Disability policies contain a provision explaining that coverage will not be extended for a claim based on a “legal disability.” Legal disability relates to the individual’s eligibility to work due to necessary licensing, such a financial advisor (Series 7 license), lawyer (bar license) and physician (medical license). What happens when a disability caused by a physical or mental disability results in the professional becoming legally prohibited from working in their occupation-due to suspension or revocation of their license? This may occur if an attorney develops dementia, commits ethical violations and becomes disbarred- or if a doctor develops a substance abuse, such as addiction to fentanyl, and loses his medical license. Recently several doctors have been incarcerated for Medicaid fraud. What is the root cause of the disability? Do they have a valid claim for disability benefits while their license is suspended?
Insurers will often take the position that a claimant’s legal difficulties are the cause of his inability to practice in his occupation, and cite to the “legal disability” coverage exclusion. In reality it might be that a claimant’s medical impairment, the “factual disability” due to sickness or injury caused an inability to engage in his or her occupation and led to the legal consequences of their behavior.
Courts have identified this problem, and often it’s a “what came first” assessment, or a “but for” assessment. Eligibility for benefits depends on three factors: (1) “whether the claimed factual disability is medically bona fide;” (2) “whether its onset actually occurred before the legal disability;” and (3) “whether the factual disability actually prevented or hindered the [client] seeking disability benefits from engaging in his or her profession or occupation.” Jacobs v. Nw. Mut. Life Ins. Co., 957 N.Y.S.2d 347, 351 (N.Y. App. Div. 2012). The basic idea is that professionals “who would still be practicing their profession had their licenses not been suspended or revoked are not entitled to disability benefits.” Mass. Mut. Life Ins. Co. v. Jefferson, 104 S.W.3d 13, 27 (Tenn. Ct. App. 2002)