When you apply for a disability policy, it is very important to answer all questions as truthfully as you can. The courts generally will not render a summary judgment in favor of the disability insurance company if the company can’t prove that you answered a question with the intent to defraud. If you don’t have a solid explanation for why you answered a question falsely, you may find yourself losing your coverage or facing a jury trial to determine whether you should receive your long-term disability benefits or not.
This is what happened to Richard Koch. Northwestern Mutual Life Insurance Company filed a motion in the U.S. District Court for the Western District of Washington for a summary judgment against Mr. Koch and rescission of his disability policies. At issue? Three disability insurance policies that Koch had purchased from Northwestern Mutual.
Two of these policies were issued on December 23, 1992 contingent upon Mr. Koch participating in an oral personal history interview, which he did on January 14, 1993. A third policy was issued on February 28, 1994, which did not require an oral interview.
When Koch was diagnosed 15 years later on May 1, 2007 with Bilateral Vestibular Hypofunction, he proceeded to file a claim under his three disability insurance policies. This claim was received by Northwestern Mutual (“Northwestern”) on May 23, 2007 and investigations into the validity of the claim commenced on June 6, 2007.
Koch was asked to supply medical records. He did so, providing records from three physicians. One of the doctor’s notes mentioned that Koch had received prior treatment for bipolar disorder and suggested that first treatment went back 15 years prior, before the first policies were issued.
The disability insurance company, Northwestern Mutual, saw this as proof that Koch had answered a series of questions in his oral interview falsely, with the intent to defraud. Northwestern also argued that Koch had misrepresented information to secure the third policy. They pursued a motion for summary judgment against Koch.
Northwestern’s argument? That Koch had purposely given false answers to a set of material questions asked of him in an oral interview, removing all obligations to pay disability benefits to Koch. Koch, the defendant, moved that the Court strike the Plaintiff’s use of his oral personal history interview as a basis for rescinding his disability insurance policies.
How did the court handle this case?
Because there were three policies, the facts had to be weighed against each policy separately. The court ruled that the oral interview was a basis for rescinding his insurance policies, but that first Northwestern Mutual would have to prove that Koch had willfully intended to deceive.
Many of the questions involved in his interview were of such a nature that Koch’s answers could not be proven to be false. For example, one question had asked him if he had been medically treated within the last 10 years for a mental, nervous or psychiatric disorder. Even his treating physician said that he had never used those terms in conversation with Koch, so it was reasonable for Koch to answer no.
Another question which the insurer felt had been answered falsely involved whether Koch had been treated or advised by a physician or practitioner. Koch claimed that he didn’t consider a psychiatrist or psychotherapist a physician or practitioner, so he had answered no. Because there was a question as to whether Koch had knowingly given a false answer, the court could not render a summary judgment on this point.
The insurer had also asked Koch whether he had in the last five years been a patient in a hospital, clinic or medical facility. Koch did not feel his visits to his doctor fit this description, so he again answered no.
When the insurer asked Koch if he had had an EKG, X-ray or other test, he answered no, not thinking anything of the blood work his physician had ordered.
Northwestern asked Koch if any family members had ever been diagnosed with mental illness. Koch claims that he answered negatively because he did not consider depression a mental illness, even though his two brothers had undergone treatment for depression.
There was one question during the oral interview, though, that resulted in the court rendering a summary judgment for Northwestern Mutual on the first two policies. The question? Had Koch “consulted any other health care providers such as osteopaths, chiropractors, psychiatrists, outpatient clinics, emergency rooms, or any other type of doctors within the past five years?” Koch answered no. The medical records proved that Koch had seen a psychiatrist during the six months prior to his interview; therefore Koch had provided Northwestern with false information.
Because of that answer, the court issued a summary judgment for Northwestern Mutual in connection with the first two policies Koch purchased. Koch’s counterclaims for those two policies were dismissed because the ruling invalidated Northwestern Mutual’s obligation to fulfill them.
This left only the third policy in question. Because questions remained as to whether Koch had purposely sought to defraud his insurer, the court denied summary judgment for Northwestern Mutual and reserved judgment on the third policy. Koch’s case will continue; however only one out of his three long-term disability policies is valid.
Don’t find yourself in Koch’s situation. Misrepresentation to a disability insurer will always cause major problems for a disability claimant. One way to deal with a situation such as Mr. Koch’s is to speak with a disability insurance attorney prior to even filing your claim for long-term disability benefits. Depending upon the law of the state governing your policy and the language in the disability policy, a misrepresentation does not always cause a policy to be rescinded. Some court will consider whether a misrepresentation was material; yet other courts will look very closely at the timing of the misrepresentation and whether the insurance company knew or should have known about the alleged misrepresentation. I always tell my clients that the truth is easy to deal with; however a lie will usually destroy a claim for disability benefits.