Understanding Disability

The case involved Lanette Holmstrom, who worked as a senior training specialist for an Ill. credit management company. She participated in a group insurance program governed under ERISA, claims under which are subject to federal rather than state courts. In 2000, Holmstrom developed a painful nerve condition in her right arm, diagnosed as a right ulnar nerve compression and neuropathy. She stopped working that January and filed for disability under the Metropolitan Life (Met Life) disability coverage. The initial phase of the coverage applied to her inability to perform her own occupation; however, that coverage period was limited. When it expired, she applied for further disability benefits under the basis of her inability to perform "any occupation," a broader long-term disability standard.

In 2005, the insurer reviewed her case, and denied her claim, citing a "lack of objective findings to support ongoing total disability." She appealed, filing a functional capacity evaluation (FCE) report with several positive test results. When litigation was threatened, Met Life offered another administrative appeal. The insured submitted a newer FCE, including a bone scan and electromyogram nerve conduction study, along with evidence that the Social Security Administration had awarded her disability benefits. Once again, her claim was denied.

The insured then filed a lawsuit in the District Court for Northern Illinois, and Met Life filed a counterclaim for a Social Security offset to any benefits. The federal district court granted summary judgment to the insurer, and Holmstrom appealed.

Appellate Reversal

Upon review, the 7th Circuit reversed and remanded the case to the lower court for trial. The court claimed the case "illustrates the difficult problems presented by claims for disability insurance by people with serious and painful conditions that do not have objectively measurable symptoms." It noted that the plaintiff's diagnosis of a "complex regional pain syndrome" was supported by the 2007 FCE, which confirmed the objective support of the plaintiff's functional limitations. However, the court rejected the insurer's arguments, insisting that as the plaintiff had undergone three surgeries and a regimen of pain medication, her condition was a drug addiction. This was despite the fact that the insurer's own physician had provided a statement that she was not addicted to any medication. Additionally, the court rejected the insurer's argument that the various psychological tests the plaintiff had undergone did not support adequate "symptom validity." The court even questioned the type of physician the insurer had consulted for such testing.

What is an insurer or employer to do when an employee is in pain but there are no concrete objective findings? Should it continue to pay without question or deny the claim and let the courts decide? Chronic pain syndrome is one of the most difficult types of disabling injury for any adjuster to handle, and the Holmstrom decision will not make it any easier.

The insurer may spend thousands of dollars trying to prove that the claimant is not disabled. It will use surveillance and insist on numerous independent medical examinations (IMEs), batteries of psychological exams, and every other tool available in the rehabilitation toolkit, from job hardening to occupational therapy. For the vast majority of disabilities, these tools work. For some, they will never succeed in getting the employee back to work and off of disability benefits.

The Permanently Disabled

After 45 years in the business of claims and risk management, there are few situations I have not encountered in one form or another. There is a "rule of thumb" that 60 percent of most illness is psychological, but so is 60 percent of the cure. It is why faith healing or the work of a shaman is successful at least half the time. As Dr. Peter John Millheiser, a noted Miami orthopedic surgeon, told the CPCU Claims Section Symposium in February of 1984, the majority of injuries heal. He explained that it does not take 15 months.

Millheiser noted that with low back pain, the typical period of disability may be 13 days, and 60 to 80 percent of workers will have back pain at some point in their lives. However, he then cited studies that showed that when a patient is on sick leave for more than 3 months, only 30 percent of workers had any objective findings.

Not much has changed since 1984. The longer a worker is out on disability, the longer it will take for that worker to resume any meaningful employment. That is why workers' compensation "back to work" programs are so vitally important. In a negative economy, such as that in the U.S. since 2007, finding alternate employment for a person who is temporarily totally or even partially disabled is next to impossible.

One of the people I regularly visit is totally disabled from a combination of crippling arthritis and a stroke, which occurred when he was in his mid-30s. Nearly 50 years old now, he is confined to a mobile wheelchair in an assisted-living facility. For a while, he held a job as a reservations clerk for a hotel chain, but as he has only the use of one hand, occupational options are slim despite his being a college graduate. Further, his condition will not permit him to work a full schedule. He undergoes physical therapy on a regular basis at one of the best rehabilitation centers in the nation, but little can be done to help him. His only benefit is Social Security. If he had been employed when his medical problems hit, then undoubtedly, like Holmstrom, he would have been hassled by the disability insurer at least every other year.

The Frustrating Claim

Every claims adjuster will encounter the never-ending claim, no matter what kind of coverage is involved, except perhaps in litigation. In such cases, litigation may either be a sign of failure or the ultimate "last resort." Even in property claims, some go on seemingly forever. Following the initial fire or windstorm come the disagreements over the repairs, then the discovery of mold or code violations, and so on.

There is no secret formula to eliminate such nuisance cases. These are challenging and often the insured or claimant recognizes that he or she is in fact challenging the adjuster, offering a motive to keep the claim going. At one time, adjusters spoke of one solution to the lingering injury claim called "the green poultice." Pour on the money, and the claim is soon resolved. Is that the coward's expensive way out?

In my textbook, Casualty Insurance Claims, there is discussion about the relationship between motivation and objectives in claims handling. Eight specific attitudes of claimants and insureds are outlined, each in detail with explanations about why each may make a claim more difficult to resolve. The frustration may result from anger, vindictiveness, confusion, remorse, rejection and withdrawal, exaggeration, greed or dishonesty. There is no indication or suggestion that the Holmstrom case involved any of these motivations or objectives—any more than those of my disabled friend. It is probable, however, that after the multiple denials and appeals, the plaintiff may have become angry with the insurer.

Remember that 60 percent-factor discussed earlier? Well, that leaves us with around 40 percent of injury and disability claims that are honest and real. Those are the expensive ones. Under Pareto's Law, 20 percent of any activity will involve 80 percent of the time (or money). The sooner the insurer realizes the claim is not motivated by one of those eight factors, the sooner it will set a correct—and high—reserve, and get on with its business.

Too often the problem is that the insurer fails to believe when dealing with an insured (or an insured's liability claim) that can open the insurer up to bad faith and punitive damages quickly. Those claims that just "won't go away" will continue to linger. When an insurer has to deal with one, the best it can do is notify the reinsurers and any excess insurers and set a policy limit reserve.