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)
A recent case highlights this issue. In Pogue v. Northwestern Mutual Life Insurance Company, 2018 WL 1189415 (D.C. Ky March 7, 2018), Dr. Pogue alleged that he surrendered his medical license when he believed he had become mentally unable to continue working due to a total nervous breakdown. Yet as he was making his disability claim, the Board of Medical Examiners suspended his medical license due to improperly prescribing controlled substances. Northwestern defended the claim, asserting that his disability was caused or contributed to by the suspension of his medical license. Since the court agreed that his disability was brought about in whole or in part by the suspension of his professional license, he could not recover under the policies. It is apparent that this case was all about the timing. Had Dr. Pogue initiated his disability claim when he was suffering from the psychiatric condition, but well before his license was suspended, the outcome may have been different.
Where a professional becomes unable to work due to psychiatric impairment prior to revocation or suspension of his or her license, the professional has a legitimate disability claim. For example, where a physician suffering from early onset dementia is suspended from practice due the risk that he may harm a patient, one could argue that the true cause of the disability is the psychiatric impairment (factual disability) which preceded the legal disability. In that setting it is unlawful for an insurer to deny such a claim. Professionals must be aware of this fine line- because they risk becoming ineligible for disability coverage under their policy if they become legally unable to work simultaneous with a physically/mentally disabling condition. We at Bonny G. Rafel LLC (www.disabilitycounsel.com) help protect our clients who face both medical impairment and legal difficulties in overcoming the insurance companies’ attempts to categorize factual disabilities as legal disabilities and deny legitimate disability claims.