Are Disability Business Overhead Expense Policies Worthless if You Close Your Business?

Most business owners that cease operations due to a disability are stuck with ongoing business related bills that existed prior to the date of disability. The question is whether disability insurance companies pay disability Business Overhead Expenses to an insured that becomes disabled and has either closed their company or sold their business assets?

The answer depends on a lot of factors and the disability insurance company that sold the policy. Business overhead policies (“BOE”) are sold by numerous disability insurance companies as an insurance policy that is suppose to cover the expenses of a business that existed at the time an insured becomes disabled. All BOE policies require the insured to meet several criteria in order to be eligible for benefits. The first criteria is that an insured must be “totally disabled”, which is often defined as unable to perform the duties of your occupation. The second criteria is that the insured must be totally disabled for at least 30-90 days in order to be eligible for benefits. The third criteria and most challenging in most BOE claims is complying with the policies definition of “Covered Overhead Expenses” or Business Overhead Expenses.

Since the early 1990’s, there have been multiple lawsuits in courts nationwide in which the interpretation of the meaning of “Covered/Business Overhead Expenses” has been extensively litigated. Unfortunately, in many cases the insured has been on the losing side, and there is a disturbing body of case law which suggest that Business Overhead Expenses are not payable once an insured either closes or sells their business. But, what about expenses that continue after the sale or closure of a business? The key factor that drives the outcome of each of these cases is the actual definition of “Covered/Business Overhead Expense” within the business overhead policy that you purchased. In most of the cases in which the court agreed with an insurance company’s denial of business overhead expenses, the definition of Covered Overhead Expenses applied only to those expenses incurred in either the ongoing or continued conduct of a business. The ambiguous keyword here is “ongoing” or “continuing”.

Let’s assume you are the only doctor or dentist in a professional practice and you are unable to perform the duties of your occupation. How will the practice financially continue without you generating revenue? In the short term, you could hire another professional to come in and perform your duties, which the BOE policy may cover these expenses for a limited period. However, the reality is that there is often no one available to treat all of your patients and still generate enough revenue to keep your practice profitable. So what usually happens is that a doctor or dentist is forced to either close the practice or look to sell the practice. In most situations the practice is closed down and the doctor still has expenses such an office lease, equipment lease or loan, bank loan used to finance the practice and employee expenses to help wind down the practice.

The $250,000 question at this point is whether the BOE policy continues to cover the remaining pre-disability business expenses once a doctor or dentist is no longer treating any patients? Can a doctor or dentist argue that the practice is ongoing because there are still receivables that need to be collected, patient files that must be maintained and most importantly financial debts of the practice that still must be paid? It seems like BOE coverage is worthless if an insured must be unable to work in their occupation, but then is not eligible for coverage if they cannot manage to keep the doors of their business open.

As scary as this situation may seem, we have been able to help hundreds of medical professionals and business owners to collect under their BOE disability policies. It takes careful planning and analysis of your BOE policy in order to maximize the available benefits. Contact any of our disability insurance attorneys for a free consultation to discuss your claim.

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