At the 2007 ICSOM Conference in Minneapolis, delegates were treated to a wonderful presentation on long-term disability insurance by Sally Mermelstein, an attorney and former violinist with the Minnesota Orchestra. Ms. Mermelstein’s presentation proved to be one of the most popular sessions of the Conference, and there were many requests from delegates for an article in Senza Sordino so that all ICSOM musicians could benefit from her knowledge. Ms. Mermelstein graciously agreed to provide this very informative article. —Bruce Ridge, ICSOM Chair

Below is an introduction to long-term disability (LTD) insurance provisions as they pertain to the symphony musician. This is by no means an exhaustive discussion of the topic—there are many important provisions that are not covered here—but it should provide musicians with basic knowledge about this much-neglected employee benefit.

What is LTD?

Long-term disability insurance replaces a portion of your income if you are unable to work due to a medical condition for an extended period of time. Just how extended that time must be varies between plans. Usually in order to collect LTD benefits you have to satisfy a benefit-free period known as an elimination period, waiting period, or qualifying period. It can be as short as 30 days but is often as long as 180 days.

Unlike workers’ compensation benefits, LTD plans will provide benefits whether or not your medical condition was caused by work. LTD is not just for permanent medical conditions. It can be income replacement that serves as a bridge to recovery and resumption of work, or it can be the income you live on until retirement or for the rest of your life.

Why We Should Care

LTD is important to employees because it insures against the loss of ability to work. For a professional musician, LTD insures against the loss of a set of highly developed skills. Most employees must simply accept whatever level of LTD benefit the employer chooses to provide—as well as any changes, including negative changes, the employer makes. Since symphony contracts guarantee certain benefits, however, symphony musicians have the advantage of being able to bargain over, and perhaps customize, the LTD plan as part of their contract negotiations. Musicians should also care about LTD because, while musicians generally have long careers, musicians can get illnesses that are targeted for claim denial by the insurers. These include repetitive stress injuries, soft tissue problems and chronic pain syndromes. These illnesses can interrupt or devastate a musical career, but they are not popular with insurance companies. Your LTD plan can be shaped to help avoid unreasonable claim denials.

But the biggest reason to care about LTD plans is that they are usually governed by the Employee Retirement Income Security Act (ERISA). ERISA and the judge-made law interpreting ERISA create many obstacles for employees trying to collect benefits and create an un-level playing field if the employee has to challenge a denial of benefits. Musicians can minimize the impact of ERISA with some careful planning.

How ERISA Affects LTD

Many of the ways ERISA affects LTD are encapsulated in Loucks v. Liberty Life Assurance, 337 F.Supp. 3d 990, 991 (W.D. Mich. 2004):

Caveat emptor! This case attests to a promise bought and a promise broken. The vendor of disability insurance now tells us, with some legal support furnished by the United States Supreme Court, that a woman determined disabled by the Social Security Administration because of multiple disabilities which prevent any kind of work cannot be paid on the disability insurance she purchased through her employment. The plan and insurance language did not say, but the world should take notice, that when you buy insurance like this you are purchasing an invitation to a legal ritual to which you will be perfunctorily examined by expert physicians whose objective it is to find you not disabled, you will be determined not disabled by the insurance company principally because of the opinions of the unfriendly experts, and you will be denied benefits.

In this case the disabled plaintiff won, but many plaintiffs are not so lucky. Below is a list of some of the reasons that ERISA has a negative impact on your LTD plan:

1. If you have to resort to federal court after an unfair denial of benefits, your remedies are generally limited to the benefits owed, interest, and your attorney fees. Even if you’ve lost your home or your health insurance because of the unfair denial, the insurer will not have to make you whole. Insurers are not liable for punitive damages or mental anguish. Therefore, they don’t have much to lose in denying your claim.
2. You are not entitled to a jury trial as you might be in other insurance disputes.
3. If your LTD plan contains “discretionary language,” a federal court will review the insurer’s decision with deference and will only reverse it if the decision was arbitrary and capricious (read “preposterous”). Therefore, an insurer has little incentive to approve a claim if it can come up with even a weak reason to deny it.
4. In general, once the claimant is in federal court, the court will base its decision exclusively on the record that was before the insurer when it denied the claim. No new evidence is allowed (even where it might be helpful, and even where new, illuminating medical information has developed).
5. ERISA plan participants (musicians) can’t rely on oral representations—even from HR or the insurer—about their benefit plans. Courts adhere strictly to the written language in plan documents.
6. The insurer doesn’t have to defer to your doctor’s opinion or even to the Social Security Administration’s determination on inability to work.
7. The insurer is permitted to hire a conflicted doctor to review a claim and decide you are not disabled based on your medical records.
8. When you appeal a denial of your benefits, the insurer, the same entity that denied your claim and who has a stake in the outcome, will review it.
9. Although you should always hire an attorney to do your appeal to the insurer, it is expensive to do so, and you cannot recover the attorney fees for this pre-litigation legal work.

Below are some important LTD provisions that affect the amount of benefits, LTD eligibility, or duration of benefits:

Provisions Affecting the Amount of Benefits

Percentage of Income. Disability plans usually provide for income replacement up to a certain percentage of your pre-disability income. 60% of your monthly income is quite typical. But it is possible to get higher percentages for a higher premium. No one will provide 100% of your income because to do so would make it too attractive to be disabled.

Definition of Income. Insurance policies deal with income in different ways. Sometimes they use their own terms, such as monthly earnings, to describe the concept of income. Definitions vary by how much of your income they capture. It is important to know, for instance, whether EMG or overtime is included. Some policies are tricky and will calculate your income after pre-tax deductions for such things as 403(b) or cafeteria account money. This can drastically reduce your benefits, so beware.

Maximum Benefit. LTD benefits are usually expressed in a percentage up to a certain maximum. If the cap or maximum benefit amount is too low, overscale wages may not be captured at all. Because there is a great disparity in income among players in a given orchestra, it is important to think about how overscale players are being covered by LTD. 60% of base pay is not a good benefit for a player whose pre-disability income is double scale. The bargaining unit can certainly make the decision to advocate only for insurance for base pay, but it should only do so consciously.

Offsets and Deductible Sources. Although your policy promises to provide a certain percentage of your income as a benefit, this is somewhat misleading. The insurer will subtract from the benefit amount various other payments that you may receive during your disability. But you may be able to negotiate over the offsets allowed by your policy. Workers’ compensation and Social Security Disability Insurance (“SSDI”) benefits are typically deducted. Many claimants who have children are shocked to discover that the SSDI benefits that their children receive by virtue of the parent’s disability are taken as an offset by the LTD insurer. This may be of dubious legality, and certainly is of dubious morality, but it is written into many policies. The policy may or may not contain offsets for tort recoveries (think income replacement from a car accident), severance pay, other income you earn while disabled (such as teaching income), retirement benefits and other group disability benefits.

Taxability. The taxability of your benefits depends on who pays the premiums and in what manner. There are two ways to avoid the tax on benefits. If the management pays the premium and treats the payments as income to you (you are taxed on the premium), the benefits are tax-free. If you pay the entire premium with post-tax dollars, the benefit will also be tax-free. Taxability has great impact, particularly for musicians who will be in a high tax bracket even when they are on LTD.

Cost of Living Adjustments. Benefits do not always come with a cost of living adjustment (COLA). However, COLA is huge advantage to the disabled person. Without it the disabled person is on a fixed income, and his standard of living is likely to go down with time. COLA is an expensive add-on but it may be worth the expense.

Provisions Affecting Eligibility or Duration of Benefits

Definitions of Disability. It is important to remember that LTD insurers do not pay benefits just because you have a serious diagnosis or because your doctor says you are disabled. Disability benefits will only be paid if you satisfy the plan’s definition of disability. And different definitions have different legal meanings under ERISA case law. Some states have state-approved definitions of disability, and if the policy definition appears to slip below the state standard, the policy may not be approved for sale in that state.

For the most part, disability policies pay benefits based on a two-tiered definition of disability. You must be disabled from your own occupation for a period of time. After that, benefits will usually depend on satisfying a more stringent definition of disability— disability from any occupation.

There are a variety of definitions of own occupation disability, and some are more onerous than others. For instance, a definition that requires the musician to be disabled from all the material duties of his occupation can be harder to satisfy than one that requires the musician to be unable to perform one or more material duties of his occupation.

The federal courts have told insurers that they need to take the claimant’s actual job into consideration when deciding own occupation claims, but insurers don’t always abide by this rule. It is best to enforce this rule through plan language rather than a trip to federal court. The Minnesota Orchestra’s CBA wisely states that “[t]he insurance policy’s definition of “disability” shall relate to an inability to perform the Musician’s regular job….” This clarifies that the job is the point of reference and not the occupation which is obviously a much broader concept. It is also wise to make sure that the employer portion of an application for LTD benefits correctly states your job and its duties.

The duration of the own occupation period is a crucial decision. It is more costly to have a longer “own occ” period, but it may be worth a great deal. Many claimants are denied benefits once a 24-month own occupation period has expired. Often, a medical condition has not been properly diagnosed within this two-year period. It is certainly difficult to find a new career within this period. Extending the own occupation period may be a wise use of available dollars.

Any occupation benefits are harder to get because they will not only depend on a medical determination but will also depend on a vocational determination. You can only collect any occupation benefits if you cannot perform any job for which you have transferable skills that would provide you with a gainful wage. Transferable skills will vary from musician to musician. Some have had other careers or jobs whereas others have never done anything other than play an instrument.

Where any occupation definitions are concerned, the gainfulness standard can be decisive. This standard commonly is expressed in terms of a percentage of your pre-disability income. If you can do jobs that will pay you this percentage, you are not disabled from any occupation. But too the definition of “gainfulness” is a secret kept by the insurer. I feel it is better to codify a gainfulness standard in the plan. A higher percentage will mean there are fewer jobs the insurer can invoke to deny benefits. In no case should the percentage be lower than 60% of your pre-disability wage. 85% is obviously better.

Limitations. By far the most dangerous terms in disability policies are the self-reported symptoms limitation, the mental illness limitation, the objective medical evidence standard, and limitations for musculoskeletal problems. All of these are used by insurers to limit the duration of or to deny claims that are valid but for which there is not specific diagnoses or no specific test to measure your discomfort. Where pain or fatigue is disabling, you are vulnerable if the LTD plan includes any of these features. This includes disabilities from very serious illnesses that can be chronic or even fatal. Try to eliminate these provisions. Often they are put into the LTD policy without the purchaser’s knowledge. Your management may be appalled to discover them and may want to help eliminate the provisions.

Discretionary Language. There are many provisions in LTD plans that can affect your chances of receiving LTD benefits.

However, from the perspective of an ERISA attorney, the discretionary language referred to above is critical. It gives the insurer the discretion to decide your benefit claim—so much discretion that a federal court will rarely reverse the decision. It allows the court to affirm the insurer’s decision, even if it is wrong. For this reason, if you can, you should get rid of this language. If your plan doesn’t include it, keep it that way.

Discretionary language can take many forms, and many billable hours are expended arguing over whether given language actually gives the insurer discretion. However, typical discretionary language will read something like this:

The Insurer has full discretionary authority to determine eligibility and interpret the plan.

But beware that, depending on your jurisdiction, other language can pass as discretionary language even when it doesn’t mention discretion. Some state departments of insurance have tried to make discretionary language illegal. Theoretically, if the language is illegal to begin with, the insurer should not be able to charge more for removing or omitting it.

Special Advisory

You may be tempted to change carriers as part of the collective bargaining process if a new carrier is offering more favorable plan terms. However, it will be necessary to avoid the imposition of a new pre-existing-condition exclusion through plan language that guarantees “continuity of coverage.” In some states continuity of coverage is required by the insurance code, but make sure you know whether this is so in your state. Continuity of coverage could also be incorporated into the CBA.

CBA Provisions That Affect Disabled Musicians

Even where the disabled musician is receiving disability benefits, there are other provisions of a typical CBA that may affect the fate of the disabled musician. I often feel that these provisions are as critical as the LTD plan itself. At a minimum, the CBA should answer the following questions regarding the disabled musician:

1. For how long is the musician entitled to participate in the health plan at the employee rate when he becomes disabled?
2. For how long will the musician be retained as an employee if he becomes disabled?
3. Does “just cause” provide the management with a way to fire the disabled musician?
4. How will disability affect pension service credits?
5. Is the disabled musician covered by sick pay or STD for the period during which he has to wait to collect LTD?

What To Do If Denied Disability Benefits

First, if your claim is denied you should immediately request your claim file from the insurer before you appeal. It should contain lots of information about the insurer’s thought process in denying your claim. It is a serious mistake to appeal the denial without the benefit of the file.

Next, request all the applicable plan documents in writing from both your employer and the insurer. This includes the applicable summary plan description, the underlying formal plan including any amendments and modifications, other guidelines used to administer your claim, and any administrative services agreement. The plan administrator (whoever that is under your plan) should provide these, because it can incur ERISA penalties for not doing so within 30 days. Also, obtain your CBA, as it is an ERISA plan document.

Once you have set the above requests in motion (or even before your do), hire an attorney specializing in ERISA! Appealing your denial is a requirement before you bring a federal court action. Insurers are more skilled at denying than you are at appealing denials. To level the playing field somewhat, you will need an ERISA attorney who handles employee claims.

Remember that if the insurer has discretion, the appeal is your last, best chance to get benefits. Since no new evidence will be considered in court, the ERISA attorney will be able to advise you of how to build a record that will: a) be likely to convince the insurer to reverse the decision; and b) provide you with the best possible record if the decision is upheld and you have to go to court. ERISA attorneys turn away many truly disabled clients because the client has appealed himself, ruining the possibility of a successful lawsuit.

Not only should you get an ERISA attorney, but you should do so quickly. There are strict deadlines in ERISA plans that enforced very rigorously by the courts, especially against claimants.

Lastly, do not sign a separation agreement with your management without seeking legal advice from an attorney with knowledge of ERISA. Many employees inadvertently waive ERISA employee benefit rights in signing employment releases, and the courts can be very hard on employees who try to recover benefits that were arguably waived in a separation agreement.

Sally Mermelstein was a violinist in the Minnesota Orchestra for about 15 years. She resigned due to disability and is now an attorney in Minneapolis. Much of her practice is devoted to ERISA employee benefits.