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Appeals court: disability insurer has conflict of interest

As many workers in Wisconsin know, long-term disability is meant to protect workers if they are to become disabled before they retire. Sometimes, workers purchase a long-term disability policy directly from an insurer, and other times it is offered as part of an employment benefits package. As is generally the case with insurance, long-term disability insurance is an important safety net but we all hope we never have to use it. And, if we do have to use it, we may be in for a battle just to get the compensation to which we are legally entitled.

Sometimes, long-term care insurers do award a claim, but not for the proper amount of compensation. For example, recently, a long-term insurance claim resulted in compensation for a disabled worker, but the company failed to include the former worker's annual bonus when calculating his monthly benefit payments. The case has now gone through several appeals.

The plaintiff in this case is a California man who was working for an investment banking firm in 2007 shortly before he was injured in a bicycling accident, resulting in paralysis from the neck down.

His insurer agreed that the worker was disabled, and agreed to pay benefits, but the man's employer based the disability benefits on only his monthly salary, paying no attention to an annual bonus.

While insurers may sometimes have discretion to interpret certain policy terms, the 9th U.S. Circuit Court of Appeals has now decided that a conflict of interest was involved in this case because the plan administrator and plan insurer are the same company.

In 2008, the U.S. Supreme Court ruled that an inherent conflict of interest exists when the same company both insures a group disability plan and administers the plan's claims.

The 9th Circuit has now asked a district court to reconsider the effects of this conflict of interest, and whether it was an abuse of discretion to fail to include the man's bonus when calculating his benefits.

When someone's long-term disability benefits claim has been denied, or shortchanged, it is important that he or she  has advocates to help fight for his or her rights.

Source: LifeHealthPro, "Appeals Court Rules Against Disability Insurer," Allison Bell, Sept. 14, 2012

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