Long term disability policies: read the fine print.

24 March 2020

We turn today to not necessarily a legal topic, although the law is involved, but to more of a consumer tip or warning by reviewing the case of Martinez v. Sun Life Assurance Company of Canada.  948 F.3d 62 (1st Cir. 2020).  Martinez is not a complicated case or one with a legal twist or the case law equivalent of a Perry Mason styled gotcha at the end.  Instead it just exemplifies the all too common inability of a consumer to obtain what was expected due to a lack of awareness of the fine print in a long-term disability policy.

Mr. Martinez, a veteran, worked for a company and after a number of years developed MS.  He submitted a claim to his long-term disability insurance company, Sun Life, was approved, and started receiving monthly payments.  Years later he applied and was granted veteran’s benefits due to his disability of a monthly amount going forward and funds to be granted retroactively.  Sun Life was notified of Mr. Martinez’s award of veteran’s benefits and in response reduced his monthly payments from $2,500.00 to $465.00 due to a set off provision in his policy.  Not only was his monthly amount reduced, but Sun Life sought payment of $32,560.00 for past overpayments.  The operative term in the policy is a common one: [setting off] “Other Income Benefits that are provided or available to the Employee while a Long Term Disability Benefit is payable.”

Imagine yourself in Mr. Martinez’s position, essentially the entire amount he is awarded in veteran’s benefits for his disability is set off from his private long-term disability policy.  And he must turn over the lion’s share of his retroactive award.  Tough medicine.

Mr. Martinez cried foul, he “appealed” Sun Life’s initial decision internally and it denied same.  He sued under various theories in the United States District Court, including even claiming discrimination for his veteran status, lost at the summary judgment stage, and appealed to the United States Court of Appeals for the First Circuit.  He lost there without much fanfare.  There were other decisions that were on point that the first circuit relied upon, thus there wasn’t much merit to Mr. Martinez’s legal arguments frankly.

Looking at the policy, case law, and from an objective, legal point of view, Mr. Martinez did not have much of a chance and arguably risked possible sanctions for appealing to the first circuit.  But from Mr. Martinez’s perspective, it sure doesn’t seem fair to have his veteran’s benefits count against his private policy.  It is understandable that he would believe the law should have a solution to what he perceives as an unfairness and seek relief.  But the terms of the policy are fairly straight forward and really aim to avoid any insured from obtaining a windfall.

There are other situations and corresponding policy terms that many people confront.  One is getting denied since the insured is not totally disabled, but just partially.  Another is when someone becomes unable to perform the acts required in their occupation, but physically could perform other jobs.  These topics are called “residual benefits” (or partial benefits) and “own occupation” terms respectively and are two important ones to review.

How are these topics addressed in your policy?

Do you know?

In conclusion, the author recommends analyzing and comparing different long-term disability policies when considering purchasing one privately, and to know the terms of your policy, however it was obtained, when you make a claim.  Generally, in the author’s opinion, employer provided policies do not contain many, if any, extra riders or the like carrying extra benefits.  In other words, don’t expect much from an employer paid policy.  The time to obtain a policy with favorable terms is when shopping for a private policy, but be prepared to pay for it.