Pennsylvania Pharmacy Owner Learns The Hard Way That Accuracy Is Everything When Applying for Disability Insurance Benefits

On January 28, 2011, the United Sated District Court of the Eastern District of Pennsylvania granted Berkshire Life Insurance Company of America’s Motion for Summary Judgment in Michael S. v. Berkshire Life Insurance Company of America, et. al. In addition, the plaintiff’s disability policy and FIO policy were rescinded negating Michael S.’s claims of “(1) violation of the Covenant of Good faith and fair Dealing (bad faith); (2) violation of the Unfair Trade Practices and Consumer Protection Law; and (3) breach of contract.” Further, the Court ordered Berkshire to refund the “premiums [Michael S.] paid under the Disability Policy and FIO Policy” and judgment was entered in favor of Berkshire Life Insurance Company.

Background of Michael S. and His Disability Lawyer’s Lawsuit against Berkshire Insurance

Michael S. is a licensed pharmacist. As sole owner of two pharmacies in Pennsylvania, Michael S. “sought treatment with … a licensed clinical social worker, reporting to her that he had been abusing opiates.” Having taken the opiates for some three months, Michael S. was diagnosed with a substance abuse disorder and began attending group therapy sessions to combat his abuse in May 2003. Michael S. did not go through a detoxification program nor did he seek other help for his condition.

In 2005, Michael S. purchased a disability insurance policy from Berkshire in which he misrepresented his abuse problem by stating that he had not taken various drugs associated with a substance abuse diagnosis. Not admitting to previous substance abuse, Michael S. defended the omission by stating that his abuse had happened prior to the policy application from Berkshire. Wanting to keep his problem confidential, Michael S. kept his abuse to himself. Michael S. was issued his policy on February 5, 2005, and on January 13, 2007, Michael S. was a victim of an armed robbery during which he was shot in the hand. Hospitalized as result of his gunshot wound, Michael S. informed emergency doctors that he had “taken unprescribed narcotics in the past.”

Afraid of a relapse in his abuse, Michael S. told doctors of his abuse problem and after treatment returned to work with limited hours. Claiming that “he suffered from extreme stress, fear and anxiety,” Michael S. hired two pharmacy assistants, and an armed security guard to protect himself, his employees and inventory, and discontinued Saturday store hours.” Michael S. also continued group and individual therapy to deal with his diagnosed post-traumatic stress disorder and added a Future Increase Option (FIO) to his disability coverage.

Michael S. Returns to Work Full Time, Voluntarily Forfeiting his Disability Benefits

After returning to work full time, Michael S. indicated that he was not disabled since he was working. Then in June 2007, one of Michael S.’s customers approached him from behind and said “stick ‘em up.” From that moment on, Michael S. said that he was unable to work. Michael S. immediately informed Berkshire of his intentions to file a disability claim, but did not provide the insurer with documentation to prove his disability until four months later after several failed attempts to procure that information from Michael S. by the insurer.

A Berkshire claims adjuster obtained Michael S.’s medical records on January 28, 2008 which documented that Michael S. had a history of opiate dependence, attachment disorders, and adjustment disorders. Other medical records from May 2007 indicated treatment for narcotics usage as far back as September 2002. With fifty-seven (57) individual and seventy-eight (78) group treatment sessions documented in his medical record, Michael S.’s honesty in his original application for Berkshire insurance was now in question, and the insurer was skeptical of the validity of its obligation to provide Michael S. with disability benefits under the terms of a policy purchased under questionable circumstances. As a result of these concerns, Michael S.’s policy was turned over to Berkshire’s legal department for evaluation.

On January 20, 2010, Michael S.’s attorney stepped in and claimed that Berkshire should honor Michael S.’s claim in that Michael S. had not intentionally deceived Berkshire and that Berkshire was acting “in bad faith by failing to provide a prompt claim investigation” in regard to Michael S.’s application for disability benefits. Berkshire claims that it is entitled to rescind Michael S.’s disability insurance policy as it was void since Michael S. had provided the insurance company with false, fraudulent, and bad faith information in his application. Ultimately, Michael S. and his attorney brought a lawsuit against Berkshire for breach of contract and bad faith based on a failure to pay disability insurance benefits under two individual disability policies. Berkshire, then, filed a Motion for Summary Judgment, and Michael S. filed a counter motion for partial summary judgment. The question before the Court in this lawsuit is whether or not Berkshire has an obligation to Michael S. to provide disability benefits in light of Michael S.’s less than honest information provided on his original insurance application.

Michael S. and his Attorney Admit Michael S. Inadvertently Provided Berkshire with False Information

Michael S. and his disability attorney admit that the information Michael S. provided the insurer was not accurate, but they also argue that Michael S. was not intentionally attempting to deceive the insurer.

Pennsylvania Court Rules on the Case

Michael S. defended his “no” responses to questions on his original disability application concerning drug abuse as he thought that since he had the problem under control it was not at issue. After lengthy argument back and forth between Michael S.’s disability attorney and the insurers’ legal team, the Court “found that [Michael S.] made material fraudulent misrepresentations in his application for disability income insurance policy,” and that “Berkshire is entitled to rescission of that policy,” as well as the Future Increase Option Policy that Michael S. had purchased in 2007. The lesson here is, always complete disability insurance applications with truthful responses.


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