Disability insurance claimants may be entitled to interest if benefits are wrongfully denied

When a disability attorney wins an ERISA claim for his or her client, it is common to ask for pre-judgment interest as part of the appropriate restitution. There is a valid reason for making this request. The disability insurance company prevented the Claimant from receiving their money and as a result the claimant lost interest on the money. Additionally, while the insurance company held back the claimant’s money benefits, the insurance company was investing and receiving interest on the money.

When a disability insurance plan has wrongfully denied benefits, it is reasonable to request pre-judgment interest to fully compensate someone who was a rightful beneficiary of long-term disability benefits and was denied their rights.

Factors Courts Consider when Awarding Pre-judgment Interest for Disability Claims

Whether the Claimant Delayed Filing a Lawsuit
The Court may take into consideration whether the claimant appears to have deliberately waited for as long as possible before filing a lawsuit. This is yet another reason why filing timely appeals and filing an ERISA suit within a reasonable time after final denial of benefits has been issued can work to a claimant’s benefit. When the Court can see that it was the long-term disability insurance plan administrator that was clearly at fault, and the claimant did not delay the progress of the claim, this can work in the claimant’s favor.

Whether the Disability Insurance Company Was Culpable
Not only does culpability impact the Court’s decision on whether to order a disability plan to pay attorney’s fees it also has an impact under ERISA on whether the Court will order a disability plan to pay pre-judgment interest. If a decision was a close one and could be seen as partially supported by the evidence, the Court may find that pre-judgment interest is not justified.

Whether Awarding Pre-Judgment Interest Is Mandated
Prejudgment interest it not mandated under ERISA. It is allowed. It is “a question of fairness, lying within the court’s sound discretion, to be answered by balancing the equities.” (See Shaw v. Int’l Ass’n of Machinists & Aerospace Workers Pension Plan.) When the Court finds that awarding pre-judgment interest balances the equities, then making the award becomes logical.

Guidelines Used to Calculate Pre-judgment Interest for Successful ERISA Claims

While there have been some District Court decisions that have upheld using state statues for calculating the appropriate interest rate for specific interest claims, in general an effective argument must be presented to the Court to justify doing so. In the case of Sherri Kay Smith v. American International Life Assurance Co. of New York, the Court recognized that federal courts often look to state law for guidance when ERISA is silent, as it is on pre-interest judgment. In this case heard in 1995, the Court used a state statute to establish a rate of 18% per annum.

States have a variety of methods for calculating pre-judgment interest, so in the effort to secure uniformity under the Employee Retirement Income Security Act (ERISA), the Courts have developed specific guidelines. Since Blankenship v. Liberty Life Assurance Co. of Boston, District Courts have found that the interest rate prescribed under 28 U.S.C. § 1961 for post-judgment interest is also an appropriate guide for pre-judgment interest.

Section 28 U.S.C. § 1961 establishes a precedent where post judgment interest is calculated at a rate equal to the weekly average 1-year constant maturity Treasury yield.” The Court uses the rate published by the Board of Governors of the Federal Reserve System during the calendar week that proceeds the date of the judgment.”

In Nelson v. EG & G Energy Measurements Group, Inc., the court found that calculating the pre-judgment interest rate based on the average 52-week Treasury bill rate operative immediately prior to the date judgment made the most sense, as this would compensate adequately based upon actual market values during the time benefits were withheld.

The Court may then decide that the best method for calculating the pre-judgment interest involves calculating interest as though the plaintiff had invested the money, rather than spending it, at the 52-week Treasury bill rate. Then the Court calculates what would happen if the compound interest was reinvested annually at this same rate. This could enable the Court to establish a fair level of compensation for pre-judgment interest. The problem with a court relying on the 1 year constant maturity yield is that it is less than 1%, which is much different than most state judgment interest rates which exceed 6%. Courts have the discretion to choose a reasonable interest rate. In most of our cases we will consult with an accounting expert to advise the court on reasonable interest rates that should be used.

Importance of Asking for Pre-judgment Interest

It is vital that a disability attorney not overlook the value of making a request for pre-judgment interest as part of the lawsuit. It isn’t enough to move for summary judgment. Courts can issue summary judgment and not award pre-judgment interest.

Comments (4)

  • Pattiann0920,

    Following an ERISA appeal denial you have 180 days to appeal. If you fail to appeal, then there is nothing you can do unless the company allows you to submit an Appeal. It is a shame that the attorneys you contacted in the past did not respond to you. With SSDI benefits, you should be able to recover at least one year worth of past benefits.

    Gregory Dell Sep 3, 2012  #4

  • I fell at work and was injured on 10/03/07. My injuries were: ruptured Lumbar disk at L5-S1, herniated disk at L4-L5, torn bi-lateral hip laburnums which deteriorated into bi-lateral Total Hip Replacements this year 2012. I was on TTD-Work Comp. & STD until 04/08/08 and then on LTD until 05/2010 when my LTD was cut off. I had Lumbar fusion in 02/09 at L5-S1 and Total Hip Replacement on the the right hip on 02/07/12 and on the left hip on 04/30/12.

    At the time my LTD with The Hartford was cancelled I had sought representation from 2 recommended attorneys and received no call backs to help me. I had my income reduced by $1405/mo and was still injured and deteriorating waiting for bi-lateral hip surgery. The Hartford determined after my Lumbar Spinal Fusion that I was no longer disabled (even though I needed double hip replacement) and cut me off. I had no financial ‘means’ to fight this with and my deteriorating health prevented me from actively pursuing more than just my work comp claim.

    I have re-applied for Social Security benefits, and am approaching MMI with my Work Comp. case (approx. 35% whole person) entering into settlement negotiations in Sept, 2012. If I hadn’t been deprived of my rightful payments under my LTD with The Hartford I estimate I would’ve received as of Oct. 2012 when I will be released a total of $42,150 for 30 months at $1405/mo, as I have been reading here it seems I should be able to pursue repayment for the period of total disability? Why is it so hard to get this solved?

    Can this be reopened as I believe it was wrongly canceled and my Work Comp. attorney was of no help on fighting this?

    Pattiann0920 Aug 30, 2012  #3

  • Arlis,

    If you win a disability insurance appeal, the disability insurance carrier will usually send the past due benefits within one week of making a claim decision. They will then place you claim and resume reviewing your eligibility for benefits on a month to month basis. It is rare that a disability carrier will pay interest on past due benefits during the appeal stage. Following a judgment at trial, then the disability insurance company is required to pay interest and maybe attorney fees.

    Gregory Dell Aug 29, 2012  #2

  • If you win the LTD claim appeal without litigation after benefits were terminated, what is the process of getting benefits reinstated? Will there be interest? Is there a certain date that benefit check should be sent?

    Arlis Powell Aug 28, 2012  #1

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