Disability claimants must notify bankruptcy courts of their disability claim

Often a person wrongfully denied an ERISA disability benefit that is benefits from a private employer, have to seek bankruptcy protection from their creditors. This is to be expected since claimants paid for their private disability insurance and expected those benefits to be there when they became disabled. However the insurance companies that have forced a claimant to seek bankruptcy protection often try to take advantage of a trap their actions have lain.

When a person feels for bankruptcy they have to disclose all of their assets to the bankruptcy. This would include lawsuits and potential lawsuits. It is these potential lawsuits that cause the problem. Persons often do not realize that they have a potential claim against the insurance company for the wrongful denial of their benefits. Those disability benefits are often exempt from being part of the bankruptcy estate. Thus, the claimant often fails to place that potential claim on their bankruptcy schedules.

And there lies the trap.

The claimant now has to sue for wrongful denial of the disability benefits. So the claimant sues, Cigna, MetLife, Aetna, Unum, Liberty life, Lincoln or whoever. If the insurer knows that it forced you into bankruptcy it then looks at your bankruptcy schedules. If the lawyers for the insurance company see you forgot to list your claim then it moves to dismiss your lawsuit. The rules that require you to disclose your potential lawsuits exist to protect the claimant’s creditors from a claimant hiding an asset. The insurance company generally is not a creditor of the claimant but at least one court has thrown out a claim for benefits for failure to disclose those benefits.

A court in Texas in a case involving MetLife, stated that “[a]t issue in this case is whether judicial estoppel bars the Plaintiff from pursuing her claims under ERISA because she failed to disclose the Policies and the lawsuit on the bankruptcy petition.” Acuna v. Conn. Gen. Life Ins. Co., 560 F. Supp. 2d 548, 551 (E.D. Tex. 2008).

Acuna, the plaintiff argued that "Defendants' wrongful denial of Plaintiff's claim led to the filing of the bankruptcy which, ironically, Defendants now rely upon as the basis for claimed equitable relief to be freed from their obligation to pay benefits for which they have received fifteen years' worth of premiums." (Citations omitted) Acuna, 560 F. Supp. 2d at 553.

The Court did not buy that argument. In fact, it twisted it on Acuna. “Plaintiff has repeatedly asserted that the filing of the bankruptcy was a direct result of the denial of the claim benefits. (Citations omitted).  Plaintiff had a motive to conceal this claim because it would result in the windfall that the Fifth Circuit sought to prevent. Acuna, 560 F. Supp. 2d at 556.

In ruling that Acuna cannot maintain her lawsuit, the Court found “…that judicial estoppel applies. As explained above, the doctrine of judicial estoppel is meant to protect the judicial system, not the litigants, and thus Plaintiff's argument regarding the clean hands doctrine is inapposite. The Court reminds the Plaintiff that the harshness of the result is counterbalanced by the emphasis that the Fifth Circuit places on the "importance of full disclosure in bankruptcy proceedings." Acuna, 560 F. Supp. 2d at 556.

Therefore if you intend to file for bankruptcy because the insurance company wrongfully denied your claim or you have filed already, make certain you have listed your potential lawsuit for benefits on your bankruptcy schedules.

Contact Jim Plummer at 713.659.3737 for questions regarding wrongfully denied ERISA disability benefits. Contact your bankruptcy lawyer for help completing your schedules.

Plummer | Raval was created as a law firm dedicated to disability and ERISA. After a short time, Jim Plummer, the principal ERISA attorney of Plummer | Raval, began to litigate ERISA lawsuits exclusively. He continues to practice solely as an ERISA lawyer, and has gained significant experience in this specific area of disability law.