The overwhelming majority of ERISA governed, employer provided disability insurance policies contain a 24 month limitation on benefits due to disabilities caused by a Mental Health condition. Although the language and extent of the limitations can vary depending on the insurance carrier there will almost always be some limitation written in your policy. Despite efforts by insureds and lawyers to challenge these limitations under the American with Disabilities Acts, Courts throughout the country have deemed them enforceable. However, a recent federal court opinion in Montana may have opened the door as to how to effectively challenge these limitations.

In the recent case of Sand-Smith v. Liberty Life Assurance Company of Boston, a Montana federal court determined that the 24 month mental health limitation found in Liberty Mutual’s disability insurance policy violated Montana’s Mental Health Parity Law. Typically, ERISA preempts state law claims- meaning ERISA makes void all states laws to the extent that they “relate to” employer provided plans and ensure that regulations under ERISA supersede all state causes of action. The Supreme Court has, however, noted an exception to ERISA preemption if the state laws are “specifically directed towards entities engaged in insurance,” and “substantially affect the risk pooling arrangement between the insurer and the insured.” In reviewing Sand-Smith’s case the Montana federal court found that both requirements to avoid ERISA preemption were met under Montana’s Mental Health Parity Law.

In arguing that the Montana law should be preempted by ERISA (not applicable to the policy at hand) Liberty’s attorneys argued that the Court was not properly evaluating the nature of the disability policy, which it argued to be a “disability income policy” and not “disability insurance” subject to the Montana Mental Health Parity Law. However, the Court undertook an in depth analysis of the Montana Health Parity Law nothing that the statute defined both terms and noted that under applicable statutes, “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.” Therefore, the Court found that the effect of a “disability income policy” and a “disability insurance” policy to be the same.

Under the Montana Mental Health Parity Law, Montana requires that both health and disability insurance policies provide “a level of benefits for the necessary care and treatment of severe mental illness… that is no less favorable than that level provided for other physical illness generally.” Based on the Court’s very detailed review of Montana state law and ERISA regulations, the Court found Liberty’s 24 month mental health limitation to be void paving the way for Sand-Smith to be eligible to receive benefits beyond the imposed 24 month limitation.

It should be noted that the Court ruling was based on a very specifically written state law unique to Montana, and that the interpretation of the law and rationale employed by the Court would not be applicable to other states. However, this opinion is, what we believe, a step in the right direction to provide the same level of protection to an insured suffering from a mental health condition as would be afforded to someone with a purely physical medical condition. It remains to be seen whether Liberty will appeal the Court’s decision.

The case was not handled by our office, but it provides important information to claimants who may be receiving disability due to a mental health condition. If you need assistance with a similar matter or would like to discuss your disability insurance claim please contact our office to speak with one of our disability insurance attorneys for a free consultation.