Nearly all group long-term disability insurance policies limit the duration of benefit payments for psychiatric conditions to 24 months, while disabilities due to physical impairments are generally payable to age 65 or until the claimant reaches Social Security normal retirement age.

In a recent ruling from a federal court in Montana, Sand-Smith v. Liberty Life Assurance Company of Boston, 2017 WL 41689430 (D. Mont., Sept. 20), the court found that a psychiatric condition limitation contained in a long-term disability income insurance policy conflicted with Montana’s mental health parity law.

The case involved Theresa Sand-Smith, a claim adjuster for Farmers Insurance, who lived in Billings, Mont. Sand-Smith, who suffered from bipolar disorder, challenged the psychiatric condition limitation in her employer’s group disability policy after her claim was limited to 24 months of payments.

Sand-Smith maintained the limitation in her employer’s policy violated Montana’s mental health parity law, Montana Code Annotated §33-22-706. The court agreed.

The court noted the policy explicitly stated that it would be reformed to conform to the statutory requirements of the state where the insured lived. Although most state laws are ordinarily pre-empted by Employee Retirement Income Security Act, state insurance laws are saved from pre-emption pursuant to 29 U.S.C. §1144(b)(2)(A) so long as such laws are “specifically directed toward entities engaged in insurance” and “substantially affect the risk pooling arrangement between the insurer and the insured” according to the Supreme Court’s interpretation of that provision.

The court found that both requirements were met by Montana’s mental health parity law. Thus, the court determined that the Montana parity law was not pre-empted by ERISA.

The court next examined whether the scope of Montana’s mental health parity law extended to group disability insurance. The law was drafted to encompass both “health insurance” and “disability insurance.”

Liberty argued that its policy was exempt because it provided “disability income insurance” and not “disability insurance.” However, the court overruled that objection since the Montana code defined “disability insurance” to mean insurance “against bodily injury, disablement or death by accidental means” or “against disablement or medical expense or indemnity resulting from sickness.” Mont. Code Ann. §33-1-207(1) (a-b).

Although the Montana code separately defined “disability income insurance” to mean insurance that pays for “lost wages or other earned income or business or financial losses as a result of an inability to work due to sickness, injury or a combination of sickness and injury” (Mont. Code Ann. §33-1-235), Montana law specifies that “the inclusion of such coverage within one definition shall not exclude it as to any other kind of insurance within the definition of which such coverage may likewise be reasonably included.” Mont. Code Ann. §33-1-205.

Thus, since the Liberty coverage insured Sand-Smith against “disablement,” it fell within both definitions and the court thus found the coverage was subject to the mental health parity law.

The court then turned to the scope of the parity law and whether the law applied to disability benefits. The court observed that Montana’s mental health parity law requires that both health and disability insurance policies provide “a level of benefits for the necessary care and treatment of severe mental illnesses … that is no less favorable than that level provided for other physical illness generally.” Mont. Code Ann. §33-22-706(1).

Although the court acknowledged the mental health parity law primarily focuses on services rendered by medical professionals rather than on lost wages, the court nonetheless concluded that the benefits provided by Liberty’s policy are a “benefit” covered by the law. The court offered several reasons for reaching that conclusion: First, the legislature included “disability insurance” in its mental health parity law while other states have not, thus demonstrating a clear intent to expand the scope of the law’s coverage. Second, the list of benefits covered by the law specifically enumerated a list of included benefits, but explicitly stated the list was not exhaustive and would encompass disability benefits based on the following rationale.

“Montana’s mental health parity law,” the court explained, “covers benefits for the ‘necessary care’ of mental illness. ‘Necessary’ means ‘that cannot be dispensed with, essential, or indispensable.’ Webster’s New World Dictionary 905 (3rd ed. 1994). ‘Care’ means ‘take charge of, look after and provide for.’ Webster’s New World Dictionary 212 (3rd ed. 1994). Most people would probably consider lost wages to be indispensable in order to provide for themselves.”

Accordingly, the court held that the Liberty policy’s mental illness limitation was void because it conflicted with Montana’s mental health parity law.

The passage of the Americans with Disabilities Act of 1990 triggered a flurry of litigation around the country that challenged the disparity between physical and mental illness benefits in disability insurance policies as a violation of the ADA. See, e.g., Weyer v. 20th Century Fox, 198 F.3d 1104 (9th Cir. 2000) (collecting cases inclusive of EEOC v. CNA Insurance Cos., 96 F.3d 1039 (7th Cir.1996)). However, none of those cases was successful because the courts consistently found the ADA did not encompass the content of insurance policies and the distinction has thus persisted.

Although the federal Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 and most state law equivalents are limited to health insurance, the Montana law potentially opens the door to eliminating distinctions in disability income insurance policies that artificially and unfairly limit the duration of benefits for individuals afflicted with mental illness. As medical science increases its knowledge about the biological causes of mental illnesses, there is no longer any rational justification for maintaining the distinction that most policies still retain.

The time has come to recognize that individuals who suffer disability due to mental illness should be entitled to receive the same coverage as individuals with heart, back, neurological or other physical conditions.

This article was initially published in the Chicago Daily Law Bulletin.

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