November 28, 2014

LTD Carrier Misleads Claimant About Repayment Obligation – What Next?

This blog post is a little off topic but I have included it because it serves as a warning to SSDI claimants who are also collecting long term disability benefits.  Thanks to Mike the gentlemen who wrote me to describe a problem he is having with his LTD carrier.  Mike apparently had long term disability (LTD) coverage at the time he became unable to work.  Many LTD policies, especially those provided as a benefit by your employer, contain provisions that (1) require you to apply for Social Security benefits and (2) that if you are approved and are awarded past due benefits, that you must repay the LTD carrier when you receive your lump sum back benefit check.  In addition, going forward, your LTD benefit will be reduced by whatever you receive from SSDI.

Here is an example.  If your LTD benefit is $2000 per month and your SSDI benefit is $1,800 per month, once the SSDI kicks in, the LTD carrier will only pay you $200 per month – you get the higher of the two benefit amounts, but not both.  As an aside, some private LTD policies do not have an offset or repayment provision, whereas most employer provided policies do.

As you might imagine, SSDI claimants are not very happy about having to turn over their lump sum payments.  I once asked an LTD underwriter about this type of repayment requirement and his response was that the offset/repayment policy was built into the premium structure – presumably the cost of the policy would be significantly higher if the insurance company could not take advantage of your SSDI award.

Therefore, if you are collecting LTD benefits and you filed for SSDI, find out whether an offset and repayment provision applies to you. 

Mike has a big problem because an employee of the LTD carrier gave him incorrect information, as you can see from his email to me:

i was just approved for ssd after 3 years, i called my ltd insurer and told them i wanted to get thier money back i had gotten 38,000  i told my claim worker i had not heard from them so i was calling to find out what was going on, she told the paper work was in the mail then she said she could tell me how much i owed i said ok she told me 18,000 so i thought i was blessed.  i started paying back friends and family wo help me thru the 3 years and paid bills in the end i spent what i thought was my i have thier 18,000 but they want the 38,000 what can i do they told me wrong and by the time she called me back and said she told me wrongthe money was spent , i kept the phone call where she admits she told me wrong , what can i do give them the 18,000 and let them not pay me until it is sall paid back please help me, mike

 I think that Mike has an argument that the LTD representative entered into an oral contract with him to repay only $18,000.  I suspect that the policy itself has provisions that disclaim the right of any employee to modify the terms of the policy so the insurer will likely try to deny that the written policy terms have been changed.  The LTD carrier certainly has an argument that its repayment policy was in writing and agreed to in writing by Mike.

This might be a situation where Mike and the insurance company end up in arbitration (some of these policies contain a mandatory arbitration provision) or in court.  Perhaps Mike can enter into an agreement whereby he pays the $18,000 and then agrees to pay an additional sum – perhaps $8,000 or $9,000 over a two to three year period.

Mike might also want to contact his State’s insurance commissioner to complain about unfair or misleading treatment.  My guess, however, is that at the end of the day the LTD carrier will likely play hardball.  Mike probably doesn’t want to spend a lot of money hiring lawyers but that  may be his best bet – at least to get an opinion about what his policy says about resolving disputes and about the trend in the law in whatever court jurisdiction applies in this case.

[tags] LTD policy, LTD and SSDI offset, repayment of SSDI lump sum [/tags]

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Jonathan Ginsberg represents Social Security disability claimants in Georgia. In practice for over 23 years, Jonathan publishes a widely known disability blog, a podcast and several disability web sites. In 2004, Jonathan published a "how to" book about Social Security disability called the Disability Answer Guide. Jonathan lives with his wife and 2 children in Atlanta.