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Many disability insurance policies provide two eligibility standards for benefits. The first is sometimes referred to as the “Your Occupation” (or “Own Occupation”) standard.  Under this standard, a claimant is eligible for benefits only if the disability prevents him or her from performing the essential duties of his or her own occupation

The second standard is referred to as the “Any Occupation” standard.  Under this standard, a claimant is eligible for benefits only if the disability prevents him or her from performing the “essential duties of any occupation.”

Under many disability policies, claimants seeking long-term disability benefits must only meet the “Your Occupation” standard in order to collect benefits for a pre-defined period, usually 18 months to two years. At the end of that period, claimants will then have to qualify for the more rigorous “Any Occupation” standard in order to continue receiving disability benefits.

To understand how the standards work, consider the following scenario: A UPS driver with permanent and chronic back pain cannot lift objects heavier than ten pounds.  She will likely qualify for disability benefits under the “Your Occupation” standard.  The reason is simple.  If she cannot handle most of her packages, then she cannot perform the “Essential Duties” of a delivery driver.

After a two-year-period, however, under many policies the driver will then have to qualify under the “Any Occupation” standard in order to continue receiving benefits.  Here, the insurer’s determination is more complicated:  Can the driver work as a dispatcher, customer representative, or any other occupation in which she did not have to lift heavy objects?

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Under Tennessee law, a life insurance company can deny a claim for benefits if the insured individual was less than honest in his or her insurance application. Specifically, Tennessee Code Annotated § 56–7–103 provides that a misrepresentation in an application for an insurance policy can void the policy if the misrepresentation “increases the risk of loss.”

So what exactly does that mean?

Let’s take an easy example: If the applicant fails to disclose a known heart condition on his or her application, and then dies of a heart attack, the life insurance company likely will be able to deny any claim for the proceeds.

What happens, however, if the applicant dies of a heart attack after failing to disclose a DUI conviction? The Tennessee Court of Appeals dealt with these same facts in Smith v. Tenn. Farmers Life Reassurance Co. (2006) and held that the insurance company’s refusal to pay benefits under the policy was allowed under Tennessee law.  As the court noted, the misrepresentation in that case did not need to involve a “hazard that actually produced the loss in question.” Rather, the issue was whether the misrepresentation would have increased the risk of loss.  In Smith, the court determined that the insured’s misrepresentation influenced the insurance company’s decision to issue the policy and, therefore, increased its risk of loss.

It may seem like, based on the ruling in Smith, that it is fairly easy for life insurance companies to use a supposed misrepresentation on an application as a reason to deny benefits.  Another Tennessee Court of Appeals decision, however, indicates that life insurance companies will have to support their misrepresentation claims with direct evidence, and cannot simply ask the court to infer that the applicant was less than forthcoming on his or her application.

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In an ERISA disability case, an insurance company cannot deny a claim without any explanations. Instead, under 29 U.S.C. §1133, it has to provide written notice of the “specific reasons” for the denial, and it must allow a “full and fair review” of any denial, i.e., an administrative appeal.

An important regulation from the United States Department of Labor provides some guidance on §1133.  Specifically, 29 C.F.R. § 2560.503–1 (the “claims procedure regulation”) requires, in part, that any denial of a claim include the following information:

(1) The specific reason or reasons for the denial;

(2) Specific reference to pertinent plan provisions on which the denial is based;

(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(4) Appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review.

The claims procedure regulation, in particular, provides notable protections for claimants:  An insurance company must not only explain its reasons for denial, but also, it must inform the claimant what information or documents he or she needs to submit in order to appeal.  The insurance company also cannot withhold important documents from the claimant.  For example, in Hamall-Desai v. Fortis Benefits Ins. Co. (N.D. Ga. 2004), the district court held that the requirement of a “full and fair review” of a denial meant that the insurance company had to provide the claimant with copies of all the documents, records and other information it relied on in making its decision to deny the claim. The court explained that, by failing to provide this information, the insurance company prevented the  claimant from preparing an adequate appeal because she could not respond to the evidence the insurance company used to support its decision.

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In an ERISA disability case, a claimant who challenges a denial of long-term disability benefits by filing a court action is generally not able to present evidence to the court that is not in the administrative record. The administrative record is legalese for all of 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.

For example, if a claimant in an ERISA long-term disability case has an important affidavit from her supervisor showing that her disability prevented her from performing her job, she will need to submit that affidavit to the plan administrator while her claim is being reviewed and before the final decision on appeal is made by the plan administrator. If she fails to submit the affidavit before the appeal process is concluded, a court likely will not consider her affidavit, no matter how compelling.  Rather, the court will only evaluate the materials that the plan administrator reviewed in determining whether the denial of benefits was proper. (This is why it is so crucial to ensure that the administrative record is complete).

Because courts are generally unwilling to consider any evidence which is not in the administrative record, plaintiffs are generally not entitled to discovery from the insurance company.

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Ex-spouses often enter into informal post-divorce arrangements intended to alter obligations set out in their marital dissolution agreements (MDAs). Such arrangements, whether they include an actual agreement or merely a pattern of conduct, can impact Tennessee life insurance policy cases involving the policies of deceased ex-spouses.

Sometimes, post-divorce agreements involve life insurance policies. These types of agreements are not automatically valid or invalid.  As explained in Holland v. Holland (Tenn. Ct. App. 2001),  whether such agreements are enforceable must be determined by applying contract law principles.  The Holland court made it clear that post-divorce agreements can be enforceable, even if they conflict with the MDA.

What if there’s no evidence of a binding agreement to modify the terms of the MDA or no evidence of a binding agreement that is otherwise contrary to the MDA? In such a case, an ex-spouse may still be able to persuade a Tennessee court to set aside provisions of the MDA. For example, in Puckett v. Harrison (Tenn.Ct. App. 1998), the trial court held that the provisions of an MDA were not binding because the deceased ex-husband intended to forgo the property settlement provisions of the MDA in order to allow his ex-wife to retain her interest in the property.  The trial court based its ruling on the testimony of numerous witnesses about the ex-husband’s intent.  In Puckett, there was no evidence of any agreement. Puckett was affirmed on appeal.

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As a general rule in Tennessee life insurance policy cases, a beneficiary named in a life insurance policy does not have a vested interest in the policy’s proceeds when the person whose life is insured dies. If the owner of the policy retained the right to change the beneficiary, which is almost always the case, he or she can do so.  Absent fraud, undue influence or lack of mental capacity, an owner can change the beneficiary of the life insurance policy any time before his or her death.

There is one notable exception to the above general rule which comes up sometimes in Tennessee life insurance policy cases. When someone is ordered to name a spouse, or his or her children, as beneficiaries of a life insurance policy as part of a divorce decree, then, any change that person makes before his or her death which contravenes the divorce decree may well be ineffective.

In Holt v. Holt (Tenn. 1999), the divorce decree required the Ex-Husband to acquire a $100,000 life insurance policy and to name his son (“Son”) as beneficiary.  The Ex-Husband, however, did not comply with the terms of the divorce decree.  Instead, he purchased two policies: a $50,000 policy, for which he designated his mother (“Mother”) as beneficiary; and, a $40,000, policy for which he designated Son as beneficiary.  So, Ex-Husband under insured Son by $60,000.

The Ex-Husband passed away, and the Ex-Wife, looking out for Son, sought enforcement of the divorce decree. When Ex-Wife and Son sued, they named Mother as a defendant to the lawsuit on the grounds that the $50,000 of life insurance proceeds for which she was the designated beneficiary should be paid to Son.

Mother died after Ex-Wife and Son brought suit. The administrator of her estate was substituted in her place and argued that the Ex-Wife and Son were not entitled to the proceeds of the $50,000 policy. She argued that their only remedy was to obtain it from the assets of Ex-Husband’s estate, which did not include the life insurance policy benefits of the policy payable to Mother.

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Many life insurance policies include a conversion clause. A conversion clause provides a policy owner with the contractual right to update or to convert a policy.  The primary benefit of a conversion clause is that the person whose life is insured does not have to undergo medical underwriting for an updated policy to issue.  In Tennessee life insurance policy cases, a policy owner’s rights under a conversion clause may be important to understand.

Underwriting classes are determined based on the medical history, physical condition, habits, and smoking status of the life of the person insured by the policy. Sometimes though, an insurance company will change the names of its underwriting classes so that there is no underwriting class by the same name or description as the underwriting class which applied to the first policy. If that occurs, what type of underwriting class, and thus, premium rate, should apply when the policy is converted?  The classification of the life of an insured can mean thousands, or tens of thousands, of premium dollars.

A couple of federal cases provide some guidance.

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The definition of “total disability” is among the most important definitions in a disability policy and, consequently, in disability lawsuits.  It is also one of the most confusing.  For example, can you recover disability benefits for total disability if you can still perform some aspects of your job?

In a recently published Sixth Circuit case, Leonor v. Provident Life & Acc. Co., (2015), the court wrestled with an insurance company’s interpretation of its definition of “total disability,” and construed it in favor of the insured.  The Plaintiff, the insured, a practicing dentist who also managed several dental offices, suffered a spinal injury that prevented him from performing dental procedures.  He was still able, however, to manage his dental offices.  In fact, after his injury, he bought more dental offices.  Those investments proved lucrative and the Plaintiff’s overall income actually increased after his injury.

Following his injury, Plaintiff claimed total disability benefits under each of his three disability policies.  Initially, the Defendants, the insurance companies, began paying his disability benefits.  Later, the Defendants stopped paying disability benefits under two of the policies when they discovered that the Plaintiff was able to manage his dental offices.  In denying the Plaintiff’s disability claim, the Defendants pointed to the definition of total disability in his policies:

“’Total disability’ means that because of Injury or Sickness:

You are unable to perform the important duties of Your Occupation….”

(emphasis added)

Defendants maintained that, under the policies, the Plaintiff would have a “total disability” only if he could not perform all of his occupation’s important duties.  The Defendants pointed out that the Plaintiff could still perform the “owner/operator” duties of his occupation, and, therefore, did not have a total disability.

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If you’re making a disability insurance claim, the type of plan you have may matter more than any other fact in your case.  Consider, for example, two plaintiffs who have the same occupation and suffer from the exact same disability, only Plaintiff “A” has an employer-provided plan governed by the Employee Retirement Income Security Act (ERISA), while Plaintiff “B” has an individual long-term disability policy.  Plaintiff A may have a far more difficult time collecting her disability benefits.

The reason is straightforward: In an ERISA case, the standard of review (the amount of deference a court will give to a plan administrator’s denial) is high and the plaintiff must show that the denial of benefits by the plan administrator was “arbitrary and capricious.”  Making matters more difficult for our Plaintiff A, the court will usually examine only the record which was before the plan administrator in determining whether the plan administrator’s decision should be overturned.

In contrast, a claim brought under an individual disability policy for failure to pay benefits is a claim which will be brought pursuant to the Tennessee common law of breach of contract.  Therefore, Plaintiff A can take her case all the way to a jury decision by merely showing that there is a triable issue as to whether she suffers from a disability as defined in her policy.