Beware! An Employment Lawsuit Can Keep You From Receiving Your Long-Term Disability Insurance Benefits

Have you ever considered filing a disability insurance claim and an employment action against your employer at the same time?  If you are considering it, you will want to read this article.  There could be big trouble ahead if you are not careful.

When a physical or mental illness strikes, preventing an employee from fully performing the duties of his or her occupation, employers typically respond in one of two ways.  Some employers are helpful and understanding, and provide support while the employee and his or her doctors try to assess whether the employee will be able to continue to work.  Unfortunately, some employers react in the completely opposite manner, harassing the employee until he or she quits or stops working due to the disability, or even firing the employee outright.  Sometimes it is the employer’s behavior that actually causes the disability.  In those situations, employees who have coverage under a short-term disability and/or long-term disability insurance policy can file a claim for disability benefits with the insurer.  If the insurer properly evaluates and pays the claim, the employee can use the benefits to pay for life expenses.

Understandably, after being mistreated by their employers, especially in their time of need, many employees want to pursue an employment lawsuit against their former employer.  While the desire to “punish” the employer may be strong, pursuing an employment lawsuit may not always be in the best interest of the employee and disability claimant.  The reason: the filing of an employment lawsuit can prevent a disability claimant from receiving disability benefits.  This is because one of the elements required in many employment law claims is that the person must be capable of adequately performing his or her job at the time he or she left employment.  This includes claims for discrimination, wrongful termination, retaliation and harassment.

To adequately plead and prove these causes of action, the employee must assert that he or she was capable of performing the duties of the job.  However, in order to assert a claim for disability income insurance benefits, claimants must prove the opposite: that their physical or mental condition prevents them from performing the material and substantial duties of their occupation.  These two positions are in conflict, and applying the legal concept of judicial estoppel, courts have ruled that asserting the ability to perform one’s job duties in an employment law action as a matter of law prevents the employee from also claiming to be disabled.

For example, in Rissetto v. Plumbers & Steamfitters Local 343, 94 F.3d 597 (9th Cir. Cal. 1996), the plaintiff filed a Workers’ Compensation claim in which she asserted she was disabled from performing her work.  After settling that claim with the insurer, she brought an employment action against her employer alleging that her termination constituted age discrimination.  The dispute ended up before the Ninth Circuit, which reviewed whether a claimant was judicially estopped from asserting both a disability claim and a discrimination claim covering the same period of time.

After noting than a disability claim rests on an “inability to work,” the Court observed that the employment law claim rests on the position that Rissetto was capable of adequately performing her job at the time she was terminated.  The Ninth Circuit then explained that because these two claims are in direct conflict, the later-asserted employment law claims were precluded under the concept of judicial estoppel, which “precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position.”  See also Kovaco v. RockbestosSurprenant Cable Corp., 834 F.3d 128 (2d Cir. 2016).

The California Court of Appeal similarly ruled that a plaintiff was judicially estopped from asserting a claim for racial discrimination after being out on disability leave for six months prior to termination, as the Court noted that he could not be able to perform his job and disabled from it at the same time.  Where the plaintiff claimed “total inability to perform any of his job functions or any other occupation” due to disability, plaintiff could not tell another court that he had been qualified to perform his job and had been wrongfully terminated.  See Drain v. Betz Laboratories, Inc., 69 Cal. App. 4th 950, 960 (1999); see also King v. Herbert J. Thomas Memorial. Hospital, 159 F.3d 192, 194 (4th Cir. 1998); McClaren v. Morrison Management Specialists, Inc., 420 F.3d 457, 458 (5th Cir. 2005)

Thus, a person who intends to file a claim for long-term disability benefits under a disability insurance policy must be very careful about asserting employment law claims against his or her employer.  Often, employees do not understand and are not told that asserting employment claims can preclude disability insurance claims, so they do file such claims.  Such claims are often in direct conflict with filing a disability insurance claim, and could cost the insured years of disability insurance benefits to which he or she would be otherwise entitled.  Indeed, a disability insurance claim could be worth hundreds of thousands of dollars, perhaps even millions of dollars, and an unsuspecting disability insurance claimant could end up losing this valuable disability insurance claim.  This is especially true if a disability insurance claimant has state law available to him or her and could otherwise pursue a broad range of damages by proving insurance bad faith, including punitive damages.  This is why it is very important to make sure you consult with highly experienced disability insurance claims attorneys when considering which legal courses of action to follow.

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