Disability insurance "occupation defense"

Some disability insurance companies have attempted a perplexing defense with insureds whose declining health has led to a period of unemployment prior to filing a claim for disability benefits. The argument is that the sick insured had not been working, had therefore abandoned his occupation, and having no longer having a gainful occupation from which to become disabled is not entitled to disability benefits.

The sophistry of this "Catch-22" occupation defense appears to have been rejected in every reported decision in which it was attempted in the absence of a specific contractual requirement.

"Pure poppycock" is the term a federal district judge used to describe the insurer’s assertion of that defense in Norcia v. Equitable Life Assurance Society of U.S., 80 F.Supp.2d 1047 (D.Ariz., 2000). Equitable took the position that its disability insurance policyholder’s occupation at the time of the claim, after a long period of declining health, was that of a "retired / unemployed person." Forcefully rejecting that defense, the District Court granted the insured’s motion for summary judgment on the contract claim, and in discussing the insured’s claim for bad faith characterized Defendant’s position as "pure poppycock" that was "utterly bereft either of textual support in the language of the insurance contract or the gloss placed on such language by any Arizona case." That position contrary to the rule of reasonable interpretation of insurance contracts under Georgia law, and is equally bereft of support in any Georgia case. See Giddens v.The Equitable Life Assurance Society of the United States, 356 F.Supp.2d 1313(N.D.Ga.,2004).

In Weaver v. New England Mut. Life Ins. Co., 52 F.Supp.2d 127 (D.Me., 1999), the court rejected the "occupational defense," holding that the insured’s suit challenging that position stated a claim for intentional infliction of emotional distress, fraud and punitive damages under Maine law. In Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152 (9th Cir., 2002), the court reversed a summary judgment for the insurer based on the "occupational defense" of an insured who was unemployed when she became disabled. Similarly, in Burriesci v. Paul Revere Life Ins. Co., 679 N.Y.S.2d 778 (1998), the court rejected the "occupational defense" and, relying on rules of insurance policy construction identical to Georgia law, held:

By failing to use language that provides that an insured must be actively working at the time that the disability arises, the policy does not unambiguously exclude coverage for unemployed insureds . . . . We reject defendant’s contention that the addition of the term "regularly" to the term "engaged" means only that the policy covers a person who is employed but is not at work when the injury occurs. . . . [D]efendant may not deny benefits to plaintiff because she was temporarily unemployed at the onset of her disability.

See also, Lehman v. Executive Cabinet Salary Continuance Plan, 241 F.Supp.2d 845 (S.D.Ohio, 2003)(Provident wrongly classified occupation where insured retired only because of inability to perform job); Weaver v. New England Mut. Life Ins. Co., 52 F.Supp.2d 127 (D.Me.,1999)(similar position by disability insurer rejected, long discussion of applicability of various causes of action under Maine law).

If an insurer chose to define "occupation" in the policy to require that the insured must be actively working full-time up to the date of disability, it easily could do so. See, e.g., Falik v. Penn Mutual Life Ins. Co., 190 F.Supp.2d 1156, 1160 (E.D.Wis.,2002.); Oglesby v. Penn Mut. Life Ins. Co., 877 F.Supp. 872 (D.Del.,1994). However, in the absence of such a definition in the contract, more reasonable interpretations must apply.

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