Can my severance agreement eliminate my right to claim disability insurance benefits?
Author: Attorney Jay Symonds
It is a common occurrence for a disabled employee to be offered a severance agreement when they can no longer work due to a disabling medical condition. An employee must take great caution as the severance agreement may eliminate all future rights to any short or long term disability benefits. Here is an example of a potential client that recently contacted us. Employee began working in the finance department of a local University. For many years he struggled with and was treated for depression and anxiety, which he was able to manage. Recently, however, it began impacting his job performance at the University. The employee had been working with the University for less than 12 months when he filed for disability. He was notified by his supervisor that his work had become “substandard” and the University was evaluating whether to re-assign him to a new position or provide him with a severance package. Although the Employee wanted to explore filing a claim for disability benefits, he: (a) stopped taking his prescribed psychiatric medications more than two (2) years earlier; and (b) had not treated with a mental health professional for nearly two (2) years. In short, he lacked any medical support for his disability. Additionally, because he had been employed at the University for less than one year, the Long Term Disability (LTD) Plan’s Pre-Existing Condition limitation was also a factor. Given these fairly significant obstacles, the Employee determined he would continue to work as best he could while seeking appropriate treatment for his conditions. Once he re-established treatment he would consider filing a disability claim.
Several weeks later the Employee contacted counsel to review an executed Severance Agreement he signed with his now former employer. The Employee wanted to further discuss how he could establish a claim. The Employee was relying on a provision in the Severance Agreement that stated, in relevant part, that the University “agrees to pay [Employee] three months at his current salary…and benefits through May 15, 2016.” In short, the Employee believed that he would be entitled to file a claim for disability benefits through May 15th. However, after reviewing the University’s self-funded STD Plan and fully insured LTD Plan (both administered by the same carrier) it was clear the Employee would be excluded from coverage under both Plans because his coverage ended when he was no longer a “Member” (i.e., Actively at Work) eligible for coverage. In fact, both Plans specifically stated that employees no longer at work as part of a “severance agreement” were no longer eligible for coverage. Had the Employee consulted an attorney prior to signing the Severance Agreement, he would have been alerted to this critical eligibility issue and, quite possibly, could have avoided this harsh result.
This is an unfortunate, but not uncommon, set of circumstances. Employees trust that their Employer understands and considers all the terms and provisions in their employee benefit plans when drafting various employment agreements. Unfortunately, this is not the case. Time and again employees enter into agreements believing they remain eligible and covered only to learn from the insurance carrier that they are not. The simple truth is, regardless of what is said or promised, an Employer is not authorized to alter or amend the specific terms of a Benefit Plan Document (i.e., the Insurance Policy). Here, the University was not authorized to alter or extend the specific “actively at work” eligibility provision of the Plan and, therefore, the Employee’s disability coverage ended once he executed the Severance Agreement. Contact any of our disability insurance lawyers to discuss how we could assist you.