Introduction
Claims involving disability benefits comprise a sizable portion, if not a majority, of cases litigated under the Employee Retirement Income Security Act (ERISA). [1] Although the ERISA statute is primarily focused on retirement benefits, the scope of that law encompasses “welfare” benefits, which the statute defines as:
any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 186(c) of this title (other than pensions on retirement or death, and insurance to provide such pensions). [2]
The ERISA statute thus makes it clear that both self-insured and insured welfare benefit plans, such as group disability insurance, fall within ERISA’s scope, a point that was emphasized by the Supreme Court in Pilot Life Insurance Co. v. Dedeaux, [3] if it was not already established by prior rulings. Pilot Life involved a garden-variety claim for disability insurance benefits brought under state law. However, the Supreme Court ruled the claim was preempted by § 514 of ERISA, [4] which meant that all remedies under state law, including damages for insurance “bad faith,” were precluded, even though pre-ERISA cases decided such employee benefits disputes as breach of contract cases brought in the state courts. [5] Hence, the U.S. Court of Appeals for the Seventh Circuit remarked in Brundage- Peterson v. Compcare Health Services Ins. Corp. [6]
All this is not to deny the strangeness, as an original matter, of transforming disputes between employees and insurance companies over the meaning of the insurance contract into suits under ERISA. But the Supreme Court crossed this rubicon in Metropolitan Life Ins. Co. v. Taylor, [7] … which had held that a suit under the group insurance policy was not a suit under the ERISA plan pursuant to which the policy had been issued.
Litigating disability benefit claims can thus be challenging, since claimants’ attorneys need to be versed in insurance law, particularly as it pertains to disability insurance, as well as in ERISA law. Disability claims are unique in the field of insurance law because a disability determination involves three components: Legal, Medical, and Vocational-
- The Legal component relates to the terms of the policy, including exclusions and limitations, as well as how the policy defines the meaning of “disability.”
- The insured’s diagnosis or diagnoses in situations involving multiple co-morbidities, as well as any functional limitations caused by the claimant’s condition, comprises the Medical component of a
disability claim. - And the Vocational aspect of a disability benefit claim is an analysis of how, if at all, the claimant’s medical condition affects their ability to perform the duties of their regular occupation or other occupations. A diagnosis itself is never enough to establish disability. Even a condition as dire as amyotrophic lateral sclerosis, a neuromuscular disorder commonly known as Lou Gehrig’s disease, does not become disabling until the disease progresses and affects the claimant’s ability to walk, talk, breathe, and perform other tasks.
While medical records, test findings, and reports from treating and examining doctors are the primary source of evidence in disability benefit cases, many claimants concurrently apply for Social Security disability benefits or Veterans’ disability benefits; and findings from the SSA or VA can be decisive in establishing a disability claim. This article will compare and contrast Social Security disability and Veterans disability claims with long-term disability claims and provide guidance as to how findings from those agencies can be utilized to strengthen the evidence in long-term disability claims.
Social Security Disability
In order to qualify for Social Security disability benefits, a claimant needs to demonstrate the following in order to meet the following definition of “disability” contained in the Social Security Act:
inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.8
The Social Security Act further elaborates:
An individual shall be determined to be under a disability only if his physical or mental impairment or impairments are of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work. For purposes of the preceding sentence (with respect to any individual), “work which exists in the national economy” means work which exists in significant numbers either in the region where such individual lives or in several regions of the country. [9]
That definition is so stringent that many collectively bargained disability benefit and disability pension plans require approval of Social Security disability benefits before the plan grants benefits. Others incorporate Social Security disability approval in plan terms as a benchmark that automatically leads to approval of benefits. Some plans also condition Social Security approval as a condition precedent to approval of benefits beyond an initial benefit period.
While there is no law mandating that disability insurers are compelled to accept a Social Security determination as binding on their own determinations, case law dictates that insurers cannot ignore findings made by SSA either. Disability insurers encourage their insureds to apply for Social Security disability benefits because group long-term disability benefit plans integrate the benefits payable with Social Security payments. In other words, every dollar in benefits paid by Social Security is a dollar less that the insurer needs to pay because the policies give the insurers the right to offset Social Security payments.
In Holmstrom v. Metropolitan Life Insurance Company, [10] the U.S. Court of Appeals for the Seventh Circuit was troubled by the fact that “MetLife received a benefit from the Social Security determination that [the plaintiff] was disabled, but then failed to consider that determination when it terminated benefits.” [11] Hence, the court found an insurer’s “failure to consider the [SSA] determination in making its own benefit decisions suggests arbitrary decisionmaking,” [12] adding “[t]his is especially so when the Social Security determination was made under a similar or more stringent disability definition, as it was here.” [13] Court rulings such as the Holmstrom decision have now been incorporated into claim regulations promulgated by the U.S. Department of Labor, which require that adverse claim decisions must incorporate a discussion of a contrary Social Security determination. [14]
Such criticism is further heightened when the insurer assists the claimant in applying for Social Security benefits. The Supreme Court zeroed in on that scenario in Metropolitan Life Insurance Company v. Glenn, [15] describing a disability insurer’s disavowal of a favorable Social Security decision after it had assisted its insured in qualifying for Social Security and financially benefiting from the award as suggestive of “procedural unreasonableness.” [16] In an earlier Seventh Circuit opinion, Ladd v. ITT Corp., [17] the court overturned a disability benefit denial, suggesting that the disability insurer should have been judicially estopped from terminating an insured’s benefits after it assisted her in qualifying for Social Security disability benefits and recouped benefits it had previously paid based on the policy’s coordination of benefits provisions.
The administrative record in the Social Security case is also of great significance in bolstering the value of the Social Security award in a disability insurance case because it eliminates the insurer’s ability to argue that it had no knowledge of how and why Social Security approved benefits. In Melech v. Life Insurance Company of North America, [18] the U.S. Court of Appeals went even further by imposing an obligation on the insurer to consider the evidence before the SSA. As part of every Social Security disability claim, the agency collects medical records from multiple sources, typically requires the claimant to attend one or more independent consultative evaluations, and then utilizes medical professionals to review the evidence and document their findings in a document known as the “Disability Determination Explanation (DDE).” The DDE can be critically important to a disability insurance claimant because it catalogues all the evidence considered by SSA, discusses the weight given to that evidence, and includes both a medical review and a vocational assessment. Even if the Social Security claim is not successful, the DDE can be useful in qualifying a claimant for disability insurance benefits, particularly if the policy utilizes an occupation specific definition of disability. The DDE will often include a finding that the claimant is precluded from performing their past work or it may determine the claimant is limited to unskilled work, a finding that is quite valuable if the insured’s regular occupation is highly skilled such as a doctor or a lawyer. Or someone whose occupation requires regular heavy lifting may be limited to “light” [19] work, which would preclude a return to more physically demanding employment.
Claimants can also utilize Social Security in other ways as well. In Halpin v. W.W. Grainger, Inc. [20] the Seventh Circuit noted, “Although the standards used in adjudicating social security cases are not applicable under ERISA, the guiding principles developed in those cases may be “instructive” in ERISA cases.” The U.S. Court of Appeals for the Second Circuit went even further in Demirovic v. Building Service 32 B-J Pension Fund, [21] by suggesting that Social Security’s Medical-Vocational Rules,[22] a shorthand method used by Social Security to determine disability based on the claimant’s age, education, and functional capacity, may be used by disability plans to determine eligibility, describing the Rules, known as the “Grids,” as “well-developed, relatively efficient and by no means overly generous to claimants.”
Thus, while both favorable Social Security determinations and the evidence developed in Social Security claims can be utilized as a valuable tool to assist claimants in qualifying for disability benefits or bolster their claims, they are not a complete panacea. Two of the largest disability insurers, Unum and the Life Insurance Company of North America, [23] agreed to enter into multi-state regulatory settlement agreements [24] in 2004 and 2013, respectively, to settle charges made in market conduct investigations of improper claim handling practices. As part of those agreements, the insurance companies agreed to give deference to favorable Social Security determinations; however, they did not have to do so if they could show a legal basis denying benefits or if the insurers possessed evidence that was directly contradictory to the Social Security determination. Since disability benefits coverage, unlike health insurance coverage under the Affordable Care Act, can exclude coverage for pre-existing conditions, a favorable Social Security determination would likely not make a difference if benefits are denied based on such an exclusion or other policy exclusions such as injuries sustained in a war zone. Also, most disability coverage limits benefits for mental health conditions to a maximum duration of 24 months. If an insured exhausts mental health benefits under such limitations, a favorable Social Security decision would not necessarily benefit the claimant.
However, in most instances, Social Security can be beneficial to claimants seeking disability benefits. Disability insurers face a burden of explanation if their findings diverge from those made by SSA. Also, it is
difficult for insurers to convince courts that their doctors’ and vocational consultants’ opinions are more persuasive than the opinions of independent doctors who examine claimants in the course of a Social Security claim or who evaluate the evidence and render medical and vocational determinations.
Veterans Disability
Many military veterans who have suffered injuries or illnesses, or who are exposed to toxic substances, are entitled to service-related disability benefits. In some instances, wounds, injuries, and illnesses that have been sustained while in service are severe enough to lead to the servicemember’s discharge and may preclude subsequent employment in the civilian sector. However, other veterans may complete their service and go on to successful careers. Nonetheless, the effects of a service-connected condition may not initially be severe enough to preclude working, but over time, may ultimately lead to or result in a career-ending medical condition that is the basis of a long-term disability insurance claim or may be a factor in an ensuing disability claim. Such conditions may also result in a disability benefit award from the Veterans Administration (VA).
Insurers are not as insistent in encouraging claimants to apply for VA benefits as they are in insisting on applications for SSDI, though. Unlike Social Security benefits, which integrate with disability benefits, VA benefits are usually not offset from disability benefit payments. [25] As a result, the financial arguments that can be made regarding Social Security disability benefits are not available when claimants argue that insurers should consider VA awards. Nonetheless, a favorable outcome in a VA disability benefit outcome remains potent evidence.
Assuming the veteran has applied for and received a disability rating from the Veterans Administration, both the VA’s findings and the evidence on which those findings are based can be just as useful in a disability benefit claim as Social Security. The VA disability system differs substantially from the Social Security disability program, though, which can often cause confusion. Although both Social Security and the VA take into consideration the combined impact of multiple disparate impairments, [26] Social Security disability awards are “all or nothing” – there is no provision for an award of a partial or percentage disability. Nor does Social Security separately rate the severity of each impairment. In contrast, the VA rates the percentage of impairment as to each claimed disability and then issues a composite rating for a combination of disparate impairments which is factored into the benefit amount awarded.
The complexity of the VA system can be baffling, and the results of a VA disability claim may not be appropriately appreciated and taken into consideration by disability insurers and courts. An example is the recent court ruling issued by the U.S. Court of Appeals for the Seventh Circuit in Scanlon v. Life Insurance Company of North America. [27] While the plaintiff in that case was ultimately successful in convincing the court of appeals to overturn a district court judgment that ruled for a disability insurer, the court declined to give significant weight to Scanlon’s VA disability rating, commenting as follows:
Scanlon criticizes other aspects of the district court’s decision, but his criticisms are unavailing. For example, he argues that the district court erred when it afforded little weight to the VA’s determination that Scanlon is totally and permanently disabled because, in the court’s estimation, the VA’s conclusion was largely grounded in psychiatric issues. But the VA’s disability determination clearly places emphasis on psychiatric conditions, even if it also considers Scanlon’s chronic sleep and pain issues as a contributing factor. And Scanlon did not base his claim with LINA on his psychiatric medical conditions. There was no error in the district court’s approach to the VA evidence. [28]
However, what the court may have failed to appreciate was that a significant aspect of Scanlon’s VA disability claim was based on a sleep disorder but was nonetheless rated as a psychiatric condition due to the way in which the VA rates various impairments. The court also may not have carefully analyzed the ratings Scanlon received for other physical conditions such as musculoskeletal impairments. With a better understanding of the VA rating system, and how non-psychiatric conditions were rated, the court might have given significant weight to the VA rating.
What makes the VA’s rating system especially difficult to comprehend is that when the VA determines a percentage impairment for one condition and a percentage impairment for another, it does not simply add up the percentages in determining the overall rating. Instead, the VA uses percentages of percentages, meaning that if the VA were to find a veteran 40% disabled for a bad back, that means the veteran is deemed 60% healthy, and ratings for other conditions come out of the remainder. Thus, a 30% rating for a foot injury would not be added to the rating for the veteran’s bad back. Instead, 30% of the remaining 60% would be 18%, although the number is rounded up or down to the nearest decile. Thus, the total rating would be 60% rather than 70% if the percentages were simply added together. Under that system, it is very hard for a veteran to receive a 100% disability rating since, under the example above, if there were two other conditions that each produced a 30% rating, instead of 100%, the veteran would receive an 80% overall rating.
In determining a disability rating, the VA utilizes a Schedule for Rating Disabilities found in the Code of Federal Regulations [29] and assigns disabilities based on diagnosis codes. Not every condition fits neatly into a category, though, and if the same disability receives more than one diagnosis, it is only counted once. [30] Further, ratings are based on the type of symptoms which are caused by the condition, rather than by the underlying cause. For example, as noted above, insomnia is rated under the schedule of ratings for mental disorders regardless of cause. Moreover, if a veteran has both a psychiatric condition such as depression and insomnia, that individual will receive only one rating for both conditions. To confuse the issue even further, while the VA schedule of impairments is comprehensive, it does not encompass every condition listed in the World Health Organization’s International Classification of Diseases (ICD-11); [31] and conditions that are unlisted are given an analogous rating to a condition that is listed based on anatomic location and symptoms.[32] Hence, the VA’s assignment of an analogous rating might not capture the veteran’s specific impairment, which may weaken the value of a VA rating in the context of a long-term disability insurance claim. The prime example is where the disability benefit plan limits the duration of benefit payments for psychiatric conditions, and a VA rating may confuse that issue.
What can be especially useful for disability benefit claims, though, is where the veteran is rated for Total Disability Based on Individual Unemployment (TDIU), meaning the veteran is “unable to secure or follow a substantially gainful occupation as a result of service-related disabilities.” [33] If the veteran has a single service-connected disability rating at 60% or above or a combined rating of multiple conditions of over 70% (so long as any single rating is at 40% or above), and the veteran found to be unable to perform substantially gainful employment, the VA will issue a TDIU determination. The veteran may still be able to perform some work, though, even with a TDIU finding since the regulation states that “[m]arginal employment shall not be considered substantially gainful employment.” [34]
A TDIU rating is comparable to and is as valuable to a disability benefit claim as a Social Security disability benefit determination, since the definition of total disability in the VA regulation is essentially the same as the disability definition contained in the Social Security Act. Social Security has also defined substantial gainful activity requirements in the same manner as the VA [35] and likewise permits a disabled person to earn a modest amount of earnings. [36]
Like a favorable Social Security disability determination, a disability rating from the Veterans Administration, especially if the VA determines the veteran is unemployable, provides a veteran seeking long-term disability insurance benefits additional corroboration of the severity of their medical conditions from an objective, independent source. While a VA rating, like a Social Security award, does not compel private disability insurers and benefit administrators to automatically award benefits, both the VA’s determination and the evidence generated in such proceedings are nonetheless relevant and constitute persuasive evidence supporting a claim in the same manner as a favorable Social Security determination would.
Conclusion
Attorneys who represent claimants seeking disability benefits under ERISA-governed benefit plans (as well as plans that are not within ERISA’s scope) should be aware of and utilize corroborating evidence from all potential sources. There is a wealth of such evidence available whenever a claimant has applied for Social Security and VA disability benefits – both in the findings made by those agencies, as well as in the claim records. It is thus essential for claimants’ representatives to secure the evidence utilized in those proceedings, which typically includes independent medical evaluations and vocational analyses. The documentation of favorable outcomes of SSDI and VA claims adds immeasurable value, especially if there has been a hearing, and the determination assesses not only the evidence presented, but the credibility of the claimant as well.
However, there are limits to the value of SSDI and VA awards. Most plans limit benefits for psychiatric conditions, and many plans also limit benefits for “self-reported” conditions such as pain and fatigue, the origin of which cannot be determined by radiologic, electrodiagnostic, or serologic testing. Thus, the findings made by SSA and the VA in such matters may not be as potent as if the disability is found to have been based on non-limited conditions. Nonetheless, case law has made it clear that unless the limited condition is a “but-for” cause of the claimant’s disability, the presence of a limited condition is immaterial. [37] Thus, it is critical to analyze the basis of the award in order to prevent a court from misunderstanding the determination.
Even if the disability insurer or benefit plan administrator has not agreed to give deference to a favorable Social Security (or VA) determination, they would have a hard time articulating legitimate grounds for reaching a conclusion that differs from one made by a government agency. Thus, claimants should and must utilize such valuable sources of corroborating evidence when they submit claims for disability benefits to insurers and benefit plan administrators.
Mark DeBofsky is a shareholder at DeBofsky Law Ltd.
This article was first published by Bender’s Labor & Employment Bulletin on April, 2024.
1. 29 U.S.C. § 1001 et seq.
2. 29 U.S.C. § 1002(1).
3. Pilot Life Insur. Co. v. Dedeaux, 481 U.S. 41 (1987).
4. 29 U.S.C. § 1144.
5. See, e.g., Phelps Dodge Corp. v. Brown, 540 P.2d 651 (Ariz. 1975); Frietzsche v. First W. Bank & Trust Co., 336 P.2d 589 (Cal. App. 1959)); Moore v. John Hancock, 436 F.2d 823 (5th Cir. 1971) (group employee life insurance); Justice v. Union Carbide, 405 F. Supp. 920 (E.D. Tenn. 1975) (group disability benefits). See id. (citing Phelps Dodge Corp. v. Brown, 540 P.2d 651 (Ariz. 1975); Frietzsche v. First W. Bank & Trust Co., 336 P.2d 589 (Cal. App. 1959)) (additional citations omitted).
6. Brundage-Peterson v. Compcare Health Services Ins. Corp., 877 F.2d 509, 512 (7th Cir. 1989).
7. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987).
8. 42 U.S.C. § 423(d)(1)(A).
9. 42 U.S.C. § 423(d)(2).
10. Holmstrom v. Metropolitan Life Insurance Company, 615 F.3d 758 (7th Cir. 2010).
11. 615 F.3d at 772.
12. 615 F.3d at 773.
13. 615 F.3d at 773.
14. 29 C.F.R. §§ 2560.503-1(g)(vii)(A)(iii) and (j)(6)(i)(C).
15. Metropolitan Life Insurance Company v. Glenn, 554 U.S. 105 (2008).
16. 554 U.S. at 115.
17. Ladd v. ITT Corp., 148 F.3d 752, 756 (7th Cir. 1998).
18. Melech v. Life Insurance Company of North America, 739 F.3d 663 (11th Cir. 2014).
19. A publication issued by the U.S. Department of Labor classifies work exertion as sedentary, light, medium, heavy, and very heavy, and quantifies the meaning of those terms. Dictionary of Occupational titles, Appendix C (4th ed. 1991). Social Security has adopted those definitions in Social Security Ruling 83-10 (C.E. 1983).
20. 962 F.3d 685, 695 n.11 (7th Cir. 1992).
21. Demirovic v. Building Service 32 B-J Pension Fund, 467 F.3d 208, 216 (2d Cir. 2006).
22. 20 C.F.R., Regulations No. 4, Subpart P, Appendix 2.
23. The Life Insurance Company of North America was formerly a subsidiary of CIGNA, Corp., but is now part of New York Life Insurance Company.
24. The Unum agreement may be found at https://www.maine.gov/pfr/insurance/sites/maine.gov.pfr.insurance/files/inline-files/first-unum-life_rsa.pdf. The Life Insurance Company of North America regulatory settlement may be found at https://www.iwantmydisability.com/wp-content/uploads/2017/12/cigna_rsa.pdf.
25. But see, High v. E-Systems, Inc., 459 F.3d 573 (5th Cir. 2006) (interpreting plan to find VA benefits offsettable).
26. See, e.g., 42 U.S.C. § 423(d)(2)(B) – “the Commissioner of Social Security shall consider the combined effect of all of the individual’s impairments without regard to whether any such impairment, if considered separately, would be of such severity. If the Commissioner of Social Security does find a medically severe combination of impairments, the combined impact of the impairments shall be considered throughout the disability determination process.”
27. Scanlon v. Life Insurance Company of North America, 81 F.4th 672 (7th Cir. 2023).
28. 81 F.4th at 680-681.
29. 38 C.F.R. Part 4, Subparts A and B.
30. 38 C.F.R. § 4.14.
31. See “International Classification of Diseases 11th Revision,” at https://www.who.int/standards/classifications/classification-of-diseases.
32. 38 C.F.R. § 4.20.
33. 38 C.F.R. § 4.16(a).
34. 38 C.F.R. § 4.16(a).
35. 20 C.F.R. § 404.1572 defines “substantial gainful activity” as follows: Substantial gainful activity is work activity that is both substantial and gainful: (a) Substantial work activity. Substantial work activity is work activity that involves doing significant physical or mental activities. Your work may be substantial even if it is done on a part-time basis or if you do less, get paid less, or have less responsibility than when you worked before. (b) Gainful work activity. Gainful work activity is work activity that you do for pay or profit. Work activity is gainful if it is the kind of work usually done for pay or profit, whether or not a profit is realized. (c) Some other activities. Generally, we do not consider activities like taking care of yourself, household tasks, hobbies, therapy, school attendance, club activities, or social programs to be substantial gainful activity.
36. See “Substantial Gainful Activity” at https://www.ssa.gov/oact/cola/sga.html. For 2024, statutorily blind individuals can earn up to $2,590 per month, while non-blind individuals can earn up to $1,550 per month.
37. See, Krolnik v. Prudential Ins. Co. of Am., 570 F.3d 841 (7th Cir. 2009); George v. Reliance Standard Life Ins. Co., 776 F.3d 349 (5th Cir. 2015); and Okuno v. Reliance Standard Life Ins. Co., 836 F.3d 600 (6th Cir. 2016).
