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A Cautionary Tale

Several months ago we were contacted by an emergency room physician who was forced to give up his practice because of a debilitating back condition. Fortunately, he had a policy of disability income insurance to protect him from just such misfortune. Unfortunately, based upon early contacts with his insurance company, he was fearful that his claim was going to be denied. We reviewed his policy, talked about his situation, and offered to help him through the claims process.

Over the next several months he provided medical information, financial information, education and employment history, and complied with every request from the insurance carrier. Though he was clearly disabled, as attested by his neurosurgeon, and, though he did everything required of him under the policy, his claim was denied. At age 55, he found himself unable to work, and unable to collect insurance benefits for which he had been paying for years.

How could this happen? And, what can you do if it happens to you?

First, you must understand the industry.

Insurance companies retain as profit the difference between what they collect in premiums and what they pay out in claims. If fewer claims are accepted and paid, profits increase. Sometimes insurance companies look for ways to deny claims knowing there is no valid basis for denial. They know that some insureds will simply give up when their claim is denied. And, the more complicated and difficult the company can make the claims process, the more likely an insured will fail to comply with a material request or make a misstep that will justify denial of the claim. Denying legitimate claims can increase profits by hundreds of millions of dollars, and deprive insureds of benefits they are entitled to receive, but only if the denials go unchallenged.

So, what can you do if your claim is wrongly denied? You can sue to enforce your rights under your insurance policy just as we did for our client, who received his benefits after almost one year of litigation.

The law recognizes that when you purchase insurance you place your trust in your insurance company to do what it has promised to do. When legitimate claims are denied that promise is broken. The law supports your right to enforce the terms of the policy—and in some cases to recover your costs of collection and attorney fees.

Disability insurance companies are obligated to timely conduct a fair, thorough, and objective investigation of every claim. This investigation must include not only properly assessing the claimed disability, but also properly evaluating how the disability renders the insured unable to perform the material and substantial duties of his own occupation or any occupation. Depending on the facts, conducting an untimely, unfair, sloppy, unreasonable, or incomplete investigation may constitute bad faith for which additional damages are recoverable.

If you are running into trouble with a disability insurance claim, it is essential that you immediately obtain counsel knowledgeable in the law of disability income insurance and competent to protect your rights. Rights can be lost in the claims process if required procedures are not followed.


Robert M. Cearley, Jr. is past president of the Arkansas Bar Association (1998-99), recipient of its Golden Gavel Award (1997), a member of the Arkansas Trial Lawyers Association, past member of its Board of Governors and recipient of its Outstanding Trial Lawyer Award (1997). He has been elected by his peers as a member of the American Board of Trial Advocates, the American College of Trial Lawyers, the International Academy of Trial Lawyers, and has been selected by his peers for inclusion in The Best Lawyers In America and the Martindale-Hubbell Bar Register of Pre-Eminent Lawyers. He can be reached at Cearley Law Firm, P.A. at bob@cearleylawfirm.com.