Residual Disability Coverage – Does it Pay?

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As the Wall Street Journal recently discussed, residual benefits might be a useful option in the case of a professional who becomes ill and, after a period of recovery returns to work on a reduced schedule and therefore loses incomes. If the policy was issued in the 80’s or 90’s, it may even compensate for a loss in income until the insured reaches ages 65.

However, the Wall Street Journal article fails to address the potential pitfalls of purchasing a disability income policy with a residual benefit provision. A strict total disability policy will pay the insured a flat monthly benefit upon disability, regardless of whether he or she suffers a loss of income due to disability. Such a policy will generally pay benefits so long as the insured is restricted from performing one or more material duties of his or her occupation. However, residual disability provisions–while seemingly offered to benefit the insured in the event of partial disability–generally provide that an insured will qualify as residually disabled if he or she can perform some of the duties of his her occupation, but not all. As residual benefits compensate the insured only for income lost due to disability and not the full monthly benefit available under the total disability provision, an insured may be left with a lower benefit amount as a result of paying extra premium dollars for residual coverage.

We have frequently challenged insurance companies classifying our client’s claims as residual. The dispute often centers on the terms of the particular policy. In Klay v. AXA Equitable Life Ins. Co., 2010 U.S. Dist. LEXIS 10288 (W.D. Pa. Sept. 28, 2010), Klay was a cardiothoracic surgeon who ceased performing cardiac surgeries due to his disability. The policy in question defined residual disability as an inability to “do one or more of the main duties of your occupation,” and total disability as an inability to “do the main duties of your occupation.” The Court found that since Klay continued working in a reduced capacity as a vascular surgeon, his claim could only be classified as residual. By contrast, the policy in Bybel v. Metropolitan Life Ins. Co., 2010 U.S. Dist. LEXIS 122367 (E.D. Pa. Nov. 18, 2010) contained language very similar to that in Klay, yet the court determined that Bybel could be entitled to total disability benefits. Bybel was an OB/GYN who was forced to cease her obstetrical practice when she became disabled, and the Court reasoned that since she was terminated from her position as an OB/GYN and unable to deliver babies on her own, a refusal to find her totally disabled “would contradict the intent of the parties and the purpose of a disability insurance policy.”

Insurance companies must act in good faith to differentiate between a true residual claim and one in which the claimant continues working but is nonetheless totally disabled under the terms of the policy and therefore entitled to the full monthly benefit amount.

If you are a professional whose occupational duties or schedule have changed as a result of illness or injury, we at Bonny G. Rafel are available for expert consultation on how to maximize your benefits under your disability income policy.

– By Sara E. Kaplan, Esq.

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