We represent many clients who have been denied long-term disability benefits in lawsuits against the insurance companies who have denied their claims. Many of our clients ask, “What is the value of my disability claim?”
This question usually presents itself in the context of mediation, which is a form of voluntary alternative dispute resolution, because our clients must decide whether to take the insurance company’s lump sum settlement offer. There are many factors to consider. To aid our clients’ decision-making process, we will prepare a “present value calculation” designed to capture the total value of all benefits in dispute. In most circumstances, the value of your benefit can be broken up into two parts: the past-due benefits and the future benefits. Benefits, both past and future, are calculated by taking your net monthly benefit (total gross monthly benefit minus “offsets” for other income you receive) and multiplying by the number of months benefits are due. However, past and future benefits have to be calculated differently in order to account for inflation.
Past-due benefits are calculated by multiplying the net monthly benefit by the number of months of past-due benefits you are owed. Then, we add interest to compensate you for the fact that, had you been properly paid your past-due benefits, those benefits would have been worth more in the past than they are in the present, because inflation has made the value of each dollar decrease over time. Notably, the insurance carriers seldom factor in interest on the past-due benefits in the context of mediation. However, if your case does not settle and the court makes a decision in your favor, it has the discretion to award prejudgment interest on the past-due benefit. The percentages that courts award vary and range from the nominal interest amount rate dictated by 28 U.S.C. § 1961 (1-year constant maturity Treasury yield) to 10% interest. See, e.g., Blankenship v. Liberty Life Assur. Co. of Bos., 486 F.3d 620, 628 (9th Cir. 2007) (affirming award of prejudgment interest at a rate of 10.01 percent, compounded monthly); Oster v. Standard Ins. Co., 768 F. Supp. 2d 1026 (N.D. Cal. 2011) (finding current U.S. Treasury Rate at .3% too low and awarding prejudgment interest at the rate of 5% ).