Differences in Long-Term Disability Plans

Basically, there are two types of long term disability plans: an employer plan and an individual (private) plan. Employer plans are usually part of the employee benefits provided by the employer and may be contributory or non contributory. In an individual plan, the employee (insured) purchases a contract for long term disability benefits directly from an insurance company.

Appeals of Compensation Denial

Since both plans involve contractual obligations, the appeal process, which is set forth in the plan, must be complied with before there can be litigation for a denial of benefits. There must be an exhaustion of administrative remedies before the case is filed in court. The litigation process differs between an employer plan an individual plan. An individual plan is governed by the common law on contracts subject to specific provisions in the policy. One such provision may be a shorter statute of limitations.

ERISA

An employer plan is governed by federal law commonly referred to as ERISA. ERISA claims are different from common law breach of contract claims. An ERISA claim is an appeal from a denial of benefits and is not a breach of contract claim. Most cases are filed or removed to federal court. However, the state court does have jurisdiction to conduct this review. Insurance companies typically rather litigate in federal court. Therefore, even if the action is filed in state court, the insurance companies will file an application to remove to federal court.

Under ERISA, the court will determine whether the plan administrator breached his/her duty in denying disability benefits. Usually this is a summary proceeding and is based on the administrative record which is the policy, the claims file, medical records and doctors reports. Therefore, a proper record is paramount when litigating the ERISA case. This record generally cannot be supplemented after the final denial to add new or different medical reports and opinions.

Determining Length of Benefits

The language of the actual policy must also be examined. Many employer plans have a provision that long term disability benefits will be paid for a limited time such as two years based on a definition of disability - an inability to perform the material duties of your own occupation. After two years, many plans provide that disability benefits will only be paid if the insured is unable to perform the duties of any occupation or alternatively, any gainful occupation for which the employee is reasonably fitted by education, training or experience.

New Jersey is part of the federal Third Circuit. In the Third Circuit, the court reviews the administrative record to determine if there has been an abuse of discretion. The court looks to the policy language to determine if the policy gave the administrator discretion to determine if the claimant can work. Most New Jersey policies give the administrator discretion. Depending on the policy provision addressing discretion, the federal court will apply either a de novo standard, a heightened arbitrary and capricious standard or a general arbitrary and capricious standard. If the policy terms do not give the administrator discretion, the court will apply the de novo standard and review the administrative record and make its own determination without consideration of deference to the plan administrator’s findings. In New Jersey, a heightened arbitrary and capricious standard is usually applied and the court will look at factors suggesting that a conflict may have influenced the administrator’s decision. Such conflict may be that the administrator is employed by the insurance company, there is evidence that the insurance company’s profits were considered in making decisions etc..

In its review under the arbitrary and capricious standard, the court will determine if the administrator’s interpretation of the plan language was reasonable considering whether the administrator’s interpretation is consistent with the goals of the plan, whether the interpretation renders the plan language meaningless or internally inconsistent, whether the decision conflicts with the ERISA statute and whether the provision has been interpreted the same on a consistent basis and whether the interpretation is contrary to the clear language of the plan.

The court will review the plan administrator’s decision to determine if there are procedural anomalies such as relying on the opinion of a non treating review physician over the treating physician’s opinion without reason, whether the review of the medical records was self serving, whether the administrator relied on favorable parts of the reviewing doctor’s opinion while discarding the unfavorable parts in the medical report, whether there was a denial based on inadequate information and lax investigatory procedures and whether the decision ignores the insurance company’s claims employees’ recommendations.