A short- or long-term disability insurance policy is governed by applicable law and by its terms, as it is at its core a contract. Many a dispute comes down to an interpretation of the explicit terms of a disability insurance contract.
On May 9, a judge released an opinion in the U.S. District Court in Kansas that looked at the definition of the phrase “totally disabled” within a policy. In Derichs v. AT&T Services, Inc., the court sent the case back to the claims administrator to reconsider the claim according to the court’s interpretation of this phrase.
The Derichs circumstances
Daniel Derichs made a claim for short- and long-term disability under a policy available through his employer AT&T, administered by Sedgwick Claims Management Services. He stopped working and, according to the complaint (available on Westlaw through the docket information for this case), made a claim for disability from a combination of physical and mental impairments, including PTSD, anxiety, hypertension, arthritis, panic attacks, mood disorder, sleep impairment, impaired speech and concentration, and others.
Because this concerned a group policy through an employer, the lawsuit was filed under ERISA, the applicable federal law that imposes standards and procedural requirements designed to promote fairness and to level the playing field between large insurers and individual claimants.
The disputed interpretation
In looking at the meaning of “totally disabled” under the policy, the court considered this provision: “You are considered Totally Disabled when, because of illness or injury, you are unable to perform all of the essential functions of your job …” The judge wrote that the phrase is ambiguous because it is susceptible to two reasonable interpretations:
- As the insurer argued, the claimant must show that he or she cannot do any of the essential functions. If the claimant can perform any one essential function, he or she would not be disabled.
- As the claimant asserted, the claimant only needs to show that he or she is unable to perform any one essential function, because if that function is essential, that would make the claimant unable to do the job in its entirety.
The judge said that because it is not clear which interpretation the administrator used to deny the claim, the court would decide the meaning as a matter of law. The court agreed with Derichs that the second approach “makes the most sense” because if a worker cannot perform even one essential function of a job, he or she could be fired.
This is also consistent with contra proferentem, a rule that says the party who wrote the ambiguous language should have it construed against it — which in this case was the insurer. In addition, the court found that related cases, of which there were few, were consistent with this finding.
Instead of awarding benefits, the court sent the claim back to the administrator to apply the correct standard. The judge said he could not review whether the administrator applied the correct “rationale” because the record was unclear as to what standard it used to deny the claim.