How Do Disability Insurers Define “Disability”?

How does an employee satisfy the definition of “disability” to receive benefits under employer sponsored disability benefits? Although such plans are governed by federal law pursuant to the Long-Term Retirement Income Security Act (“ERISA”), the individual employer policies define the term “disability.”

In a disability benefit case before the United States of the Western District of Kentucky, a federal court looked at the definition of disability under a policy issued by Northwestern Mutual. There, an employee could satisfy the definition of disability by one of two ways: through the “Own Occupation” definition of disability or the “Partial Disabled” definition.

Under the Own Occupation, an employee satisfies the definition of disability if, as a result of sickness, injury or pregnancy, the employee is unable to perform with reasonable continuity the material duties of the “own occupation.” The same policy defined “Partial Disability” as working in the employee’s own occupation, but as a result of sickness, injury or pregnancy, the employee is unable to earn more than the “Own Occupation Income Level.” 

Whether a doctor satisfied the definition of “Disability” was the issue before the court in Hagan v. Northwestern Mutual Life Ins. Co., No. 3:15-CV-00298-CRS, 2017 WL 4542775 (W. D. KY Oct. 11, 20217). In Hagan, Northwestern original found a doctor was disabled due to a retinal hemorrhage in his right eve, resulting in a loss of vision in right eye. Eventually, the doctor was able to return to full-time employment, though the record showed he worked at a slower pace and with less capabilities.

Northwestern eventually determined that the doctor was no longer disabled under either definition of disability under the policy and on review, the court agreed. The court explained that while the doctor was receiving long term disability benefits, he was continuously performing the tasks of a family physician. The court also found that the doctor did not satisfy the policy’s definition of partial disability either.

The partial disability definition required that the doctor be unable to earn more than the own occupation income level, which was 80% of the insured’s predisability earnings. The court found that the record showed that the doctor was earning more than his own occupation level. Further, he did not dispute how the insurer calculated his income.

Unfortunately, in this case, the doctor did not qualify for benefits. After reviewing the record, the court found that applying the definition of disability pursuant to the policy did not support a disability claim.