Disability claims-handling systems put profit before disability benefits

Under traditional principles of in­surance law, insurers are supposed to give as much consideration to the inter­ests of their policyholders as they do to their profits. However, the paradigm of many disability insurers today is, “sharehold­er first”. Profits take priority over protection of the disabled policy holder because of executive compensation incentives. At Allstate for example, senior management executives are required to own Allstate stock worth four times their annual salary. This plan flies in the face of the fiduciary nature of the insurance contract which pro­hibits insurers from “linking the inter­ests of management with those of shareholders” since the shareholders’ only interest is increasing profits – even at the direct expense of policyholders.

As articulated in one of the nation’s landmark insurance cases, insurers must take the public’s interest seriously, where nec­essary placing it before their interest in maxi­mizing gains and limiting disbursements. As a supplier of a public service rather than a manufactured product, the obliga­tions of insurers go beyond meeting rea­sonable expectations of coverage. The ob­ligations of good faith and fair dealing encompass qualities of decency and hu­manity inherent in the responsibilities of a fiduciary. Insurers hold themselves out as fi­duciaries, and with the public’s trust must go private responsibility consonant with that trust.

Financial filings of one large insurer show that its income increased by an obscene 3,335 per­cent as a result of dramatically reducing claim payments while keeping premi­ums at the same or higher levels, known as the “Zero-Sum Economic Game.”

Some disability carriers intend to win the claims economic game in two phases that deliberately ex­ploit the economic pressures placed on a policyholder suffering from finan­cial loss. The first phase involves arbitrarily lowering claims evaluations. The adjusters then make nonnego­tiable, take-it-or-leave-it settlement of­fers based on these artificially low set­tlement evaluations. It is estimated that, when con­fronted with the threat of a substantial delay in getting any benefits at all, 90 percent of policyholders will suc­cumb within six months to the eco­nomic pressures caused by their loss and give up without a fight, accepting the low offers.

The second phase involves a plan to deliberately abuse the civil justice system as a weapon of attrition against the estimated 10 percent of policyholders who would refuse to accept reduced disability benefits. These policyholders would be driven into the “kill box” of the zero-sum economic game-the American civil justice system.

Disability insurance firms understand that aggres­sive litigation yields positive results. Thus, a key part of the strategy is to actively incite significantly higher levels of litigation. The goal: to delay or diminish payment of full value for legitimate claims. The strategy is aimed to make litigating claims against the insurer so time-consuming and expensive that any victory by the policyholder would be purely Pyrrhic. Disability insurers hope that most policyholders and their attorneys would refuse to endure the expense and delay of litigation if they knew that the company had made an institutional decision to try every disputed claim to verdict – no matter the amount in controversy and regardless of the cost to the disability carrier of doing so. The result-the insurance company sharehold­ers win and policyholders lose.


Alan Olson writes this web-log to provide helpful information regarding long-term disability cases. He practices long-term disability law throughout the United States from his offices in New Berlin, Wisconsin. Attorney Olson may be contacted at [email protected] with questions about the information posted here or for advice on specific disability benefit claims.


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