As you might expect, as a long term disability insurance attorney, this is a common and frequent question I get from clients, and usually one of the first questions most clients ask.
The answer depends in part on whether your claim is governed by the federal ERISA statute or state law. Whether or not a claim is governed by federal ERISA statute or state law generally depends on whether or not the disability insurance policy is part of an employee benefits plan as opposed to a privately purchased disability insurance policy. Generally, an employer-provided long term disability insurance policy is governed by ERISA, while a privately purchased policy is governed by state law.
I say “generally”, because there are exceptions. For instance, ERISA does not govern long term disability insurance policies issued by church or governmental employers. State law applies to those. There are many other instances in which ERISA may not apply to an employer-issued policy, so you should consult with an experienced ERISA long term disability insurance attorney to determine whether your particular situation is governed by ERISA or state law.
If your long term disability claim is governed by state law rather than ERISA, and if we win, you will be entitled to be put back on benefits going forward, plus receive whatever backpay is due. We can, and always will REQUEST that the court award a penalty equal to the amount of backpay owed, in addition to the actual amount owed, plus attorney’s fees. But the court can award benefits with OR without awarding the penalty and attorney’s fees, depending upon how egregious the court finds the denial to have been.
If your long term disability claim is found to be governed by ERISA instead of state law, all of the above applies, with the exception of the penalty. In other words, attorney’s fees may be awarded under ERISA if we win AND the court finds the denial to be egregious enough, but the court cannot award penalties in addition to attorney’s fees under ERISA. The federal ERISA statute simply doesn’t allow penalties.
Unfortunately, whether the claim is governed by state law OR ERISA, unlike in a typical personal injury case, damages for pain and suffering, loss of enjoyment of life or mental anguish caused to the victim by the insurer’s wrongful denial or failure to pay long term disability benefits cannot be recovered. Nor can punitive damages be recovered, aside from the penalty described above, and again, only if state law applies instead of ERISA.
Settlement considerations: Sometimes insurers are willing to settle a long term disability benefits case on a lump sum basis, but they are not required to do so, and sometimes will not consider doing so at all.
If we ultimately attempt attempt lump-sum settlement at some point, which we will often do if the client wishes to, the demand is calculated as follows: all back pay owed, plus the present value of what the insurer would owe for the duration of the policy payment provisions, plus attorney’s fees, as well as the penalty, assuming state law applies (no penalty if ERISA applies).
That being said, the insurer will virtually never settle for that full amount, but the decision of whether or not to accept a certain amount offered in settlement will always be your choice. I will offer recommendations to you in that respect as your attorney, based upon my evaluation of our strengths, weaknesses and likelihood of success at trial. My opinion on that is always on a case-by-case basis, and after I have benefit of reviewing the entire administrative file, as each case is unique. Regardless of my opinion or recommendation, however, the choice of settling or going to trial will always ultimately be yours to make.
On the other hand, if we go to trial and are asking the court to make an award, the court cannot award prospective, or future amounts owed under the policy. The court is limited to rendering an award of backpay owed, ordering the insurer to put you back on benefits going forward, along with attorney’s fees, and a penalty as described above (but the penalty applies only if state law governs, not under ERISA).
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