Disability Insurance Claims: When & How to Use a Long Term Disability Insurance Attorney
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Full Transcript: Free Advice Interview with Disability Insurance Attorney Charles Surrano
The following is a transcript of an interview with Arizona disability insurance attorney, Charles Surrano, conducted on May 1, 2007. Mr. Surrano is currently a member of the Advocate Law Group Network, with over 10 years experience handling disability and bad faith insurance cases in the state of Arizona. In this interview, Mr. Surrano discusses disability insurance claims and when and how to use a disability insurance attorney.
Free Advice: I’m talking today with Charles Surrano, a disability insurance attorney from Arizona. He is here to help consumers understand when and how they should use a disability insurance attorney.
Mr. Surrano, do you want to tell us a little bit about your background?
Charles Surrano: Certainly. I was born and educated in New York and have been practicing law for almost 30 years now. I moved to Arizona about 25 years ago and set up practice there. I initially worked for insurance companies and learned a little bit about how the insurance industry works. I became dissatisfied with my understanding of the way the insurers conducted business and decided that I would start representing policyholders against insurance companies. I’ve been doing that with some degree of success for probably the past dozen years.
As it stands, my practice is currently limited to representing policyholders against insurers on disability claims and generic bad faith claims of any sort (auto, homeowner, life, etc.). However, my subspecialty is in the area of disability income claims.
Free Advice: Okay. I’m going to ask you some questions about the insured’s rights, their protections and some things about the Arizona Department of Insurance. First, what can a consumer expect when they purchase an insurance policy from a company and/or an agent?
Charles Surrano: Well, a lot depends upon the agent from whom the insured purchases a policy. When it comes to agents, one can expect the good, the bad and the ugly. There are agents who are very professional and very honest and will be forthright with the insured, explain the policy terms, and quite clearly go through the policy to answer potential questions about the policy and its coverages, benefits, and limitations under the policy. These agents make sure that the insured has a firm understanding of exactly what it is they’re purchasing, when the policy will pay, and when it might not.
On the opposite end of the spectrum, of course, there are agents who will simply gloss over policies and engage in what you might call rapid-fire sales. They’ll say “you need this because…” and deflect questions in favor of simply closing the deal. That approach often leaves policyholders with a substandard understanding of what their rights are and what their coverages would be under the policy.
Those types of agents often create problems for insureds later on, because they either misrepresented what the policy purports to cover, or contributed to a deficient understanding due to inadequate explanation of the terms of the policy.
In shopping for insurance, it’s important to make sure you go to an agent that has a good reputation, if you can ascertain that either from talking with people who have purchased insurance or general discourse in the community about what agents or agencies provide better services than others. In the long-run, the agent is the person who puts a face on the insurance company. When you deal with an honest, forthcoming and knowledgeable agent, you’ll feel more comfortable about the insurance product that you’re purchasing. And you’ll have fewer problems with the insurance company because of it.
Free Advice: If what you get isn’t what you thought you bought, do you have a claim against your insurance agent?
Charles Surrano: It is entirely possible. Since agents act in a semi-professional capacity and are supposed to have specialized knowledge and understanding of insurance, they are required to act in a way that is consistent with this higher understanding. There is a standard that a responsible and competent insurance agent is required to meet in terms of explanation of policy benefits and what investigation is done into the policyholder’s background and insurance needs. If an agent is somewhat less skilled than he should be, then the policyholder has a potential claim against the agent, perhaps for selling them the wrong policy, underinsuring him, or misrepresenting the terms of a policy. These are typically referred to as errors and omissions claims. Insurance agents are quite commonly insured against this very sort of catastrophe.
Free Advice: Okay. Can you explain to us the term of “good faith” as it relates to an insurance policy?
Charles Surrano: In addition to written words, every insurance policy contains an unwritten promise that the insured will be treated fairly and honestly by the insurer. This implied duty obligates the insurer to promptly, fairly and honestly investigate claims made by the insured. In the course of administering any claim filed by an insured, the insurance company must treat the insured’s interests at a level equal to its own. In other words, an insurance company cannot place its financial interests ahead of the insured’s in terms of evaluating whether or not to pay the claim. They must act honestly, openly, and reasonably in their evaluations. Any deliberate effort by the insurance company to deny an insured the implied entitlements to fair, honest, and/or equal treatment can result in a breach of the duty of good faith and fair dealing.
Free Advice: Are those expected standards when you’re dealing with an insurance company and its agent?
Charles Surrano: Absolutely.
Free Advice: What is the relationship between the policyholder and the insurance company, and how does that relationship differ from other commercial relationships we might engage in?
Charles Surrano: When someone engages in an ordinary commercial transaction, whether with the cable company, the bank, or what have you, they engage in a contractual enterprise between themselves and the business with whom they are trying to bargain. There are no special considerations or additional obligations that go beyond those contractual expectations. However, in the area of insurance, the insurance company is literally in the business of making promises to protect the security and interests of its insured. Depending on the state in question, there is either a fiduciary or a quasi-fiduciary duty that the insurance company owes to its insured. The relationship between an insured and an insurance company is a special one. It’s not an ordinary commercial relationship. True, there’s a contract; it’s the insurance policy. However, there is also the implied duty of good faith and fair dealing and an obligation to make sure that the insured’s interests are protected and preserved.
Free Advice: If a consumer is denied a claim or given information with which they’re not happy, should they accept what the insurance company says as final?
Charles Surrano: Sometimes, yes. Often, no. As I’ve explained to potential clients who have visited me after a denial by an insurance company, sometimes, the insurance company gets it right. Sometimes, the insurance company has a valid reason to deny a claim.
However, the mere fact that the insurance company has denied the claim doesn’t necessarily make it valid or uncontestable. There are attorneys who would be happy to talk to an insured who is denied a claim for benefits under his or her policy if they have any reason to suspect the denial was wrongful, cannot explain why her claim was denied, or is confused. They usually speak to them at no cost and explain to them whether or not the insurance company has made a valid and lawful denial. If the insurance company has made an improper denial, they explain what the insured’s rights might be against the insurance company and what recourse the insured would have to either obtain benefits or other relief from the insurer. A customer should never simply accept an insurance company’s statements at face value.
Free Advice: What can the purchaser of a disability insurance policy do during the purchase to protect their interests?
Charles Surrano: It’s vital to make sure you’re dealing with a reputable agent. Be sure to ask questions during the course of your conversations with the agent. Do the thing that most policyholders refuse to do: take some time, review the policy, review the declarations page and ask the agent what the terms mean.
If the agent explains a promise in the insurance policy of a benefit that’s being provided and that representation is more explicit or specific, see if the agent will reduce it to writing and tell you in a letter that that’s what the policy means. At a minimum, make your own memorandum at the time of what the agent told you. Later on, if you go to present a claim against the insurer and the insurer denies that the policy means what you say, you can say, “You may be claiming that now, but at the time you sold me the policy, this is how it was represented to me. This is what the agent told me it means.”
A classic example is a situation that arose in the late 80s, when insurers were selling disability policies at very competitive levels. Typically, agents would approach professionals such as doctors and lawyers and find, say, an attorney who could practice law at various levels, but had a practice limited, say, to trial work. They would tell them, “I want you to understand that your own occupation is that of a trial attorney. If you can’t do trial work, then you’re going to be considered disabled under the policy, even if you might be competent and able to do bankruptcy or practice in some other area of law.” The agents would often issue what they called specialty letters as virtual addendums to the policy, explaining what they meant when they were selling the policy to the insured, and limiting the attorney’s own occupation to their specialty, even though the policy itself may not have actually said that, but simply used more generic terms like, “Your own occupation at date of disability.”
Those things have happened in the past, and there’s no reason why they couldn’t continue in the future with a diligent consumer.
Free Advice: What are the benefits, if any, of contacting an outside agency, such as in the Arizona Department of Insurance?
Charles Surrano: First, it helps you record your grievance against the insurance company. Second, the Department of Insurance should, and undoubtedly will, commence an investigation, so there will be inquiries made of the insurer. The insurer will be required to respond to the questions posed by the Department of Insurance.
At that point in time, of course, you’ll have a record of what the insurance company’s official response is to your grievance, which may differ somewhat from what the insurance company has told you.
These exchanges between the Department of Insurance and the insurance company may end up having some relevance in a potential bad faith case down the road in which what the insurance company tells the Department of Insurance is at variance with what you find out was going on at the insurance company or in the claim file itself.
Free Advice: Those are the benefits. What are some of the risks?
Charles Surrano: Well, one of prominent risks is that the insurance department sometimes gets it wrong. I’ve seen investigations undertaken by the Department (not limited, of course, to Arizona), that are erroneously concluded on the side of the insurer. Now, if the claimant complains that he has been treated improperly and the Department of Insurance concludes that the insurance company acted properly, the investigation may sometimes be used as evidence, or hoisted up by the insurance company as evidence that the Department of Insurance didn’t think they were doing anything wrong, so how could they have acted in bad faith? The downside risk of involving a department that has limited resources and limited man hours to investigate claims is that sometimes these Departments are more willing than they should be to accept insurance companies’ statements and deny consumer claims.
Free Advice: Do you have to go to the Department of Insurance? Is it enough to have submitted a complaint to the Department of Insurance, or are there other channels to resolve a claim?
Charles Surrano: No, of course, you don’t have to go to the Department of Insurance. And yes, there are obvious channels to resolve differences between the insured and his insurer. The most obvious, of course, is to consult an attorney. If the attorney agrees with the insured’s position, the attorney will, obviously, be able to recommend what recourse might be appropriate against the insurer. Recourse might be as simple as corresponding with the insurer or triggering an internal appeal process with the insurer. It might also involve filing a suit.
Free Advice: If the Department of Insurance has found in favor of the insurance company, is that then used against a claimant if they proceed with their claim?
Charles Surrano: It can be. There’s no rule that it will be, but it’s possible the insurer will point to the administrative record at the Department of Insurance in cases in which they have been cleared of blame in a DOI investigation.
Free Advice: All right. I’d like to ask you some questions now about bad faith, which is a term we hear a lot regarding insurance companies these days, and in particular, disability insurance companies. First, why do insurers deny claims?
Charles Surrano: Sometimes they deny claims because they’re supposed to. As I said before, insurers don’t always get it wrong. Often, claims simply aren’t covered under a policy. In these cases, the insurer is perfectly within its rights to deny a claim, as long as it has done an adequate and appropriate investigation into the facts behind the claim. If an insurer concludes, rightfully, that there is no coverage for the claim, it’s within its legal rights to deny the claim and should deny the claim.
There are, however, other forces at work in insurance claims that sometimes are less than appropriate. For example, if an insurance company has instituted institutional claim objectives, whether they’re severity goals, reserve reductions, or what they call “reserve takedowns,” this creates artificial pressure on insurance adjustors and claims supervisors to underpay or deny what may be valid claims, simply to meet these artificial and arbitrary objectives. That’s a wrong thing to do. And that can result in the denial of a lot of otherwise valid claims.
Sometimes insurance companies deny claims because they haven’t conducted a full, fair and prompt investigation. An insurance company cannot say that it has reasonably denied a claim if it has failed to conduct an investigation. Yet, sometimes, even absent any institutional evidence of claim objectives, claim goals, or reserve reductions, I’ll see evidence in claim files that an insurance company was turning a blind eye toward evidence that would support the claim and simply looking at evidence that they would use to deny it. That’s wrong and improper because it does not give equal consideration to the insured’s interests. Obviously, the insurance company is only looking for information that favors a claim denial when there may be evidence underneath its nose that would support payment of the claim. It’s not allowed to do that. That’s a bad reason to deny a claim.
There may be other reasons that an insurance company can be said to have denied a claim wrongfully. In any case where you feel that you have a valid claim that has not been denied properly, you need to get the claim file. The claim file is, or should be, a little history book of what’s happened in the claim, what the insurance company has done regarding the investigation of the claim, and the claim decisions.
That archive of claim decisions can sometimes tell an experienced bad-faith attorney that there were other forces at work or other decisions that really lacked a reasonable basis and thus might be bad faith. Sometimes, you might not even be aware of the full extent of why a claim was denied until you’ve actually reviewed the file from the insurance company. You may be able to make educated guesses, but you won’t really know the full extent of it until you’ve reviewed that claim history.
Free Advice: Are you allowed to request that file from an insurance company?
Charles Surrano: Absolutely. In almost every case, the claim file will be provided. Sometimes, insurance companies will claim that parts of it are privileged. That may well be the case where attorneys are involved and have been giving advice to the insurance company, but in the ordinary sense of the insurance company going about its business, that information is almost invariably at the disposal of the insured by request, or sometimes, depending upon the legal jurisdiction you’re in, by way of affirmative disclosure requirements in that particular jurisdiction.
For example, here in Arizona, I wouldn’t even have to request the claim file if I were in state court. They would have to produce it, and they do.
Free Advice: What are some of the typical reasons insurers use to deny benefits? What should a consumer watch for that may trigger the need to actually investigate further if a claim is denied?
Charles Surrano: Here, you have to be a little savvier, I guess. It depends on what kind of insurance you’re talking about. What is it that you think the insurance company might suspect you of doing or being as a reason for denying the claim?
If, for example, you have a disability claim, and you have been diagnosed with a disease or a condition that is wholly subjective and cannot be verified by objective evidence such as an x-ray or what have you, you could be completely disabled but see the insurance company deny your claim. They may deny the claim simply because they suspect that you are faking it due to your inability to objectify your particular illness. Objective illnesses are not necessarily considered disabling illnesses in the policy. Typically, the insurance policy simply says that you’re disabled by reason of sickness or accident. Sickness can include subjective illnesses such as chronic fatigue syndrome, without limitation. Subjective symptoms would not be a good reason to deny the claim. If you were disabled due to a subjective illness and were still denied benefits under the policy, you’d have reason for suspicion.
Insurance companies vigorously investigate fire claims to determine whether or not they think there’s any possibility of arson. In theft claims, insurance companies are more and more often saying to insureds, “We want to see receipts for everything you claim was stolen.” Well, you may claim something was stolen that you’ve had for ten years. Do you have a receipt for it? Most people, of course, don’t. Insurance companies will say, well, we’re not going to pay your claim. Well, the insurance company requires the insured to verify under oath what it is they’ve lost, so they have sworn proof that the property existed, it had a particular value, it’s now missing, was stolen, whatever. Yet, they deny the claim anyway. Why would they deny it? Well, because you don’t have a ten-year old receipt. You might want to be suspicious about a claim or policy such as that. Yet, ironically, I’ve seen insurance companies who have claim guidelines that say when insurance adjustors ought to be suspicious of people. And they will tell adjustors in their manuals to be suspicious of people who have receipts for everything.
Free Advice: Very interesting.
Charles Surrano: You can’t win sometimes.
Free Advice: Do the companies collaborate and share ideas on how to protect themselves from bad faith claims?
Charles Surrano: I believe they do to the extent that the industry communicates indirectly within itself. You have, for example, the specialized industries of disability, homeowners, auto, whatever. But, for example, in the disability insurance industry, it’s very difficult for one major disability insurer to start doing things a certain way and produce certain results and not have other disability insurers notice and sometimes mimic what is going on. Disability insurers and other insurers alike hold conferences to talk about what’s happening in their industry. They share ideas with each other. They share product information with each other. They share results with each other. They talk about where the future of the business is going. They don’t necessarily share the most intimate and confidential information, such as that which may be particular to their own claims program or that they wouldn’t want to have leaked out into public, but in a very general sense, they do share information. They do know what’s going on in the industry, and they are aware of what the competition is doing and how well they are doing it.
Free Advice: There’s a term, “Rewriting policy technique.” Could you explain to us what that means and give us an example?
Charles Surrano: I think I invented that term, actually. Maybe not, but I’ve certainly used it a lot, because I’ve seen it a lot. It is seen quite prolifically in the area of disability insurance, particularly in own occupation policies. For example, you will find that when the policy was being sold, the insured was told, as I mentioned earlier, things like, “You know, if you can’t do your own specialty, if you can’t be a trial attorney, if you can’t be an invasive cardiologist, or whatever your particular specialty is, you’ll be considered totally disabled under the policy.” The policies were written in such a way that was consistent with that understanding. You could apply it the way the policies were written.
Years later, when there were too many claims and the claims were too big, the industry realized that it had really underestimated the level of claims it was going to have to deal with. They started trying to look for ways to limit that exposure. They then began to retreat from the very policy provisions and the representations of what those provisions meant and start, as we say, rewriting the policy.
Now, instead of the invasive cardiologist who can’t do invasive procedures, who can’t do surgical procedures - although, when they sold the policy, that meant he would be totally disabled - ten or fifteen years later, after all of these reserving difficulties hit the fan, the same invasive cardiologist now who can’t do invasive procedures, and thus by common sense, one would say can’t be an invasive cardiologist, all of a sudden can do some of the other duties that an invasive cardiologist does, like examine patients, post surgery, before surgery, review charts, write prescriptions, order up tests, that sort of thing. All of a sudden, he’s not totally disabled. He’s, at best, residually disabled, which is not the way the policy was written. It’s not the way the policy was sold. Instead, it is a limitation on what the insurance company will then have to pay.
You see examples in which the insurance company has backed away from what the policy says and the promises about what the policy would provide. In later years, they have said, “That’s not what we meant when we said it.”
Free Advice: I’d like to ask also about another term called “sheltering claims.” What are insurance companies doing to make it more difficult to sue for denied policies, and how is that term part of that?
Charles Surrano: It would be more accurate to say that insurance companies have become more proficient at sheltering information about claims and segmenting the claim process more. As with every industry, the insurance industry has become more automated. The insurance industry has gone from a paper industry in which claim files themselves were the handwritten notes of adjustors’ correspondence kept in an actual hard claim file, to a totally online system. Nowadays, it’s the exception rather than the rule to find an actual insurer that simply uses the hard paper method of keeping a claim record. Almost all the bigger insurers and more sophisticated insurers have an automated claim system and computerized claims. And we all know what you can do with a computer, don’t we? It all depends on what you put in and where you put it. There is no such thing then as the hard claim file except to the extent that the insurance company wants to create one.
Meanwhile, insurers can hide a lot of information in the cyber claim file, if you want to call it that. E-mails and so forth back and forth between supervisors and claim adjustors may not necessarily be reproduced and included in any claim file if you ask for one in discovery because they might not know, literally, that what you’re claiming is the claim file any longer, since it is in cyberspace.
How you decide to deny a claim is often masked in the claim file. In the old days, it was very easy to see who was running the show, who the claim supervisor was, who was making the decisions and why, because this was all recorded in the claim file somewhere. Nowadays, you’re lucky to find out who is actually making the decisions from a review of the claim file. If you do find out who, the claim file will very typically be devoid of any discussion about the claim process or what led up to a particular claim decision. You’ll see mention, perhaps, of “met with Mr. So and So,” and then after that some claim decision is made. Yet, the file contains no recorded discourse between the claim adjustor and the claim supervisor over the issues regarding the claim and why one decision was favored versus another. So there’s a lot of empty information in the claim process. However, internally, there might be evidence to suggest that a lot of activity was conducted that yet remains unexplained.
Free Advice: What should a policyholder do if they believe the insurance company is sheltering claims information?
Charles Surrano: Well, you need to get a good lawyer. And you need to have an attorney who understands where that information may be hidden, how it may be hidden, and is prepared to fight to get it. It won’t be voluntarily turned over in most cases.
Free Advice: Who are some of the insurance companies practicing this type of technique?
Charles Surrano: I couldn’t limit it to any one or two, in particular. I’ve seen it across the board, and it runs the gambit in variety. You can say you see it in disability cases, but you also see it in auto cases and in homeowner cases. It’s become pandemic to the industry. It’s become extremely, extremely common in my experience.
Free Advice: Is this a practice insurance companies are actually following to make it more difficult for claimants to sue for denied policies?
Charles Surrano: I can’t think of any valid reason not to have every fact relevant to a claim decision contained in one file. There’s no reason not to have a full and accurate record of how a claim was investigated, who was involved in investigating it and why certain actions were taken during the course of the claim. That does not benefit the consumer at all.
Free Advice: It sounds like a consumer should also keep track of every contact they have with an insurance company.
Charles Surrano: No question about it. If they’re dealing with an insurance company, they need to take notes. They need to make memos of what their conversations were. If possible, and if legal in an insured’s jurisdiction, they might to record conversations. But by all means, they should not simply assume that what they are saying to an adjustor is somehow going to be recorded in a claim file. Often times, it isn’t. I have had cases where insureds have made multiple calls to an insurer, only to find out that when the claim file is produced, there’s absolutely no reference to those calls, some of them many minutes long, at all. They’re just not there.
Free Advice: I’m going to ask you some questions about a claim or a benefit that has been denied. What is the biggest mistake a policyholder can make when their benefits have been denied unjustly?
Charles Surrano: Simply accepting it. There’s no reason to do that.
Free Advice: What should they do?
Charles Surrano: They need to talk to someone who knows more about it than they do. That usually means speaking to an attorney. If they’re friendly with their agent and are dealing with a reputable agent, they may get help from their agent by simply going back to the agent and saying, “This doesn’t seem right to me. This isn’t what you told me when you sold me the policy.” A good agent will say, “You’re right. That’s not a good decision. They’re wrong. And you know, you need to fight this.”
If an insured feels that his claim has been denied improperly, he simply doesn’t have to take it. The worst that’s going to happen is that he’ll go to someone who knows more about insurance than he does, who will look at his situation and say, “Look, you might think your claim was denied wrongly, but it wasn’t.” On the other hand, the expert might agree with him and say, “Yes, it was denied wrongly, and let me tell you why, and let me tell you what you can do about it.” But to sit back and do nothing makes no sense at all.
Free Advice: If an insured does pursue a claim successfully, what types of damages are available?
Charles Surrano: In any bad faith case, you have a claim for the contract benefits.
Free Advice: What are those? What does that term mean?
Charles Surrano: Well, this covers whatever the insurance policy says it’s going to provide. If it’s a disability case, for example, if the insurance company has not paid the disability benefit, then you have a claim for what the disability benefit would be. That claim may include not only the past-due unpaid benefits, but in some cases all future benefits under the policy if you can show that the insurance company has repudiated the disability policy or acted in bad faith.
Depending on what kind of contract you have, you’ll be entitled to whatever benefits have been improperly denied. In a breach of contract claim, the insurance company is not honoring its promise to pay. If it’s a homeowners case, your home is burnt down, and they’re supposed to pay to rebuild it, and they don’t, you’re obviously going to pursue the cost of repairing and rebuilding your home, etc.
If you have a bad faith claim, that takes it up a notch. Bad faith is a tort. It’s not a contract claim. That means that the insurance company could be liable not only for the contract damages but also for additional damages that arise as a consequence of the insurance company’s bad faith conduct. Those damages, as in any tort case, can include all manner of consequential damages and emotional distress. Consequential damages in a disability case might include things like inability to make house payments due to unpaid disability benefits and the ruined credit and foreclosures that might result. Those consequential type damages flow from the unreasonable denial of the benefit, which flows from the commission of the tort.
People who expect the promised security to be performed can sometimes come under enormous stress. That is also a compensable part of a bad faith claim. In some cases, I’ve seen insureds awarded millions of dollars simply for the emotional distress and anguish that they are put through by the insurance company and the processing of the claim. Those are the types of additional damages that you can get in a bad faith case without even talking about the damages that the insurance companies fear most, which are punitive damages.
In cases where the insurance company has acted in a way that is spiteful, or designed to deliberately harm an insured, or in a way that has substantially disregarded a risk of harm to the insured, insurers can sometimes be subject to punitive damages. Mind you, it’s a tougher standard. It’s a higher burden of proof for an insured. But punitive damages in bad faith cases are the thing that the insurance companies worry about most because they can far and away exceed what the contract and bad-faith damages are. Often times, you’ll see punitive damages awards in the many millions of dollars, sometimes, tens of millions of dollars. That should concern insurance companies, and it does.
Free Advice: I’d like to thank you so much for sharing your experience and insight with us. Is there anything else you’d like to add that potential insureds should look for or be on the aware of as they’re using and pursuing claims with their insurance companies?
Charles Surrano: They need to keep their eyes and ears open and use their common sense. When your gut tells you something isn’t right, take it to a professional. Let some more experienced eyes look at what your problem is, and hopefully, you’ll get some good advice on what to do. But the last thing that any consumer would want to do with an insurance problem is to simply do nothing. There’s no reason to do that nowadays. Insurance is often a complicated issue. Insurance policies can be difficult to read and difficult to understand. They may say one thing to a layperson and something entirely different to someone who actually is aware of what the policy is supposed to provide. You should take your problems to the problem-solvers.
Free Advice: Thank you so much again.
Charles Surrano: Sure, my pleasure.