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The Department of Labor’s Investigations into Life Insurance: Implications for Disability Claim Denials Due to Missing Evidence of Insurability

Home//Blog//The Department of Labor’s Investigations into Life Insurance: Implications for Disability Claim Denials Due to Missing Evidence of Insurability

The Department of Labor (DOL) has been actively investigating certain insurance companies for questionable practices involving evidence of insurability (EOI) in life insurance policies. These investigations have revealed that some insurance companies have been collecting premiums from policyholders for years without securing required EOI. When claims are made, these companies deny coverage, asserting that the lack of EOI made the policy invalid. This practice has sparked concern not only in the life insurance sector but also in the broader realm of disability insurance, where similar tactics are often employed.

The outcome of these investigations has significant implications for the decisions insurance companies make when evaluating disability insurance claims, particularly when it comes to claims being denied due to missing EOI. This article explores how the DOL’s scrutiny of life insurance practices is impacting disability insurance claims, how insurers have historically handled EOI, and what policyholders and claimants can do to protect their rights.

Understanding Evidence of Insurability (EOI)

Evidence of Insurability (EOI) refers to medical information that an individual provides to an insurance company to prove that they are healthy enough to qualify for coverage. Insurance companies use EOI to assess the risk of insuring someone, especially when it comes to life and disability insurance. EOI often involves medical questionnaires, doctor evaluations, or lab tests to determine whether a policyholder qualifies for certain levels of insurance coverage.

In group insurance policies, such as those provided by employers, there is often a guaranteed issue amount for both life and disability insurance, meaning that a portion of the coverage does not require EOI. However, for supplemental or additional coverage beyond that base level, EOI is typically required. Problems arise when insurance companies collect premiums for coverage that was supposed to require EOI, but never actually obtain it, leading to a denial of claims when the policyholder or their beneficiaries need the coverage the most.

The Department of Labor’s Investigations into Life Insurance Practices

In recent years, the DOL has investigated several insurance companies for mishandling EOI in life insurance policies. These investigations revealed a troubling pattern: insurers were failing to collect the necessary EOI but were still collecting premiums from policyholders. When beneficiaries filed claims after a policyholder’s death, the insurers denied the claims, citing the lack of EOI as the reason the policy was invalid.

The Department of Labor has entered into public settlements with several insurance companies about this behavior, forcing them to agree to cease and to pay claims for which they have accepted premiums.  There are agreements with:

Key Findings from the DOL Investigations

The DOL’s investigations uncovered several common practices among insurance companies that ultimately harmed policyholders and their beneficiaries:

  1. Failure to Collect EOI: Insurance companies often neglected to follow up with policyholders to obtain EOI, even though premiums were being collected for supplemental coverage. In many cases, policyholders believed they had full coverage, only to discover later that their coverage was invalid.
  2. Denial of Claims: When beneficiaries filed claims, insurance companies denied them, stating that the policyholder never provided EOI. This led to financial devastation for families who had been paying premiums for years under the assumption that they were covered.
  3. Lack of Communication: The investigations revealed that insurance companies often failed to clearly communicate the need for EOI to policyholders. Many policyholders were unaware that their additional coverage required medical documentation.

These findings resulted in regulatory actions and penalties for some insurers, but more importantly, they sparked a larger conversation about how the lack of EOI affects not only life insurance but also disability insurance claims.

The Connection Between Life Insurance and Disability Insurance Practices

Disability insurance operates under similar principles as life insurance when it comes to EOI. When an individual applies for disability insurance—either through an employer’s group plan or a private policy—EOI may be required for coverage if the employee does not immediately sign up as part of their new position. Late entrants to the disability plan may be required to provide proof of insurability.

The DOL’s findings in the life insurance sector have significant implications for how disability insurance claims are handled. Insurance companies that were investigated for mishandling EOI in life insurance policies may have employed similar practices when dealing with disability insurance claims. Specifically, the following concerns arise:

  • Denial of Disability Claims Due to Missing EOI: Just as in life insurance, disability insurers may deny claims when they realize EOI was never obtained, even though the policyholder had been paying premiums for coverage.
  • Failure to Inform Policyholders: Insurance companies may fail to inform policyholders that EOI is required in some circumstances for disability coverage, leaving them vulnerable to claim denials when they become disabled.
  • Collecting Premiums Without Securing EOI: Some insurers may have collected premiums for disability coverage without ensuring that EOI was provided, creating a situation where policyholders believe they are covered but face denials when they need to file a claim.

Impact of DOL Investigations on Disability Insurance Claims

The DOL’s investigations into life insurance practices have set a precedent for increased scrutiny of insurance companies’ handling of EOI in other types of policies, including disability insurance. The following are key ways these investigations are influencing how disability insurers approach EOI and claims denials:

1. Increased Regulatory Oversight

The DOL’s focus on insurance companies’ practices regarding EOI has led to increased regulatory scrutiny across the insurance industry. Insurers are now more likely to face investigations if they are found to be mishandling EOI in disability insurance policies. This increased oversight is pushing insurers to ensure they follow proper procedures when requesting EOI and communicating with policyholders.

2. Changes in Internal Processes

In response to the DOL’s findings, many insurance companies have reevaluated their internal processes for managing EOI. Insurers are now more likely to:

  • Follow up with policyholders to obtain EOI when required, ensuring that they do not continue collecting premiums for invalid coverage.
  • Improve communication with policyholders regarding the need for EOI, so individuals are fully aware of what is required to secure their coverage.
  • Implement better tracking systems to monitor which policyholders have submitted EOI and ensure that no coverage is provided or premiums collected without valid insurability proof.

These changes are intended to reduce the risk of claim denials based on missing EOI, but policyholders must remain vigilant to ensure that their rights are protected.

3. Legal Precedents for Denial Challenges

The DOL’s actions have emboldened policyholders and attorneys who challenge insurance companies’ claim denials due to missing EOI. Beneficiaries in life insurance disputes have successfully argued that insurers acted in bad faith by collecting premiums without securing the necessary EOI. These cases set legal precedents that extend to disability insurance claims as well.  Courts around the country have forced insurers like Reliance Standard, Unum, United of Omaha Life, Metropolitan Life Insurance, First Reliance Standard Insurance, and Life Insurance Company of North America to pay life and disability insurance claims despite a lack of EOI, when the insurer accepted premiums for the coverage.

When insurers deny disability claims due to missing EOI, policyholders can now point to the DOL’s findings as evidence of potentially improper practices. If an insurer collected premiums without securing EOI or failed to properly inform the policyholder about the need for EOI, the policyholder may have grounds to challenge the denial in court. Both insurers and employers can be held accountable for taking premiums from employees and then denying coverage for lack of evidence of insurability.

4. Increased Transparency for Policyholders

One of the most significant impacts of the DOL’s investigations is the push for greater transparency in the insurance industry. Policyholders are now more aware of the importance of understanding their policies and knowing when EOI is required. As a result, more individuals are proactively asking questions and seeking confirmation from their insurers about the status of their coverage.

This increased awareness benefits both life and disability insurance policyholders, as it reduces the risk of unexpected claim denials due to missing EOI. Employers who offer group life and disability insurance plans are also taking a more active role in ensuring that their employees are informed about EOI requirements.

How to Protect Yourself from EOI-Related Claim Denials

Given the findings from the DOL’s investigations and the potential for similar issues in disability insurance claims, it is important for policyholders to take proactive steps to protect themselves. Here are key strategies to ensure you are not caught off guard by a claim denial due to missing EOI:

1. Understand Your Policy

The first step in protecting yourself is to thoroughly understand your insurance policy, whether it is life insurance or disability insurance. Pay close attention to any sections that mention EOI requirements. If your policy includes supplemental coverage, verify whether EOI is required and if so, what steps you need to take to provide it.

2. Submit EOI Promptly

If EOI is required for your coverage, submit the necessary documentation as soon as possible. This may include completing medical questionnaires or undergoing a physical exam. Keep copies of all paperwork and correspondence with the insurance company as proof that you submitted EOI.  If you don’t know if it requires EOI- ask.  In writing.

3. Follow Up with the Insurance Company

After submitting EOI, follow up with the insurance company to confirm that your documentation was received and approved. Do not assume that because you are paying premiums, your coverage is valid. Get written confirmation from the insurer that your EOI has been processed and your coverage is in effect.

4. Consult with an Attorney

If your disability insurance claim is denied due to missing EOI, consult with an attorney who specializes in insurance law and ERISA claims. An attorney can review your case, help you gather evidence, and represent you in appealing the denial. If the insurer mishandled your EOI or failed to inform you of the requirement, you may have grounds to challenge the denial and seek compensation.

Conclusion

The Department of Labor’s investigations into insurance companies’ mishandling of EOI in life insurance policies have far-reaching implications for the disability insurance industry. As insurers face increased regulatory scrutiny, policyholders must remain proactive in understanding their policies, submitting required documentation, and following up to ensure that their coverage is valid. By taking these steps, policyholders can protect themselves from unjust claim denials and secure the benefits they are entitled to.

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