Disability insurance exists to protect an individual who becomes disabled and is no longer able to work.  Short-term disability benefits replace a portion of a worker’s salary when he or she becomes unable to work for a period of weeks or months because of a qualifying illness or injury.  Long-term disability benefits go into effect when short-term benefits have expired.  These benefits are designed to replace a portion of income on a long-term basis when an individual is no longer able to work at all, or is only able to work on a part-time basis, due to injury or illness.  Unfortunately, too often, insurers deny long-term disability claims in bad faith, leaving their policyholders high and dry.  When this happens, an insured can bring litigation against the insurer with the help of an experienced insurance litigation attorney to recover benefits that are owed.

Private insurance policies vs. employer-provided policies

Short-term disability insurance is typically made available through an employer.  Long-term disability insurance, however, is equally likely to be employer-provided or personally purchased. The following discussion addresses only privately purchased policies.  Employer-provided insurance policies are covered by the Employee Retirement Income Security Act, a federal law that preempts state laws. These types of policies will be the subject of an upcoming blog post.

Possible claims against an insurer

Generally, an insurer denies a long-term disability claim for two reasons:

1. Lack of sufficient evidence of disability; or
2. The disability is not significant enough to prevent an insured from working.

Most lawsuits against an insurer for denying a claim are premised on two basic allegations:

1. Breach of contract; and
2. Bad faith

Under Pennsylvania law, any ambiguities in the insurance contract, as well as any contractual exemptions and exclusions, will be interpreted in the insured’s favor. 

To prove a breach of contract claim, medical evidence is extremely important.  If the insured can prove that the insurer was wrong in denying the claim, for example by proving total disability, the insurer will be required to pay the claim.  Under Pennsylvania law, however, additional damages are available if the insured can prove the insurer acted in bad faith.

Insurer bad faith

Under Pennsylvania’s insurance bad faith statute, if the court finds that an insurer acted in bad faith, the court may award the insured the following additional damages:

1. Interest on the claim amount;
2. Punitive damages; and
3. Court costs and attorney’s fees.

Bad faith must be proved by clear and convincing evidence, which requires more than a showing of mere negligence or bad judgment on the insurer’s part.  Courts have found the following behaviors to demonstrate bad faith:

1. The insurer lacked a reasonable basis for denying the claim and knew or recklessly disregarded this lack of a reasonable basis;
2. Lack of a good faith investigation into the facts of a claim and failure to communicate with the insured; and
3. Refusing to settle a claim within policy limits when the insurer did not have an actual belief that it could win at trial.

Consult a Philadelphia insurance litigation attorney

If you have had an insurance claim reduced or denied, or you have been mistreated by an insurance company, the knowledgeable Philadelphia insurance litigation attorneys of The Kim Law Firm, LLC, can help.  We have the skill and experience to take on large insurance companies and stand up for policyholders’ rights.  Contact us for a consultation about your case today.