When a professional that owns her own business files a disability insurance claim, the insurer will often try to exploit the claimant’s ownership status to deny total disability benefits. The insurance company will argue that the professional has not one, but two occupations: 1) professional and 2) business owner. The disability insurer will argue that the claimant isn’t actually disabled because she can still perform administrative or managerial functions, even if she can’t do the duties of her actual profession. This is sometimes called the “dual occupation defense.”
For example, in Shapiro v. Berkshire Life Insurance Company, Berkshire attempted to use the dual occupation defense to deny total disability benefits to a dentist. The dentist, Paul Shapiro, had an own-occupation policy, with “total disability” defined as “the inability to perform the material and substantial duties of your occupation.”
Dr. Shapiro owned his own practices, but spent the overwhelming majority of his time and effort doing clinical work. He spent 90 percent of his time in chairside dentistry, working on patients, and just 10 percent of his time doing the administrative work that any practice owner needs to accomplish. In fact, in the year before he became disabled, Dr. Shapiro saw nine to eleven patients each day, and performed an average of 275 dental procedures per month, working 40 to 45 hours each week. He only spent one and a half to four hours each week attending to various administrative and managerial duties like personnel decisions, staff meetings, and computer troubleshooting.
After progressive osteoarthritis and spondylosis of the elbow, neck and other joints left Dr. Shapiro unable to perform chairside dentistry, he filed for total disability benefits with Berkshire. Rather than paying him total disability benefits, however, Berkshire determined that Dr. Shapiro was only entitled to partial disability benefits:
Berkshire’s coverage position was that Shapiro’s occupation immediately preceding the onset of his disability was as an administrator and manager of his various dental practices as well as a practitioner of chair dentistry; because the disability did not prevent Shapiro from doing his administrative or managerial work, Berkshire reasoned, Shapiro did not satisfy the policies’ definition of total disability: “the inability to perform the material and substantial duties of your occupation.”
Dr. Shapiro brought a suit against Berkshire in the United States District Court for the Southern District of New York for breach of contract, among other things. That court found in his favor on the breach of contract claim, but Berkshire appealed. The Second Circuit Court of Appeals agreed with the lower court and affirmed the decision in Dr. Shapiro’s favor. The Court of Appeals determined that Dr. Shapiro “spent the vast majority of his time performing chair dentistry,” and that his administrative work was merely incidental to his material and substantial duties as a full-time dentist.
Though Berkshire’s attempt at the dual occupation defense was unsuccessful in this case, the Court of Appeals indicated that there could be some situations in which it might work:
At some point, a medical entrepreneur’s administrative and managerial responsibilities may well become the material and substantial duties of the insured’s occupation.
The message for disability insurance policyholders that own a business is to be careful how much time you spend in administrative tasks, and how you explain your occupation to your insurer. Otherwise, you could be inadvertently setting your claim up for denial.