Reducing the risk of having to fight for benefits requires understanding the terms of your policy from the beginning, carefully and thoroughly filling out the application, and ensuring accuracy and consistency in your claim packet and subsequent filings. As the saying goes, the best defense is a good offense, and the best way to avoid litigation is to file the claim correctly the first time.
Although filing a successful claim is not easy, it is the ideal. Unfortunately, insurance companies have a strong incentive to increase their bottom lines and often they practice aggressive tactics in improper attempts to justify the denial or termination of even a wholly legitimate claim. If your claim has been terminated or denied, it can seem overwhelming or hopeless to try to reverse the decision. In the event of a denial or termination, many insureds know they can sue their insurer and go to trial. Yet, even if you are ultimately successful in a lawsuit, litigation can sometimes drag on for years. While a lawsuit is pending, you’ll not only have legal expenses, but will also not be receiving benefits (and likely not be in a position to work to offset your expenses, due to the nature of your disability or your policy’s language). There are, however, some alternative options that can be attractive to both parties that policyholders may not be aware of, namely mediation and lump sum settlements.
All too often we see legitimate claims denied or terminated, with the insurance company refusing to reconsider their position. If your claim is terminated, the company knows that it wields a lot of power over the denied individual, including the power of money, the power of time, the power of institutional knowledge, and the power to tolerate litigation. In other words, insurers calculate that spending money on even protracted litigation will end up being cheaper than continuing to pay benefits, and they know that many claimants will just give up and go away if they draw out court proceedings long enough.
While this might sound bleak, there can be alternatives to a full-fledged lawsuit that culminates in a trial (and potentially drawn-out appeals). One such method is mediation. Mediation is where the parties to a lawsuit meet with a neutral third party in an effort to settle the case.
For the most part, mediators are retired judges, or active or retired attorneys. The mediator reviews the case file and then meets with both parties, seeking to facilitate discussions between the parties and try to find common ground in order to reach an acceptable compromise. Because mediation is not binding, the mediator’s recommendation and any subsequent agreement between the parties is not final until the parties memorialize it by putting all the agreed upon terms in writing and signing the document.
Often the insurance company will offer to draft the agreement so they can have control over what the agreement says, and so it is important to stay engaged in the process even after the mediation has ended, in order to ensure that the parties’ agreement is accurately documented. The settlement agreement itself is a very important document, so you should be sure to take the time to carefully review it before signing, to be sure it encapsulates all the agreed upon terms.
It is also important to keep in mind that mediation typically does not result in a full restoration of benefits nor is not always successful. The non-binding nature of mediation means that if the insurance company low-balls and refuses to budge in its offer, the claimant may need to just walk away and resume litigation.
Lump Sum Settlement
Another way of avoiding trial is through negotiating a lump sum settlement. This typically occurs outside of the mediation setting, but sometimes requires the filing of a lawsuit before the insurance company is willing to come to the table. When this happens, your insurer agrees to buy out your policy and you release your right to collect under your policy and your insurer from any obligation to you. The buyout amount will be your policy’s “present value” (i.e. the amount of money you could invest upon receipt, based on a determined interest rate, and end up with the same amount of money you would have received in benefits at the end of your policy), discounted by a percentage that is negotiated by the parties.
A buyout can be an attractive offer and can occur at any stage of the litigation process. A lump sum buyout could even be a preferable alternative to having benefits reinstated, as you would no longer have to deal with your insurer. Your benefit payments would cease being on hold pending the outcome of a trial and you could invest the lump sum in order to provide for your and your family’s future. In addition, unlike monthly disability benefits, the lump sum settlement you receive would be inheritable and available to be passed on to your heirs, should something happen to you.
There are, however, certain drawbacks to a lump sum buyout, including the fact that you and your insurers cannot accurately predict the future of the market with 100% certainty, so the calculations will only be a best estimate. If you are healthy and have lifetime benefits, you could also receive more money cumulatively over time if you were to stay on claim. So, while attractive, especially when faced with litigation, the pros and cons must be carefully weighted when considering lump sum buyouts during the litigation process.
We often see claimants who face the loss of their benefits simply give up and accept a denial, daunted by the thought of protracted litigation. While litigation may sometimes be the most advisable way to get benefits, and possibly punitive damages, there are other avenues to explore, advisably with the help of an attorney, that can end in your retaining at least some of the benefits you stand to lose completely when an insurance company denies your claim.