA.  Unfortunately, that’s not always the case.  For example, in Alexander v. Provident Life & Acc. Ins. Co (E.D. Tenn. 2009), the plaintiff’s policy bore the hallmarks of both an ERISA and a non-ERISA policy. In that case, the plaintiff, a doctor, had an individual disability policy through his employer, a medical practice. After he left the medical practice that employed him, he continued the policy and paid all the premiums.

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Under Tennessee law, a party can establish that a beneficiary of a will procured the making of the will by undue influence. If undue influence is proven, the will is invalidated and the beneficiary of the invalidated will receives nothing by virtue of the will. What holds true for beneficiaries of wills procured through undue influence also holds true for beneficiaries of life insurance policies whose beneficiary status was the result of undue influence.  A party can challenge a beneficiary’s right to recover under a life insurance policy by showing that the person who owned the policy (“Decedent”) changed the policy’s beneficiary designation because of undue influence.

Tennessee courts recognize that it is difficult for a party to establish undue influence through direct evidence.  As a result, in a life insurance policy case, a party seeking to set aside a beneficiary designation can do so by showing “suspicious circumstances.”  These suspicious circumstances usually involve the following: (1) a confidential relationship; (2) the Decedent’s physical or mental infirmity; and (3) the beneficiary’s active involvement in causing the designation of a beneficiary or beneficiaries under the life insurance policy.

Of the three circumstances above, establishing the existence of a confidential relationship is arguably the most important part of an undue influence case.  So what exactly is a confidential relationship? To start, any fiduciary relationship (attorney-client, guardian-ward, conservator and incompetent) is a confidential relationship.

Familial relationships may also be confidential relationships if one party had a relationship of dominion and control with respect to a weaker party.  An example of this might be a nephew taking care of an ailing uncle, who depends on the nephew for basic life care like meals and transportation to medical care providers.  If the uncle removed his children as the beneficiaries of his life insurance policy in place of the nephew, a court will likely presume that the change in beneficiary designation came about due to undue influence.

That presumption of undue influence can be a game-changer. In a life insurance policy case, a beneficiary seeking to rebut a presumption of undue influence must do so by “clear and convincing” evidence, which is the highest burden of proof in most kinds of civil litigation. Despite that high bar, parties can—and do—overcome the undue influence presumption by offering evidence showing that Decedents, despite their dependence on stronger parties, made independent decisions when changing beneficiaries of life insurance policies.

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Under many disability policies, claimants must show that they cannot perform the material and substantial, or the important duties of their occupations in order to qualify for long-term disability benefits.  Although these terms are essential to the determination of a disability claim, most insurers do not define the terms “material and substantial” or “important” in their policies.  Nor do they provide guidance in their policies about what guidelines or factors they will use to determine the material and substantial or important duties of an insured’s occupation.

Our firm confronted this first-hand in a case in which we represent a gynecologist in a lawsuit against Unum Life Insurance Company of America and Paul Revere Life Insurance Company (collectively, “Unum”) for long-term disability benefits.  Our client lacerated her tendon during a procedure and is now unable to perform major surgeries, including hysterectomies.  She does, however, maintain a clinical practice in which she is able to bill for routine, simple procedures like lab work and office visits.

Our client’s income disability policies with Unum do not define the terms “material and substantial” or “important,” and provide no guidance on the factors Unum may employ to interpret those terms.  So then what exactly are the “material and substantial” and “important” duties of our client’s occupation?  Commonsense would tell you that people who purchase income disability policies intend to insure against a risk of an injury that would lead to a loss of income or a loss of earning potential.  In our case, our client asserted that the material and substantial and important duties of her occupation were serving as a lead surgeon on major, invasive surgeries, because those procedures resulted in higher billings, clinical referrals, and post-surgical visits.  These procedures were also vital in safeguarding her patients’ health.

Unum, however, did not view it that way.  As a part of our lawsuit, we deposed Melissa Walsh, the corporate representative designated by Unum in response to our deposition subpoena. In her deposition, Ms. Walsh discussed a 13-page-document Unum prepared when it evaluated our client’s initial claim for disability benefits. (For your reference, we have attached a transcript of Ms. Walsh’s deposition transcript here.  We’ve also attached a copy of Unum’s 13-page document here, which was exhibit 4 to the Ms. Walsh’s deposition.)    The document contained all the procedures for which our client billed prior to her disability.  Referred to by Ms. Walsh throughout her deposition, Unum’s billing document listed our client’s pre-disability duties, how often they were performed, and their total charges. (see pages 71-73, 92-93 and Exhibit 4 to the deposition.)

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Many life insurance policies contain  exclusions that prevent the recovery of any benefits if the insured commits suicide.  (In many policies, the suicide exclusion is only effective for two years from the date of issuance of the policy.)  Under Tennessee law, if there is inadequate proof to determine if the death was by accident or suicide, or if the proof is conflicting or equally balanced, courts will presume the death was an accident.   This is an important rule because, in many cases, it is not clear how the insured died.

For example, in Smith v. Prudential Ins. Co. of Am., 2012 WL 405504 (M.D. Tenn. 2012), facts in the record indicated both that Gary Smith, the life insured (“Smith”), committed suicide, and that he died accidentally.  The Defendant (“Prudential”) argued that Smith staged his suicide to make it look like a hunting accident, and noted that the medical examiner ruled Smith’s death a suicide.  In further support of its theory that Smith took his own life, Prudential also pointed to the nature of the contact wound, the location and direction of the shot, and to the fact that Smith was an experienced hunter who Prudential asserted was too skilled to have shot himself accidentally.

Prudential also argued that Smith had a motive to take his own life because he was faced with sudden and overwhelming debts triggered by a disastrous business partnership.  The insurer also rested on the fact that he died just five weeks after doubling the limits on his life insurance policy.

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In an ERISA case, at the center of any dispute over a claimant’s eligibility for long-term disability benefits is the administrative record.

The administrative record is legalese for all the medical records, documents and other information obtained by, and submitted to, the plan administrator during the initial stages of the claim and through the appeal process.

One reason the administrative record is so important is that a claimant who challenges a denial of long-term disability benefits by filing a court action generally cannot present evidence to the court that is not in the record.  Another reason is that disability insurers and plan administrators can—and will—take information from the administrative record out of context to justify denying a claim for disability benefits.

Here is a real-life example: A claimant filled out an “Activities Questionnaire” for her plan administrator and answered questions about her abilities.  In the questionnaire, the claimant reported that she walked two miles a week on an underwater treadmill.  One key advantage of the underwater treadmill is that it can make it easier for a person experiencing joint pain to walk because the water diminishes the pounding on the person’s knees, hips and neck.  In addition, the person can hold onto the handlebars of the treadmill for support.  Given these features, it is much easier to walk on an underwater treadmill than on a sidewalk or around a high school track.

The plan administrator denied the claim.  In its letter explaining why it rejected the disability claim, the plan administrator specifically mentioned that the claimant was able to walk two miles a week, while neglecting to point out that she did so on an underwater treadmill.  This omission was obviously self-serving because it gave an exaggerated depiction of the claimant’s abilities and condition.

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If you have an ERISA long-term disability claim, you cannot file a lawsuit challenging an insurer’s denial of benefits until you have exhausted your administrative remedies.  So, even if the insurer, or plan administrator, denied your claim for long-term disability benefits, you still need to take the time to file an administrative appeal, unless you do not want pursue your right to disability benefits.

There is an exception, however, to the rule that you must appeal the initial denial.  If filing an appeal would be “futile,” a court will allow a disability lawsuit to proceed even if the claimant did not exhaust his or her administrative remedies.  This exception is called the “futility doctrine,” and it is recognized by the United States Court of Appeals for the Sixth Circuit (the circuit that includes all the federal courts in Tennessee).

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For claimants, it is not easy to challenge an insurer’s denial of long-term disability benefits in court, particularly in an ERISA case.  Courts review the insurer’s or administrator’s decision under an “arbitrary and capricious” standard meaning that they will uphold the decision as long as it was the result of a “deliberate, principled reasoning process.”  To put it simply, a court will uphold a decision to deny long-term disability benefits even if it disagrees with it, so long as the insurer can point to some facts justifying the denial.

Because no two disability cases are alike, courts have not, and cannot, set out clear rules on what constitutes an arbitrary and capricious denial of benefits.  However, a recent decision from the United States Court of Appeals for the Sixth Circuit (the circuit that includes all the federal courts in Tennessee) provides important guidance on when an insurer’s disability determination, under the arbitrary and capricious standard, will be reversed. Continue reading

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If you’re applying for long-term disability benefits, not much of your private life is off limits. Whether you’re mowing your lawn or posting on your Facebook page, your disability insurer can monitor your activities in search of any reason to deny your claim for benefits.  And, it may well do so.

In O’Bryan v. Consol Energy, Inc., (2012), the Sixth Circuit (which includes all federal courts in Tennessee) held that there is nothing improper with a plan administrator conducting surveillance on a claimant for long-term disability benefits.  In that case, Liberty Life Assurance Company (“Liberty”) paid an investigator to put a disability claimant under surveillance.  The investigator then observed the claimant performing common daily tasks, such as getting in and out of his vehicle, putting fuel in his vehicle, and mowing the lawn. Because of the investigator’s findings, Liberty denied the disability claim.  When the Plaintiff challenged the company’s decision, the court upheld Liberty’s decision to deny benefits, specifically citing Liberty’s argument that the investigator’s surveillance report contradicted the symptoms the claimant reported to his medical examiners.

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