Disability Policy Disabled

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PHILADELPHIA-A federal appeals court last week upheld a lower court ruling that CUNA Mutual Group was wrong when it discontinued payment on a credit disability insurance policy after three years because it found the credit union member no longer met its definition of "total disability."

The ruling could have broad ramifications on several other suits brought against the credit union insurer, even though the courts have agreed to CUNA Mutual's request to decertify a purported class action in the case.

In the current case, James Meyer, a brakeman and conductor for Union Railroad, took out a credit disability policy in 1999 in conjunction with a car loan he obtained from his credit union, URE FCU, in East Pittsburgh. The policy provided that if Meyer became totally disabled, CUNA Mutual would make payments to the credit union covering Meyer's outstanding debt on his car loan. After an injury on the job, CUNA Mutual picked up the loan payments as part of the credit life policy. But after three years, CUNA Mutual notified Meyer it would stop making the payments because he was well enough to work, if not at his old job.

On several occasions, Meyer's physicians certified to CUNA Mutual that he was capable of returning to work in a sedentary, light-, or medium-duty capacity, which Meyer does not dispute. Although Meyer was authorized by several physicians to return to work in some capacity subject to light- or medium-duty restrictions, he was never cleared by any physician to return to his time-of-injury occupation as a conductor/brakeman at Union Railroad.

Meyer sued and the lower court, the U.S. District Court for the Western District of Pennsylvania, ruled in his favor, saying the term "Total Disability" under CUNA Mutual's definition was ambiguous.

In September 2007, the District Court ruled in Meyer's favor, stating that any policyholder who could not perform the duties of his pre-injury occupation duties after 12 months would "be totally disabled within the meaning of the policy."

CUNA Mutual appealed the lower court ruling in October 2009 to the U.S. Court of Appeals for the Third Circuit. In its ruling last week, the appeals court said its role was not to pick the most reasonable interpretation of the term "Total Disability," but, where two reasonable interpretations creating an ambiguity exist, to choose the interpretation favoring the insured. Taken in the context of the overall policy and applying the plain meaning of "words and phrases," it found Meyer's interpretation reasonable.

Representatives of CUNA Mutual declined to comment last week, because they said the case is still in litigation.

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