Northwestern Mutual Offers Insight Into How Disability Insurers Interpret and Apply “Own Occupation Coverage”

Northwestern Mutual Life Insurance—a major provider of disability income insurance for physicians and dentists—has just launched a new website, the “Disability Income Insurance Knowledge Center,” which it claims will help policyholders understand the terms of their “own occupation” disability insurance coverage.

“Own occupation” policies are often marketed by disability insurers as allowing physicians and dentists to receive their full disability insurance benefit, while at the same time working in another occupation, as long as they can no longer practice medicine or dentistry. Some insurance policies further specify that the insured’s specialty will be considered his “occupation” for purposes of “own occupation” coverage. Under these policies, as they are frequently marketed, an insured could receive his full benefit, even if he is still working as a physician or dentist, as long as he is disabled from his former specialty.

As an example, a neurosurgeon who develops a hand tremor may still be a capable doctor, but he can no longer perform surgery. Since he can no longer perform the principal medical duty of neurosurgery (i.e., surgery), it would be logical to conclude that he would be disabled from his occupation as a neurosurgeon. However, Northwestern’s new website has an interactive “Fact or Fiction” quiz in which it offers its interpretation as to how these “own occupation” provisions should be interpreted. Northwestern’s conclusions are gross oversimplifications that fail to consider the nuances of a disability claim, and ignore differences in policy language and the manner in which the policies have been interpreted under Arizona law. These oversimplifications appear designed to dissuade individuals with legitimate disability claims from pursuing their remedies. Nevertheless, they offer a glimpse into how disability insurers often view an insured’s occupational duties. Some samples from the “quiz” include the following statements:

Statement: If I could not perform my principal medical duty, the one that’s my “bread and butter,” I’d be considered totally disabled under an “own occ” policy.

Northwestern Mutual: FICTION. “To be totally disabled under traditional ‘own occ’ disability income insurance definitions, you would have to be unable to do ALL of your principal duties.

Depending on the terms of his “own occupation” policy, an Arizona physician or dentist may be totally disabled if he cannot perform any substantial part of his ordinary duties in his usual and customary manner. In one major case, an invasive cardiologist was no longer able to perform invasive procedures—a substantial part of her original duties—but continued work in non-invasive cardiology and geriatrics. The jury found her totally disabled under her “own occupation” policy and held that her insurer had denied her disability insurance claim in bad faith. It then awarded her $84.5 million.

This statement also reflects an important issue in interpreting these policies – while countless words and phrases are defined, the phrase “principal duties” is generally not defined. Taking advantage of this fact, insurers often attempt to transmute incidental duties, such as staff oversight or pre- and post-operative patient consultation, into principal duties, without any justification for doing so. If insurers were permitted to do this, as Northwestern suggests, it would render “own occupation” coverage illusory since, absent a catastrophic injury, the insurer would always be able to find that the insured could perform some duty of his prior occupation. Fortunately, Arizona courts do not permit insurers to classify all duties as “principal duties.” As one Arizona court noted “[f]ew specialty occupations could survive such piecemeal scrutiny. If separated into an hour-by-hour analysis, only asking the question whether these tasks are also performed in a more general setting, specialists who choose to continue to work in a more general practice after becoming disabled from their specialty could never qualify for total disability benefits, although the policy specifically allows for this.”

Statement: With a traditional “own occ” policy, if I was totally disabled and could not perform all of my duties, I would be able to work in another occupation and make an unlimited amount of money.

Northwestern Mutual: FACT, but what type of disability would prevent you from doing all of your principal duties, and in what other type of occupation could you then work and earn a meaningful amount of income?

The terms of these “own occupation” policies vary. Some Arizona physicians and dentists covered by these policies can indeed build a successful, lucrative career in another practice area and still collect full benefits for total disability. This is because Arizona law does not interpret the “total disability” requirement included in some “own occupation” policies as an absolute inability to perform any and all principal duties, as this question suggests. Instead, Arizona law states that if a physician or dentist’s “own occupation” policy meets certain qualifications and she can no longer perform any substantial part of her duties, she may be free to retrain in a practice area that accommodates her limitations and still collect total disability insurance benefits.

Statement: If I can do some, but not all, of my principal duties, I can stop working and receive my full benefit with a traditional “own occ” policy.

Northwestern Mutual: FICTION. “One reality of traditional ‘own occ’ is you must continue to work in order to receive a benefit when partially disabled.”

Many Arizona physicians and dentists who can only perform some of their principal duties are not simply “partially disabled,” as Northwestern implies. Depending on the terms of their policy, they may be entitled to full insurance benefits for total disability under their “own occupation” coverage. Physicians or dentists who hold an “own occupation” insurance policy and cannot perform any substantial part of their ordinary duties in their usual and customary manner may qualify for total disability benefits under Arizona law. If the terms of their policy are favorable, they may indeed be able to stop working entirely and still collect the full benefit amount.

If you’re a physician or dentist with an “own occupation” disability insurance policy, don’t be misled. Your insurance policy is a detailed, nuanced contract that may include a variety of terms, each of which is subject to the laws of your state. Rather than taking your insurer’s word about your policy, consult an experienced attorney who is familiar with your state’s insurance laws.