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Article 10 of 15 in Sample Disability Insurance Policy and Provisions Review |
Disability income insurance claims |
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Notice of Claim
Every disability income insurance policy has a Claims section that explains the general rules for filing a claim. Regardless of company, much of the wording in all disability policies will be similar because the provisions required by state insurance departments also are similar. Most insurance departments have adopted regulations for filing claims that follow the model regulation adopted by the National Association of Insurance Commissioners. Even thought they are independent, state insurance departments try to work together whenever possible. Working together is practical, but state insurance departments also believe that if their regulations are unified, the federal government has less excuse to try to expand its regulatory authority over the insurance industry.
CLAIMS
NOTICE OF CLAIM
We must receive written notice of claim 30 days after a covered loss starts or as soon after that as is reasonably possible. At least once every six months after having given notice of claim, you should give us notice of continued disability, except in the event of legal incapacity. The period of six months following any filing of proof, or any payment of benefits for such claim or any denial in whole or in part by us shall be excluded for purposes of the written notice requirement. Delay in the giving of notice shall not impair the right to any benefits which would otherwise have accrued during the period of six months preceding the date on which notice is actually received. The notice can be sent to our home office at 1234 High Street, New York, NY 56789, or to our agent. Notice should include the insured’s name and policy number. |
COMMENT:
Most disability insurance policies contain provisions requiring that the insurance company be notified of a claim within a certain period of time after the disability is incurred. This allows time for the company to investigate the claim while information is readily available and recollections are fresh. Late notice may hamper a company’s ability to determine whether benefits are due and may prejudice other rights of the insurance company. Policies usually require that notice of a claim be given within 20 days after loss, or as soon as reasonably possible.
Court decisions on whether failure to provide notice of claim as soon as reasonably possible might result in the forfeiture of benefits fall within three categories:
- A number of courts have held that the insurance company must prove that the late notice prejudiced it before it will be relieved from payment of the claim.
- Some courts have ruled that failure to give timely notice results in loss of benefits regardless of whether the insurer has been prejudiced by the delay.
- Other courts have held that an unreasonable delay in presenting a claim raises a presumption of prejudice to the insurance company, which means that the insured must show that the insurance company was not prejudiced.
Some polices do not state a specific claim time period, but do require notice to be given as soon as reasonably possible. Reasonableness is usually determined by the “prudent person” test, which asks how a wise and cautious person would view the timeliness of the notice.
This sample policy is more liberal than most because it asks for notice within 30 days, not the typical 20 days after a covered loss occurs, as well as the “or as soon thereafter as reasonably possible.” Insurance companies have liberalized notice provisions in recent years because court rulings have given insurance companies the burden of proving prejudice and showing harm due to late notice.
Validity of Claim: Proof
Insurance companies dislike nothing more than paying benefits for false claims. Every time an insurance company pays a claim that it should not be paying, the bottom line is affected. That leads to more expensive insurance for everyone, honest and dishonest alike. No insurance company wants to raise premiums because of fraud, especially if competitors are not forced to raise their premiums because of fraudulent claims. The prospect of raising premiums forces insurance companies to take extra precautions to be certain that the claims they pay are valid. Establishing adequate proof of a valid loss is the key to this process.
CLAIMS
CLAIM FORMS
We will send a claim form within 10 working days of receiving the notice of claim. If the claim form is not received within 15 days after notice of claim was sent to us, you or the Owner should write us a letter about the claim describing the cause and extent of your loss in detail. |
COMMENT:
If you do not receive a claim form from the insurance company within 15 days after you send your notice of claim, you should contact the company to be sure your notice was received. If you are told the claim form is in the mail, give it a few days, but if it is not clear that the form has been sent, you might send a letter to the insurance company providing the information describing the cause and extent of your loss. This is the basic information required on the claim form and may speed the claims process.
PROOF OF LOSS
Completion and return of the claim form or, if needed, the letter the letter described in the Notice of Claim section, above, will serve as proper filing of proof of loss. This filing must be received in our office no later than 90 days after the end of a period for which benefits are claimed. Benefits will not be reduced due to delay in filing of proof of loss if it was filed as soon as reasonably possible. In no event, however, will we accept a filing of proof of loss more than a year after it is due. An exception will be made only if the Owner was not competent to make claim.
As part of your loss, we must be furnished with satisfactory proof of your Prior and Current Earnings so that we can determine the proportion of the monthly benefit payable. If this proof is not furnished, no benefit will be payable. Proof of Earnings may consist of copies of your Federal Income Tax returns, a statement from a Certified Public Accountant, or such other records we may require. Proof of Current Earnings must be furnished as often as we may reasonably require.
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CLAIMS
COMMENT:
Requirements for presenting proof of loss are not the same as the requirements for providing notice of claim. Most health insurance policies require that a claimant provide proof of loss within 90 days or as soon thereafter as reasonably possible. Disability income policies differ because proof of loss usually must be submitted within 90 days after the end of the period for which the insurance company is liable, or a soon thereafter as reasonably possible, but in no event later than one year from that date. Timely proof of loss allows the insurance company to investigate without being prejudiced by delay.
Since the benefits under this policy are related to earnings prior to disability and earnings, if any, after disability, the insurance company must have accurate earnings information in order to pay the correct monthly benefit. As the strong wording indicates, no benefit will be paid without this information.
Claim Denials
Disability income insurance claim denials comprise one of the most frequently litigated areas in the insurance business. One reason is the difficulty the insured, medical practitioners and insurance companies have determining when a condition that caused disability is no longer disabling. The insured would seem to be the obvious person to make that determination, but sometimes the insured is not sure the condition is fully repaired and does not want to discontinue benefits, or simply may want to live off the insurance as long as possible to avoid returning to work.. At the other end, the insurance company would like to save money and stop paying each claim as soon as possible. Companies sometimes push to deny or discontinue claims when the medical assessment is a close call, resulting in litigation.
CLAIMS
PAYMENT OF CLAIMS (FACILITY OF PAYMENT)
Monthly benefits are paid at the end of each month of Disability subject to continuing proof of loss. Any balance not yet paid when our liability ends will be paid immediately. Benefits will be paid to the Loss Payee except as provided in the Special Death Benefit provision. If benefits are payable to an estate, a minor, or a person not competent to give a release, we may make a payment (up to $1,000) to any relative by blood or connection by marriage of the Loss Payee we believe is entitled to it. If we do that in good faith, we will not be liable to anyone for the amount we pay.
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COMMENT:
Some insurance policies, such as this one, contain facility of payment provisions so the insurance company can pay some or all of the remaining proceeds to a person who appears to be entitled. The designated recipient may be entitled because he or she has paid funeral or other expenses related to the last illness of the insured. Almost all courts have upheld these provisions because they carry out the intent of the policy owner and allow the insurance company to pay needed funds quickly. Although the insurance company has the option of paying part of the proceeds under the facility of payment provision, it is not obligated to do so. As a practical matter, however, the provision allows easy payment to those who have a right to payment for expenses incurred on behalf of the insured.
PARTIAL MONTHS
We will pay one-thirtieth of the appropriate monthly benefit for each day of any period of less than a full month for which benefits are payable.
PHYSICAL EXAMS
We have the right to require you to be examined from time to time while a claim is pending or benefits are being paid. This will be by a Doctor we choose, at our expense and as often as we may reasonably require.
LEGAL ACTION
Legal action may not be started against us to recover on this policy until 60 days after filing of proof of loss nor more than 5 years after the filing of proof of loss is required under this policy. |
COMMENT:
Under the partial month provision, the insured will receive the full monthly benefit if the insured is disabled for 30 days of a 31 day month. With this wording, the insurance company is assuming that slight additional liability, undoubtedly to keep the calculation simple.
As to physical exams, the key word in the provision is “reasonable.” The company could use the provision to intimidate you into discontinuing your claim because it is not worth the hassle of all the required exams. But that would not be reasonable and could expose the insurance company to liability.
The 60 day delay on filing a law suit allows the insured and the insurance company to try to work things out. Generally lawsuits do not benefit either party and should be discouraged if the matter can be resolved without litigation. The 5 year time limit is designed to prevent lawsuits that may be prejudiced by the long delay between the actual time of claim (the issue in litigation) and the time of lawsuit when the parties attempt to establish proof of the correctness of their position. |
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