Long-Term Disability Denied? What to Do Next

A final denial of your long-term disability (LTD) appeal ends the insurance company’s internal process, but it does not end your claim. If your coverage comes through an employer, the Employee Retirement Income Security Act (ERISA) governs, and your next step is a lawsuit in federal court under 29 U.S.C. § 1132(a)(1)(B) to recover the benefits due under the plan. In Wisconsin, Illinois, and Indiana, that case will be decided under the law of the U.S. Court of Appeals for the Seventh Circuit. Here is what to expect.
Step 1: Confirm exhaustion and calendar your deadline
Courts in the Seventh Circuit generally require claimants to exhaust the plan’s internal appeals before suing. Zhou v. Guardian Life Ins. Co. of Am., 295 F.3d 677, 679–80 (7th Cir. 2002); Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355, 360–61 (7th Cir. 2011). A final appeal denial usually satisfies that requirement. Under the Department of Labor’s claims regulation, a claim may also be “deemed exhausted” if the insurer failed to follow required procedures. 29 C.F.R. § 2560.503-1(l)(2).
Next, find the lawsuit deadline. ERISA sets no limitations period for benefit claims, so the plan’s own contractual deadline often controls. The Supreme Court has enforced a plan’s limitations period even when it began running before the appeal ended, as long as it is reasonable. Heimeshoff v. Hartford Life & Accident Ins. Co., 571 U.S. 99 (2013). Many policies allow three years from when proof of loss was due, which can leave far less time than claimants expect.
Finally, request your complete claim file. You are entitled to it free of charge. 29 C.F.R. § 2560.503-1(h)(2)(iii). That file is usually the “administrative record” the court will review.
Step 2: Identify the standard of review
The single most important question in an ERISA disability case is how much deference the court gives the insurer. By default, a court reviews a denial de novo, meaning it decides for itself whether you are disabled. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). But if the plan clearly grants the administrator discretionary authority, the court applies the far more deferential “arbitrary and capricious” standard. Id.
The Seventh Circuit requires that grant of discretion to be clear. It has offered plans “safe harbor” language for that purpose: benefits are paid only if the administrator decides, in its discretion, that the applicant is entitled to them. Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000). Ambiguous wording, such as simply requiring “satisfactory proof,” is not enough. Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, 637–40 (7th Cir. 2005).
Under de novo review, the Seventh Circuit treats the case as a fresh determination, and the court may consider evidence beyond the administrative record in appropriate cases. Krolnik v. Prudential Ins. Co. of Am., 570 F.3d 841, 843 (7th Cir. 2009); Patton v. MFS/Sun Life Fin. Distribs., Inc., 480 F.3d 478, 485–86 (7th Cir. 2007).
Even under deferential review, insurers do not get a free pass. A denial is arbitrary when the insurer ignores favorable evidence, fails to explain why it rejects treating physicians’ opinions, or offers no reasoned basis for its decision. Holmstrom v. Metro. Life Ins. Co., 615 F.3d 758, 766–78 (7th Cir. 2010); Majeski v. Metro. Life Ins. Co., 590 F.3d 478, 484–85 (7th Cir. 2009). Courts also weigh the insurer’s conflict of interest when it both decides and pays claims. Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 117 (2008). In Illinois, a state regulation bans discretionary clauses in many insured policies, which can make de novo review available. 50 Ill. Admin. Code § 2001.3.
Step 3: Understand what the lawsuit looks like
An ERISA benefits case is not a typical trial. There is no jury; a federal judge decides the case. Mathews v. Sears Pension Plan, 144 F.3d 461, 468 (7th Cir. 1998). You cannot recover emotional-distress or punitive damages, only the benefits owed under the plan.
Most cases are resolved on cross-motions for summary judgment or a trial on the papers, based largely on the administrative record. Discovery is limited, especially under deferential review. Still, after Glenn, the Seventh Circuit has allowed targeted discovery into an insurer’s conflict of interest, such as how often it uses particular file reviewers. Dennison v. MONY Life Ret. Income Sec. Plan, 710 F.3d 741, 746–47 (7th Cir. 2013). Because the record is usually closed once the appeal ends, the evidence submitted during the administrative appeal matters enormously.
Step 4: Know the possible outcomes
If you win, the court’s remedy depends on what went wrong. Where benefits were being paid and the insurer wrongly terminated them, the usual remedy is reinstatement of benefits retroactive to the termination date. Hackett v. Xerox Corp. Long-Term Disability Income Plan, 315 F.3d 771, 775–76 (7th Cir. 2003); Holmstrom, 615 F.3d at 778. Where the insurer denied an initial claim without adequate findings or reasoning, the court may instead send it back to the insurer for a new decision. Hackett, 315 F.3d at 776; Schneider v. Sentry Grp. Long Term Disability Plan, 422 F.3d 621, 629–30 (7th Cir. 2005).
The court may also award attorney’s fees and costs. A claimant need not be a “prevailing party”; “some degree of success on the merits,” including a remand, can be enough. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 255–56 (2010); Pakovich v. Verizon LTD Plan, 653 F.3d 488, 493–94 (7th Cir. 2011). Many cases also settle, sometimes for a lump sum that closes the claim