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Dentist/Business Operator Unable to Practice; Totally Disabled Under Policies


A dentist owned and managed several dental practices and other businesses in addition to practicing dentistry. He performed dental procedures 35 to 40 hours a week. He also spent 15 to 25 hours per week managing his businesses, both dental and non-dental. He subsequently suffered a cervical spine disc herniation. The back injury left him unable to continue working as a dentist. Despite his inability to work as a dentist, he was able to perform duties related to acquiring, owning, and managing his various dental practices and businesses.

 

Prior to his back injury, the dentist purchased three different disability income insurance policies. On the application for each policy, he listed “dentist” under “Occupation.” He annually renewed the policies and paid the required premiums. The policies stated that he would receive disability benefits if he had a “Total Disability” or a “Residual Disability,” as defined by the policies.

 

The first policy defined “Total Disability” as being unable to perform the important duties of your occupation and being under the regular and personal care of a physician because of an injury or sickness. The first policy defined “Residual Disability” as being unable to perform one or more of the important duties of your occupation or being unable to perform the important duties of your occupation for more than 80% of the time normally required to perform them and your loss of earnings is equal to at least 20% of your prior earnings and being under the regular and personal care of a physician because of an injury or sickness. The second and third policies defined “Total Disability” like the first policy but added a clause that the insured is not engaged in any other gainful occupation.

 

The third policy also contained a “Mental Disorder” exclusion. The “Mental Disorder” exclusion limited benefits to 24 months if the disability was contributed to or caused by a “Mental Disorder.” The Policy defines “Mental Disorders” as “any disorder (except dementia resulting from stroke, trauma, infections or degenerative diseases such as Alzheimer's disease) classified in the Diagnostic and Statistical Manual of Mental Disorders (DSM), published by the American Psychiatric Association, most current as of the start of a Disability. Such disorders include, but are not limited to psychotic, emotional or behavioral disorders, or disorders relatable to stress or to substance abuse or dependency.”

 

The insurers who provided the three different disability income insurance policies initially paid the dentist “Total Disability” benefits pursuant to those policies. A short time later, the insurers ceased paying benefits because after his disability he continued managing the dental practices and other businesses. The insurers determined that the dentist’s occupation at the time of his back injury was not simply “Dentist,” but “Dentist and Owner/Operator.” As he continued to work as an Owner/Operator, the insurers concluded that the dentist was not totally disabled under the policies.

 

Subsequently, the insurers exercised their contractual right under each policy and arranged for an independent medical examination of the dentist. The doctor who performed the examination stated in her report, that the dentist’s pain when he attempted to do dental procedures was exacerbated by anxiety, depression, and other psychological factors. The dentist admitted that he had been diagnosed with depression.

 

The dentist sued the insurers alleging breach of contract and fraud. The United States District Court for the Eastern District of Michigan, Southern Division, granted the insurers' motion to dismiss the dentist's fraud claim. The parties cross-moved for summary judgment on the remaining breach of contract claim.

 

The court denied the insurers’ motion for summary judgment and granted the insured's motion for summary judgment. The court held that the insured had been under the regular and personal care of a physician in the five years since his back surgery, as required to receive total disability benefits under one policy; the insured was totally disabled within the meaning of that policy; the insured was entitled to coverage under the other two policies; the insured's disability was contributed to by a mental disorder, thus limiting benefits to 24 months under one policy; and the insured was not entitled to statutory penalty interest.

 

The insured had been under the regular and personal care of a physician in the five years since his back surgery, as required to receive total disability benefits under the first policy. Although during this period the insured had responded “no” to a question on renewal applications for dental malpractice insurance asking if he had been treated for mental or physical impairment, the court reasoned that the question concerned only impairments for which he had not already reported to his insurer. The insured affirmed that he had previously reported his disability and medical information to the insurer. The record showed he was under the continuing care of several physicians.

 

Under Michigan law, the insured was totally disabled within the meaning of the first policy. The first policy defined total disability as, in part, being unable to perform “the important duties” of his occupation. His occupation was defined as the occupation in which he was regularly engaged at the time he became disabled. Prior to his back injury, the insured spent roughly two thirds of his time performing dental procedures and the other third of his time managing and overseeing his dental practices and other businesses. The dentist was unable to perform duties that constituted roughly two-thirds of the time he spent pursuing his occupation. The court found that the policy language, “[y]ou are unable to perform the important duties of Your Occupation” was ambiguous. Michigan law required the court to construe the ambiguous policy most favorably to the insured to maximize coverage. The phrase “important duties” was ambiguous and was reasonably read to mean some, rather than all duties. Thus, the dentist was “Totally Disabled” under the first policy.

 

The insured was entitled to coverage under the other two policies. The second and third policies defined “Total Disability” like the first policy but added a clause that the insured is not engaged in any other gainful occupation. The insurers determined that the dentist’s occupation at the time of his back injury was not simply “Dentist,” but “Dentist and Owner/Operator.” The court reasoned that before the modification, when the dentist's title was “Dentist,” the insurers might have argued that under the second and third policies the dentist was no longer a “dentist” post-disability but that he was engaged in an “other occupation” or “other gainful occupation”—that of an “Owner/Operator.” However, due to their modification of his “Occupation” from “Dentist” to “Dentist and Owner/Operator” that argument was no longer available to the insurers. According to their own definition of his occupation, the dentist was not engaged in an “other occupation” or “other gainful occupation.” Accordingly, the court concluded that the second and third policies were ambiguous and coverage would be construed to maximize coverage to the insured.

 

The insured's disability was contributed to by a mental disorder, thus limiting benefits to 24 months under the third policy’s “Mental Disorder” exclusion. The court determined that a plaintiff's total disability need only result in part from a mental or nervous disorder for benefits to be limited under this sort of exclusion. The independent medical examination of the dentist determined that the dentist’s pain when he attempted to do dental procedures was exacerbated by anxiety, depression, and other psychological factors. Additionally, the dentist admitted he suffered from diagnosed depression.

 

The insured was not entitled to statutory penalty interest. Michigan law requires an insurer to pay an insured interest when benefits are not paid in a timely manner, “if the claim is not reasonably in dispute.” The determination of whether an insurance claim is reasonably in dispute is a matter for the court. If an insurer has relied on plainly invalid contract clauses or a plainly erroneous interpretation of law, the court may find no reasonable dispute exists. The court found that the clauses in dispute were not plainly invalid, nor did the insurers rely on plainly erroneous legal interpretations. Therefore, the court found the dentist’s insurance claim was “reasonably in dispute” and he was not entitled to penalty interest.

 

The United States District Court for the Eastern District of Michigan, Southern Division, denied the insurers’ motion for summary judgment and granted the insured's motion for summary judgment.

 

See: Leonor v. Provident Life and Acc. Co., 2014 WL 1746075 (E.D.Mich., April 30, 2014) (not designated for publication).

 

See also Medical Law Perspectives, June 2013 Report: Independent Medical Evaluations: Legal Risks and Responsibilities

 

 

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