When you purchased your Long Term Disability policy hopefully you also purchased an overhead disability insurance policy. When is the last time read that policy?
Most policies agree to “pay benefits during a period of disability for covered overhead expenses which pile up while you are totally disabled after the elimination period.” These policies can define disability as the “inability to perform the substantial and material duties of your occupation.”
Overhead disability insurance policies may also pay benefits if you are partially disabled. “Partially” disabled means conditions where you are “unable to perform one or more of the substantial and material daily business duties” or unable to do “usual daily business duties for as much time as you would normally take to do them.”
An important provision in these policies is the definition of overhead expenses. Covered overhead expenses were defined as “items of expense incurred by you which are usual and customary in the occupation of your business or profession.” You must be generally accepted as “tax deductable business overhead expenses.”
There are lessons to be learned about these policies before you claim you are disabled and stop practicing.
In Uno vs. Provident Life and Accident Insurance Company, Dr. Uno, an urologist, became disabled and stopped practicing. He retired his medical license and even cancelled his malpractice insurance. However, he continued to maintain his medical office, employing part time employees for the limited purpose of collecting accounts receivable, copying and mailing patient charts, paying bills and storing his financial and patient records.
Dr. Uno made a claim for benefits under the policy for expenses and maintaining the downsized medical practice. Provident ultimately denied the claim on the basis that the overhead expenses weren’t covered because he was operating a collection agency.
The trial court agreed saying the office expenses weren’t incurred in the operation of his business or profession, reasoning that he had to be actively practicing urology.
The appellate court from the plain meaning the operation of the business in the context of the policy was performing actions to continue the business without regard to whether patients were still being treated. The court found that the billing and collection activities were normal activities apart of a professional practice; the policy contemplated incurring expenses by the disabled insurer.
The result could have been different if Dr. Uno has sold his practice or had entered into a stock purchase agreement over time. The courts most likely would’ve found that he wasn’t conducting a business or profession after he sold his stock.
As you can see it is crucial that you have the services of an experienced disability attorney to review both your disability and overhead disability insurance policy before you stop practicing. You need to understand what Long Term Disability benefits your policy provides and what overhead disability coverage you make before making a crucial mistake that could destroy or limit or entitlement to benefits.