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Does A Letter From A Disability Insurance Company Misstating Policy Language Modify The Terms Of A Disability Insurance Policy?

Attorney Cesar GavidiaAuthor: Attorney Cesar Gavidia

Occasionally, the issue arises of a disability insurance company misstating the terms and coverage of a disability insurance policy, either verbally or in written correspondence. Most of the time the misstatement is a simple mistake, and due to the claim specialist failing to proofread their letter. Sometimes the misstatement is made on a mistaken belief. Generally, misstatements made in correspondence from a disability insurance company do not amend or alter the disability insurance policy or plan, if the policy or plan is governed by ERISA. The bottom line is that a claimant should always rely on the language in their disability policy. Lets take a look at a recent lawsuit against Unum which dealt with a claimant trying to enforce a letter from UNUM rather than the language contained within the actual disability policy.

Most Disability Insurance Policies Contain Language Concerning How Amendments to the Disability Insurance Policy Are Made

A disability insurance policy often contains specific language concerning how the disability insurance policy can be changed or amended. The purpose of this language is to prevent the terms and conditions of the disability insurance policy to be changed by a simple letter from a claim representative, or by the insured themselves attempting to write in amendments to the insurance contract. Obviously, this type of language is included in order to protect the integrity of the agreement between the insurance company and the insured and to protect the parties. For instance, the language in one policy insured by The Paul Revere Life Insurance Company a/k/a Unum, states that no change in the policy will be effective until approved by a Company officer, and the approval must be noted on or attached to the Policy itself. Despite language to this effect conflict still arises if a letter from the disability insurance company misstates the coverage of the insured.

Maryland Doctor Told that Letters From the Disability Insurance Company Do Not Amend the Disability Insurance Policy

The issue concerning letters from the disability insurance company misstating coverage and the effect on a disability insurance policy governed by ERISA, was addressed by the Fourth Circuit Court of Appeals, in a case involving a Maryland doctor, Dr. Bernard Band, and his disability insurance company, The Paul Revere Life Insurance Company. At the time that Dr. Band purchased his disability insurance policy he was interviewed by Mr. Kevin Turney, an agent of Paul Revere, who hand-wrote an application for disability insurance on behalf of Dr. Band. The maximum benefit period under the policy is determined by the birth date of the insured. In completing the application Mr. Turney inadvertently misstated Dr. Band’s date of birth, making him one year younger than he actually was. Dr. Band blindly signed the application, confirming its accuracy and not realizing the mistake.

Approximately four years later, Dr. Band became disabled, and submitted a claim for disability benefits. Shortly after the submission of the claim, Paul Revere approved the disability claim and began paying disability benefits. Two years into his disability claim Dr. Band inquired with Paul Revere as to when his benefit period would expire. Going by the mistaken birth date indicated in his original application for insurance, which made him 61 years old at the time of disability, Paul Revere issued a letter to Dr. Band representing that his disability benefits would be paid for a maximum of 48 months. Dr. Band’s actual age at the time of disability (62) actually only entitled him to 42 months of disability benefits. Approximately six months later Paul Revere caught its mistake and wrote Dr. Band a letter advising that the maximum benefit period was 42 months. After paying for the full 42 months, Paul Revere stopped paying benefits, prompting Dr. Band to sue Paul Revere for the remaining 6 months of benefits.

Initially Court Rules that Dr. Band Was Entitled to the Additional Six Months of Benefits

Initially the federal court concluded that Dr. Band was entitled to 48 months of benefits. The federal court reached this decision for three reasons: 1) Paul Revere had assured Dr. Band that he was to recover 48 months of benefits; 2) the misstatement of age was done wholly by Mr. Turney, and he was an agent of Paul Revere; and 3) it found that Paul Revere had waived its misstatement of age provision. It also relied on the common law principles of waiver and estoppels to find in favor of Dr. Band.

Appellate Court Finds that Paul Revere’s Letters Were Not Formal Amendments to the Policy And Therefore Benefits Were Only Payable for 42 Months

Paul Revere appealed the lower federal court’s ruling and ultimately prevailed in its appeal to limit Dr. Band’s benefits to 42 months. First the appellate court determined that the common law principles of estoppels and waiver did not apply in an ERISA case. Second, Paul Revere’s letters did not formally amend the policy since formal amendment procedures as required by the policy and ERISA were not taken. Finally, the appellate court disagreed with the lower court that Paul Revere’s actions in any way waived its misstatement of age provision, and that Paul Revere did not intend to waive its rights.

Had this case been governed by state law and not ERISA the results may have been different. Dr. Band would have likely stood a better chance of prevailing against Paul Revere. Unfortunately, ERISA strips and preempts many rights that policyholders have under state law. Under ERISA it is clear that a disability insurance company will likely get away with any misstatements or misrepresentations it makes concerning policy terms and coverage, and it is likely that the claimant will suffer damage as a result.

It is important to read your policy thoroughly, and to understand the terms and coverage. If there is something you do not understand, despite the holding in Dr. Band’s case, an explanation letter can be requested from the disability insurance company explaining the term or coverage issue. In the event the case is not governed by ERISA, the insured may be able to hold the insurance company to the explanation letter, and ultimately prevail in the event a dispute arises. This case was not handled by Attorneys Dell & Schaefer.

Our lawyers have handled hundreds of claims against UNUM throughout the country. Contact us for a free consultation to discuss your claim with UNUM or any other disability insurance company.

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