Many find themselves struggling to pay bills as a result of disabling personal injuries, preventing them from returning to their occupation. That loss of income is exactly what the Social Security disability process and ERISA-governed individual disability benefit claims are designed to address. Many people’s first reaction to a disabling personal injury is to seek legal help in getting redress from the other party to the accident. When it comes to their potential insurance claims, though, they often either follow through the perfunctory steps their insurer tells them to do or assume their medical insurance is their only claim, forgetting they have other potential benefits.
This crucial safety net is designed to replace income lost when a person is no longer able to work, but it is often controlled by the whims of disability insurance companies whose interests are best served in keeping these claims out of the hands of local attorneys. The result of falling into the hands of a national Social Security disability law firm recommended by a long-term disability insurance company can result in your client finding themselves at the end of the process with no safety net at all.
For most individuals who are unable to work due to their medical condition(s), the decision to hire an attorney is subsequent to the Social Security Administration’s decision to deny their initial claim for benefits. The competent representation of a local SSDI attorney is now more important than ever as Social Security benefits are more difficult to receive than in decades. While state-by-state data is unavailable, national data shows a troubling trend. In 2008, the national administrative law judge (ALJ) approval rate was 63%. By 2017, this rate had fallen to 45%. This rate is consistent with approval rates in the late 1970s. While Alabama’s ALJ approval rate is somewhat higher than the national rate, the “golden era” of SSDI attorneys in the state wherein the vast majority of cases were highly likely to be approved are gone. For these reasons, a competent local SSDI attorney is a necessity for a claimant denied their benefits.
A local SSDI attorney will be focused on the best interests of the client you refer to them, which means he/she will seek all available resources to increase the chances of success. These resources can include consulting with the client’s ERISA attorney for any available helpful documents. Coordination between the two attorneys – there are not many SSDI attorneys that handle ERISA cases and not many ERISA attorneys also handle SSDI cases, so there will most likely be two separate attorneys handling the SSDI and ERISA cases – can not only make the litigation your claims cheaper, it allows the two claims to support each other, as explained more fully below.
Most estimates conclude that around 49.4% of civilian workers receive disability insurance that is paid for by their employer and another 5% of workers pay for optional disability insurance that is offered through their work. Given many estimates indicate roughly 50% of American households have no disability insurance whatsoever, this means ERISA will most likely apply to a majority of disability-related claims that do not involve Social Security. The SSDI claim process and the ERISA disability claim process are often closely connected, parallel proceedings. It is important that these complement each other for a number of reasons, but this article will focus on two: 1) creating the ERISA record and 2) protecting your benefits.
The “ERISA record” refers to all materials submitted, considered, or generated in the course of a claim decision process. For the most part, ERISA limits any future court review to these materials, so it cannot be overstated how important it is to make sure all evidence that helps you be included in that record. Because both SSDI and disability insurance benefits require proving disability, it is important for your client’s SSDI attorney and ERISA attorney to keep each other abreast of developments and share medical records that can often be costly and time-consuming to track down and obtain. A successful claim for either benefit should typically provide strong evidence that the other should be awarded as well. Although most ERISA insurers actively force claimants to file for Social Security benefits, they also typically attempt to wall themselves off from that process in an attempt to keep SSDI evidence outside of the ERISA record. This highlights the importance of communication between the two attorneys handling your client’s secondary SSDI and ERISA claims.
Cooperation between the attorneys handling your claims should also result in protecting your monetary benefits. There is little reason not to pursue both Social Security and disability insurance benefits if they are available, and most insurance carriers will require claimants to file for Social Security and follow through with the entire appeals process. It is mind-boggling, but essentially all ERISA disability policy carriers collect premiums from insureds for years but then require the taxpayers to foot the bill by deducting the amount of Social Security payments from the monthly disability insurance benefit payments the carrier makes to insureds. This is referred to as an “offset.”
Given the amount of time after a claim is filed that it takes for the Social Security Administration to award benefits to many claimants, it is often the case that a significant amount of past-due Social Security benefits will be paid in a lump sum for the previous months of disability. Oftentimes, the ERISA insurer has paid disability benefits during that time, so the insurer will then try to collect the past offsets it would have kept from the benefit payments for months covered by the SSDI lump sum payment. This is referred to as an “arrearage.” Although the terms of most policies allow insurers to reduce present benefit payments based upon the amount an insured is currently receiving in Social Security benefits, it is unclear insurers are entitled to seek reimbursement from SSDI arrearage awards because Social Security benefits are not assignable and because the Supreme Court has limited ERISA insurers to a narrow set of equitable remedies.Your ERISA and SSDI attorneys should coordinate, not only throughout the process of both claims, but once approved for an SSDI arrearage, the ERISA attorney can help navigate the offset issue with the private disability insurance carrier.
Most ERISA insurers have discovered how much it helps their bottom line to ensure that their claimants apply for and receive disability benefits from the Social Security Administration. This means the insurer, thanks to the offset, gets to have someone else (the taxpayers) pay all or the lion’s share of the disability benefits they contracted to provide under the policy, along with other bonuses to the insurer. For instance, Social Security benefits lessen reserve requirements. Reserves are the amount of money insurance companies are required by state law to keep on hand based upon the likely lifetime amount that will have to be paid for each of the outstanding claims an insurer has pending. Insurers typically minimize their reserves to barely meet requirements because that money cannot be used or invested elsewhere, and it also prevents them from taking on additional insureds or liability (taking on more business). More insureds mean more potential outstanding claims, which leads to a higher reserve requirement.
SSDI also reduces insurers’ ongoing liability to disabled insureds who are unlikely to ever recover. One of the many downsides of ERISA is that insureds can only sue for the amount the insurer has not paid to date. In other words, claimants cannot seek emotional, punitive, or future damages. This means that a Social Security award greatly diminishes the already small damages ERISA insureds can sue for because it reduces the amount of monthly benefits, and this emboldens many insurers to deny claimant’s ongoing payments shortly after the claimant receives a Social Security award, regardless of whether that denial is warranted. Denial of future payments is particularly likely if the insurer seeks and is given the full amount of its alleged offset out of the claimant’s SSDI arrearage payment. At that point, the insurer has recovered a large portion of the disability benefits it has already paid out over time. The low monetary liability of future payments further encourages insurers to roll the dice and see which claimants will give up on the stress of litigation and dealing with the incessant hurdles insurers place in the way of becoming eligible for benefits again.
Many insurers maximize these returns by pushing their insureds to so-called “independent” SSDI companies that will represent the insured during the SSDI process. The Social Security Administration permits “advocates” to assist in the filing of claims for SSDI benefits. This term broadly includes both attorneys and non-lawyers. Advocates are permitted the same maximum fee, 25% of the backpay award, currently capped at $6,000.00, but not all advocates are admitted to the practice of law. Non-attorney advocates advertise that they help by answering questions and gathering medical records. As non-attorneys, though, they are not subject to the same ethical rules and, likely, your communications with them are not subject to attorney-client privilege. So, a claimant pays the same maximum amount to a non-attorney to assist and loses many of the protections and expertise a bar-admitted attorney offers.
Problematically, these vendor companies invariably serve the insurance company and not the insured. These vendors do not have to use attorneys to represent persons for Social Security benefits, and they will not cooperate with the insured’s ERISA attorneys like a true advocate for the client would. Indeed, the vendors will typically require that insureds sign an agreement promising to pay the insurer all offsets out of the arrearage from the benefits Social Security ultimately pays, regardless of whether the insurer actually has a legal right to those offsets, putting ongoing payments on the claim at risk. Normally, the vendor will get the check from Social Security and pay the insurance company before or at the same time the insured gets paid what is left over (if anything remains after the insurer takes its offset and the advocate takes its fee).
There are extremely close connections between insurers and their preferred Social Security vendors, and any distinctions between the two as being separate are rarely made clear to insureds. For instance, at least one of these vendors freely advertises that it receives over 80% of its Social Security claimants from disability insurers. There are normally systems for constant communication between the two companies throughout the process, but these communications are limited to topics that benefit the insurer.
As an example of why this is problematic, bear in mind the above discussion regarding the creation of an ERISA record. When using one of these insurer-recommended SSDI advocates, neither the Social Security vendors nor the insurers ever inform the insureds that the vendors will not automatically give the insurer any of the medical records that are obtained to pursue Social Security benefits. Nor will the vendor provide the favorable SSDI decision itself to the insurer. Unfortunately, the insureds normally never receive these documents from the SSDI vendors and rarely even know they exist in the first place. Thus, the insured will not know they need to request the records and SSDI decision from the vendors only to then send them to the insurer, all while ERISA’s deadlines are ticking. The insurer will then argue that the insured’s failure to provide it with these documents means they cannot be allowed as evidence in court.
Despite having actual knowledge of the Social Security disability decision and engaging the Social Security vendor, the insurer will ignore the detailed SSDI opinion explaining its decision that you are no longer able to perform any work and all of the medical evidence the vendor obtained during the process, because, unbeknownst to the insured, those documents were not provided to the insurer and are not part of the ERISA record. If litigation is pursued, the insurer will then blame its willful blindness on the insured in an attempt to curtail the litigation record and boost the reasonableness of its decision.
These are not concerns if an injured person seeks the assistance of a local licensed attorney who specializes in assisting Social Security claimants, instead of the insurer-recommended vendor, and who can then coordinate with a local ERISA attorney. Not only is creating and protecting the ERISA record critical but managing the offset appropriately is something experienced ERISA attorneys will manage to the insured’s benefit rather than the insurer’s.
In sum, the proper handling of an SSDI claim requires coordination between the SSDI attorney and an experienced ERISA attorney.
Read more in our article featured in the ALABAMA ASSOCIATION FOR JUSTICE JOURNAL