Background
Brian Caraba, a dentist with hip and back impairments, sought benefits under an individual disability insurance policy issued by Paul Revere. The insurer paid benefits for more than a year while reviewing his claim. During that period, Caraba earned income from part-time teaching and work for two professional dental associations.
Paul Revere terminated the benefits after determining that this work was a “gainful occupation,” meaning Caraba did not satisfy the policy’s definition of “total disability.” Caraba sued for breach of contract and sought additional damages under Section 155 of the Illinois Insurance Code. On cross-motions for summary judgment, the district court ruled for Paul Revere, finding the policy unambiguous and the undisputed facts sufficient to establish that Caraba was gainfully employed.
The Court’s Holding
The Seventh Circuit affirmed. Applying Illinois contract law, the court held that “gainful occupation” was unambiguous when the policy was read as a whole. Because the policy required both that Caraba be unable to perform the important duties of his own occupation and that he not engage in any other gainful occupation, it was a general disability policy. Caraba therefore had to show that he could not make a reasonable living from any work for which he was qualified, not merely that he could no longer practice dentistry.
The undisputed evidence defeated that showing. Caraba earned approximately $70,000 from nonclinical work in 2019 and $67,000 in 2020, after earning nearly $69,000 from teaching and consulting in 2018. The court rejected his proposed rule that work is gainful only if it pays at least 60% of predisability earnings because that threshold came from an insurer claims manual applicable to other types of policies and fell outside the policy’s four corners. Because Paul Revere did not breach the policy, Caraba’s statutory bad-faith claim also necessarily failed.
Key Takeaways
- A disability policy requiring an insured both to be unable to perform his own occupation and not to engage in any other gainful occupation is a general disability policy.
- Substantial income from part-time, nonclinical work can constitute gainful employment even when it is less than the insured’s predisability earnings.
- An external claims manual cannot supply a benefits threshold absent from an otherwise unambiguous policy, and a Section 155 bad-faith claim fails when there is no underlying breach.
Why It Matters
The decision emphasizes that Illinois courts interpret unambiguous disability policies from their text and give independent effect to each eligibility requirement. Insureds covered by general disability policies may be ineligible for total-disability benefits when they remain capable of earning a reasonable livelihood in other qualified work.
For insurers and policyholders, the ruling also underscores that internal guidance governing different insurance products will not ordinarily alter the meaning of the policy actually issued.