In this several-part blog series titled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health, accidental death and dismemberment and disability claim, from navigating a claim, to handling a claim denial and through preparing a case for litigation. In Part Eight of this series, we discuss the impact of a finding of disability by the Social Security Administration (“SSA”) on a claim for disability benefits that was filed under an insurance policy governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).
Social Security Disability Insurance (“SSDI”) is an important federal program available to many people who pay into the Social Security system. If a person becomes disabled, they are able to file a claim with the SSA for disability benefits. If the claim is denied, as many are, the claimant has the option of appealing the decision. An administrative law judge (“ALJ”) will hear the appeal and rule on whether the claimant is disabled and entitled to benefits.
When it comes to employees who receive disability policies with an insurance company, the impact on a disability insurance claim depends on the type of disability policy a person has. With respect to most individual disability policies (not issued through an employer), these policies serve as separate sources of funding should the person become disabled. Whether or not a person qualifies for SSDI benefits generally does not impact an individual disability claim. However, there are a myriad of different ways in which an SSDI decision can affect a person’s claim for group disability benefits issued through an employer.
The most significant impact an award of SSDI benefits can have on a group disability claim is that an award of SSDI benefits serves as strong evidence that the person is disabled under the group policy as well. The SSDI determination serves as strong evidence, in part, because the SSA has a more stringent standard for finding a claimant disabled than is found in most group disability policies. See Shaw v. Life Ins. Co. of N. Am., 144 F.Supp.3d 1114, 1135 (C.D. Cal. 2015) (“The Ninth Circuit has warned that ‘in some cases, such as this one, the SSA deploys a more stringent standard for determining disability than does the governing ERISA plan.’ Specifically, to receive Social Security disability benefits, Shaw had to show that she was ‘unab[le] to engage in any substantial gainful activity . . . .’ Under the Plan, however, Shaw had merely to show . . . .”); Bertelsen v. Hartford Life Ins. Co., 1 F.Supp.3d 1060, 1063, 1074 (E.D. Cal. 2014) (finding that “the SSA’s definition of disability [was] stricter than” the policy’s definition). Furthermore, the SSA is an independent entity that has no financial stake in the outcome of a claim for benefits. On the other hand, if a claim is approved by a disability insurer, the insurer will be negatively financially affected to having to pay the claimant. An SSDI benefits award is sufficiently strong evidence of disability that, should an insurance company deny a claim for group disability benefits after the claimant has been awarded SSDI benefits, the insurer must explain why it reached a different result. See Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 679 (9th Cir. 2011) (“Evidence of a Social Security award of disability benefits is of sufficient significance that failure to address it offers support that the plan administrator’s denial was arbitrary, an abuse of discretion. Weighty evidence may ultimately be unpersuasive, but it cannot be ignored.”).
Claimants must be warned, however, that an award of SSDI benefits does not mean that the insurer must pay under a group disability plan. The SSDI award merely serves as strong evidence. See Maher v. Aetna Life Ins. Co., 186 F.Supp.3d 1117, 1126 (W.D. Wash. 2016 (“Maher later received an award of SSDI benefits which, although not binding upon the Court, is evidence weighing in favor of her meeting the Plan’s definition of disability.”). At times, the insurer and court may state that the evidence in the record before it is insufficient to establish disability regardless of what the SSA found. The court and insurer want additional evidence. Even in those circumstances, the SSDI process can help an insured. For example, during the process of acquiring SSDI benefits, the claimant may have undergone medical examinations. Submitting the results of these examinations to the insurer may help the insured establish entitlement to benefits under the group disability plan. Regardless of an award of SSDI benefits, a claimant must take care to build a strong record and submit all relevant evidence to the insurer while pursuing their group disability claim.
Of course, an unfavorable decision by the SSA can harm a claimant’s chances of obtaining SSDI benefits. Many judges look at such a decision and will be persuaded by the ALJ’s findings. While an ALJ’s decision does not control, there are exceptions to this general rule, but they are rare. See Parr v. First Reliance Standard Life Ins. Co., 2017 WL 1364610 (N.D. Cal. Mar. 31, 2017) (granting summary judgment for the insured in a dispute over group disability benefits even though the insured was denied SSDI benefits).
In addition to the evidentiary aspect of an award of SSDI benefits, an insured must also understand the financial implications of such an award. Most group disability policies include clauses that state that the insurance company may deduct the value of payments for SSDI benefits from any payments to the insured issued under the group policy. As such, it is in the insurer’s best interest to encourage a claimant to obtain SSDI benefits. Insurers not only encourage a claimant to apply for SSDI benefits, they often require that disability claimants apply. If they do not, then they will estimate an offset and deduct it from the amount of any benefits owed to the claimant.
A simple example helps to illustrate why an insurer would want such an award:
A claimant earns $100,000 a year. The group disability policy provides that the insurance company will pay 60% of that salary, $60,000, if the insured becomes disabled. That comes to $5,000 per month in group disability benefits. However, the person may also potentially receive $2,200 per month in SSDI benefits. Under the policy, the SSDI benefits are deductible. Therefore, the insurer need only pay $2,800 per month if the person is awarded SSDI benefits.
As the above example makes clear, there is a strong incentive for insurance companies to require insureds to seek out SSDI benefits. If the benefits are awarded, the insurer need only pay a fraction of the original benefits. If the SSDI claim is denied, the insurer acquires some evidence to assist it in denying the insured’s claim. In short, the SSDI process is a win/win scenario for the insurance industry. It is especially a win-win for the insurer when they encourage their claimant to apply for SSDI benefits, then they are awarded and then the insurer denies the disability claim anyway. Believe it or not, we see this occur often. That is when a disability claimant will need the assistance of experienced disability attorneys like McKennon Law Group PC.