Long term disability insurance policies generally provide benefits during the period of disability. In some cases, a beneficiary with no current disability may pose such a high risk of relapse that they contend they continue to be disabled. For example, a person who suffers a severe cardiac episode may claim that they are unable to work due to the risk of another heart problem.

While insurance carriers are often reluctant to recognize risk of relapse as a covered disability when dealing with a physical disability, they have been even more resistant to such claims in the context of mental issues or drug dependence. Last week, the First Circuit Court of Appeals concluded that such risks are covered under standard LTD policy language.

In Colby v. United Security Ins. Co., the plaintiff was a physician who entered drug rehabilitation after self-medicating with opiates. The defendant's LTD policy provided coverage during treatment, but ceased after she was discharged from the drug treatment center. She sued, claiming that her high risk of relapse rendered her unable to work, and therefore disabled under the terms of the policy.

The First Circuit agreed, affirming summary judgment for the plaintiff. The Court acknowledged the plan administrator's discretion under ERISA to interpret the terms of the LTD policy, but found the coverage denial to be arbitrary and capricious. The policy provided coverage when the beneficiary is under the care of a doctor and is unable to perform the material duties of their occupation. In this case, the plaintiff's doctor stated that she should not return to the practice of medicine for an extended period of time due to, among other reasons, her easy access to opiates while at work.

This high risk of relapse constituted a disabling condition under the LTD policy. The First Circuit rejected the insurer's position that risk of relapse, no matter how high, could not be a disabling condition under the policy due to the lack of any ongoing addiction at that point in time. In 2008, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) rejected a similar claim for coverage. Unless this split is resolved by the Supreme Court, coverage based on risk of relapse may depend on where the employee is located. Insurers may also decide to include direct language in LTD policies seeking to exclude risk of relapse as a covered disability.