Listen to Episode 53 of Nationwide ERISA Long Term Disability Attorney Nancy L. Cavey's podcast Winning Isn't Easy where she talks about What Small Business Owners Need To Know About Applying For Disability Insurance Benefits & What Not To Do After Winning Your Claim.
Hey, I'm Nancy Cavey, national ERISA, an individual disability attorney. And I wanna welcome you to winning isn't easy before we get started, I've gotta give you a legal disclaimer. This podcast is not legal advice. The Florida bar association says, I have to say this. So now I've said it, but nothing will ever prevent me from giving you an easy to understand overview of the disability insurance world , the games, the disability carriers play and what you need to know to get the disability benefits you deserve. So off we go, are you the owner of a small business this week? We're gonna be touching what on what every business owner and professional practitioner must know about ERISA, disability, insurance. If you don't own a business, there's still some things I think you need to learn. I'm gonna be talking about three things today. First is your policy governed by ERISA or is it an individual disability policy should a small business owner being paid disability, insurance benefits take a draw or a distribution. And lastly, don't mess with a disability carrier and fail to tell them about work activity, but tale of how one attorney destroyed his disability case. Let's take a break for a moment before we get started.Promotional Message:
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Welcome back to winning. Isn't easy. You ready to get started? The first thing I wanna talk about is whether or not your policy is governed by Rissa or is it an individual disability policy? And I'm gonna do that by telling you the story of a Florida radiologist who argued that his employer provided disability insurance policy fell within what's called the safe Harbor provisions and was therefore exempt from MERISA. Now I know this is a lot of law and legal stuff, but I think you need to understand this foundational , uh , material. So the legal question of whether a disability policy that you purchase through an insurance agent or, and personally pay premiums is governed by state or federal law is rarely an issue because as a rule, an individual disability policy is gonna be governed by state law, but that's not the case necessarily when you have a group disability policy that's provided by your employer. Now, is that an ERISA disability policy, or can you make the argument that the policy falls in what's called the safe Harbor provisions of ERISA act? Now, this sounds like a dry topic, but it's a very important topic because you, the policy holder would rather file a lawsuit in state court on a breach of contract theory than be stuck with a limited remedies of ERISA and the arbitrary and preaches standard of review. And that will make all the difference in your case. So how does a court decide if an employer sponsor group disability policy is exempt from Rissa? Now it goes without saying that Rissa is a pretty complex federal law, and there is something called the safe Harbor provisions. And I'm gonna tell you about that. And I'm referencing a case called Alan versus first Unum. It's a Florida case. Uh , and I think it's a good example of the safe Harbor provisions analysis that a court is going to use to determine this issue. So let me set up the facts radiologist, Dr . Marcus Allen had five disability policies through Unum . At the time he became disabled, four were individual disability, long term insurance policies that he had purchased on his own, through an insurance agent. And he personally paid the premium. Now there's no question that those are IDI policies. However, the fifth policy was a group policy that was administered by Dr . Allen's employer , uh , prospect hill radiology group. And I will tell you that I've had this issue myself , uh , in , uh , my disability insurance practice, as I've represented physicians, many physicians will have a combination of both individual disability policies and policies issued by their medical group. Now, when his claim was denied after being paid for five years, he filed a lawsuit which among other things he argued , uh , that the prospect hill radiology group policy was really an individual disability policy under the safe Harbor provisions of ERISA. Cuz again, he wanted to be in state court, Dr . Allen argued he wasn't employee, but a shareholder partner or owner of prospect hill. And as a result prospect hill plan, wasn't governed by ERISA. Now the code of federal regulations establishes a regulatory safe Harbor, which excludes ERISA covered employee welfare benefit plans , uh , that are offered by an insurer to an employee to qualify for the safe Harbor exemption. There are four requirements that you have to meet and you have to meet all four of 'em first, no contributions are made by an employer or an employee organization. Two participation in the program is completely voluntary for employees and for members, thirdly, the sole function of the employer or the employee organization with respect to this program wi is, and without endorsing, it is to allow the insurer to publicize the program to its employees or members to collect premiums through payroll deductions or dues , uh , and to remit them to the insurance company. And then lastly, the employer or the employee organization gets no consideration in the form of cash or otherwise in con uh , connection with this disability program, other than reasonable compensation, excluding any profit for the administrative services actually render in , uh , conjunction with payroll deductions or dues checkoffs. You have to meet all four regulatory requirements , uh , to qualify for the safe Harbor provision. ERISA is not gonna preempt state law , uh , claims for the payment of disability , uh , benefits , um, that don't fall , uh , under the safe Harbor , uh , um, provisions. So what did the court do? Well, the court disagreed with Dr. Allen's argument that because the partners didn't perform any functions concerning the group policy, other than to make the premium payments, that the third element was not met. Um, prospect hill had endorsed the group plan. They had purchased it. They served as the plan administrator and the court said, look, that was sufficient to meet , uh , the third test. And as a result, the say Harbor exception was not applicable. And unfortunately for the doctor, the prospect hill policy was governed by ERISA and he had to deal with the arbitrary and capricious standard of review, which is tough to overcome. Okay, got it. Let's take a break. Welcome back to winning. Isn't easy. Should a small business owner being paid, disability insurance , uh , benefits, take a draw or a distribution now like any small business owner, you and I bought a disability insurance policy to ensure us if we lost our income, but what does the term loss of income mean? There is no uniform disability insurance policy in the United States. So as a result before you stop work and apply for your benefits, you should get a copy of your disability insurance policy or plan and read it cover to cover. You wanna pay particular attention to terms like income, loss of income and covered earnings. You might find out that if you take a draw or a distribution, that money would be considered by the terms of your policy to be income for the purposes of calculating and paying your disability insurance benefits. So we've gotta be careful. Let me, let me give you an example. Let's say that your disability policy specifically says that income includes any distribution that you pay yourself. If your benefits are $10,000 a month and you take a $5,000 per month draw, I'm sure the disability insurance company's gonna take the position that you've been overpaid benefits. And they're gonna demand that you pay that $5,000 difference back to them worse. Yet , if you had a total disability policy, the disability , uh , provider might say, well, regardless of whether or not you're a disabled, any distribution that you pay yourself is considered income. And therefore you're totally disqualified from receiving disability benefits. Now you may ask how will the disability insurance company know that you're taking a draw? Well, that's pretty simple. The disability insurance, company's gonna ask you for your monthly financials. And at the end of the tax year, they're gonna ask for a copy of your corporate tax return. If they see a draw , a distribution or other income that you've reported on your tax return, they're gonna demand repayment. The very terms of your disability policy may allow them to get away with this. And they may say, not only do you owe the money, but you have no disability claim since you're earning income. Wow. Hmm . So what are some practical suggestions that might help you in advance of your claim? Well, as I've said, the first suggestion I have is that you get a , a copy of your disability policy. Um, I think that you should have an experienced , uh , or , or an ERISA disability attorney or an I IDI attorney read it , cover to cover and do a policy term analysis. This isn't something that your personal injury , uh , friend , uh , or your family, lawyer , uh , or any other kind of lawyer should do because they are not ERISA or IDI attorneys. Now, the next thing you wanna do is look at your corporate documents to understand the current structure of your business. One solution might be to add your spouse as a corporate officer and pay them the equivalent of your draw or distribution while you're disabled or another solution might be to seller or transfer your interest in your business, to your spouse, and then pay them the equivalent of your draw or distribution while you're disabled. And there might be other options based on your policy, but what you do with the pro speed seeds of your business by taking your draw or a distribution can destroy your claim. And the disability insurance company can legally be able to deny your claim or ask for reimbursement. And you need to know that before you stop work and apply for your benefits. So you should be consulting with an experienced. There is a disability attorney such as myself, and certainly with your tax preparer , uh , or , uh , other tax , um, professionals, to understand what the implications tax implications , uh , could be of some of the suggestions I've made, cuz I'm not a tax lawyer. You need help. I can help you with your ERISA claim, but I can't help you with your tax issues. Let's take a break.Promotional Message:
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Welcome back to winning. Isn't easy. I'm gonna tell you a story. I think stories are instructive for lots of reasons. Not only are they entertaining, but more importantly, you, you get a sense of what disability carriers do and what judges do , uh , with disability insurance claims. So this is called don't mess with a disability carrier and fail to tell them about work activity. It's a tale of how one of my colleagues, an attorney destroyed his disability case. So when the disability insurance carrier puts you on claim or, or was called diary, you're going to be asked to fill out forms. And one of those forms is going to be an activity of daily living form. It's gonna ask you questions about your activities, including work activities. You have an obligation to tell the truth. And if you don't, your claim can be denied and worse yet if they catch you in a lie about your work activity, the disability care just might Sue you to recover disability payments they made to you. So let me tell you the story of Mr. Messing , who lived up to his name and he messed up his disability claim. Big time . We've touched on his story in , uh , past episodes, but I wanna reiterate this story and I wanna expand a bit on him because I think it's important for you to hear. Now, this is about misrepresentations, about work activity. Mr. Messing was a former partner in a law firm and he knew the likely consequences of making a misrepresentation on his activity of daily living forms. Misrepresentation in my view is a fancy legal term for lying messing claimed in 1998 that he was disabled because of depression. And he was unable to handle the stress of being a trial lawyer, UN Providence accepted the claim. And they paid him benefits until 2018 . And guess what they found he was able to work as a lawyer and they terminated his benefits. Messing had never disclosed that between 1999 and 2013 , he had worked on 13 legal cases for which he had been paid the failure to disclose that work and the money he yearned on his activity of daily living forms would come back to bite him. And you know, where it bit him, it was in his wallet, right? Unum Providence did a simple search using something called pacer and they typed in his name and out came information about 13 cases. And while this information was ultimately not part of the administrative record, it didn't help his case. So what did Unum do? Well, Unum counterclaimed for restitution of the disability benefits. So when he sued them, they counterclaimed and they said, look, messing , misrepresented his inability to work as an attorney. And we want our money back. Now, fortunately for messing, the judge found that unit Providence had met its burden to show that the misrepresentation had induced the payment of his disability benefits. The judge concluded that at best Unum, Providence only showed it would have investigated the claim, had it known about the misrepresentations and that it was speculative as to whether or not that information would've led to a claim denial back in the past, but ultimately Unum , uh , prevailed. And by that, I mean , uh , while messing didn't have to pay the money back that he had been paid from 1999 to 2013 , the judge ruled against him in his disability , uh , case , uh , and found that he , uh , was able to work as a trial attorney and was no longer entitled to benefits after 2018 . So what's the lesson here? Well, the lesson is you shouldn't give the disability carrier reasons to deny your claim, and they're not in the business of, of , uh , paying benefits. And they're always looking for a reason to deny benefits when you make a misrepresentation, however, that can result not only in a claims denial, a claims, determination, a claim for restitution, but worse yet it can even result in a referral to the department of insurance, for fraud investigation, and even worse for messing his misrepresentations could result in a bar complaint and an ethics violation investigation with a possible loss of this legal license. Like your mama told you , tell the truth, tell the truth and tell the truth. I hope you've enjoyed this week's episode of winning. Isn't easy. If you've enjoyed this episode, consider liking our page, leaving a review or sharing it with your friends and family. Also, why don't you subscribe to this podcast that way you're gonna be notified every time a new episode comes out. And I wanna remind you our , uh , 2022 KV law scholarship is up and running and we're taking entries until August head over to caveylaw.com/scholarships to enter a family member , um , or a friend whose child is going to college and could benefit from a , uh , college scholarship. I hope you tune in next week for another insightful episode of winning. Isn't easy .