Total and Partial Disability Insurance Definitions
Virtually all group policies of wage replacement coverage and most individually purchased policies contain two distinct definitions of what the insurer considers as “total disability”.
Own Occupation Coverage
The first definition is known as “own occupation” coverage and generally is limited to 24 months of benefits (sometimes only one year). During this time frame benefits are payable if your medical condition prevents you from performing the essential duties of your “own” occupation; that is, your job description at the time disability arose. Some contracts contain a more onerous or higher threshold description of a disability than others, requiring the claimant to be disabled from each and every duty of his or her own occupation or a stated percentage of the duties of employment, usually in the range of 60-70%.
After the own occupation coverage, the policy definition changes significantly and provides the insurer with a far broader rationale to deny coverage.
Any Occupation Coverage
This second phase of coverage is known as “any occupation” coverage, which is usually defined as the inability to perform the essential or substantial duties of any occupation for which you are or may become qualified by virtue of your training, experience and education.
People in receipt of long term disability benefits are usually advised by the insurer of the approach of a change of definition. If further benefits are denied at this juncture, there is usually a detailed letter summarizing your medical history and providing a rationale of the insurer’s position. The letter will probably advise you of the insurer’s internal appeal process and, in British Columbia, must, by law, advise you of the applicable limitation period.
Denial of benefits at the transition from “own occupation” to “any occupation” is often accompanied by the opinion of a “medical consultant” who has reviewed your medical information, or by an actual independent medical report based upon a direct examination of the claimant. It is important to know that you are NOT required to complete the insurer’s internal appeal process before you seek legal advice. Frequently, a claimant denied coverage in this way will, during the appeal process, write emotionally-laden letters that do not advance the actual claim in any substantial way and may contain personal or other information that is irrelevant or misinterpreted. Remember the “appeal” process permits the insurer to “judge” the decision it has already made and is not subject to any third party or external review.
It is also important when considering an insurer’s denial at the change of definition stage whether your policy contains what is known as an “earnings threshold”. An earnings threshold is a term of insurance contract which further qualifies the definition of disability under “any occupation” to include a specific percentage of your pre-disability earnings, a “threshold” which you must be able to earn. If you cannot earn the threshold level of income, you continue to meet the definition under the policy. The insurer in such circumstances is entitled to offset or deduct those amounts you do earn, but the insurer must then “top up” or make up the difference between your earnings and the benefit amount in your contract of coverage.
Even if your group or individual policy of coverage does not include an “earnings threshold” term, the “common law” (judge-made law) imposes on all policies a similar analysis where there is no specific provision made for a limited or partial capacity to earn income. Canadian common law says that “total disability” in a wage replacement contract of disability coverage means an inability to perform the substantial or necessary duties of any occupation of similar status and award.
The insurance industry in Canada generally (but not always) recognizes this common law reality by adopting an internal adjusting process that calculates the common law earning threshold at 65% of pre-disability earnings. This means that in its analysis or rationale of denial, the insurer must determine that you are able, as a result of your actual function at the time of the denial, to perform the essential duties of an occupation that pays you 65% of the gross income you earned before you became disabled.
Insurers generally attempt to conform to this analysis by using a comparative skills analysis or vocational assessment, which lists a number of usually sedentary occupations that are known statistically to pay income levels that meet the threshold. Such an analysis is often cursory and ignores or misinterprets your medical history, education, language skills, work experience, or subjective limitations such as pain levels, depression, anxiety, cognitive limitations, or the sometimes-debilitating effects of prescribed drugs or treatment.
“Partial disability” or the ability, despite a medical condition that compromises function, to do part time work and earn diminished income is a related concept to the earnings. If you have been denied long term benefits as a result of changed medical status or at a change of definition, check your policy to see if your contract of insurance specifically provides for partial disability coverage. This is a discreet form of coverage under group and individual policies which allows for continued benefits in cases of residual function.
If your insurer tells you that you no longer meet its definition of disability, remember that an insurance contract is a two-way street. If you disagree, don’t forget your opinion counts. The insurance company is a highly sophisticated corporate entity with vast resources – by seeking independent experienced legal counsel you can test the insurance company’s opinion against the common low, industry standards, and independent medical opinion.