Blausey

I. BACKGROUND

A. Deann Blausey’s insurance policy and disability

In 1991, Deann Blausey purchased a private disability insurance policy, titled “Disability Income Pro-Inc Plus,” from John Hancock Mutual Life Insurance Company. Mrs. Blausey’s employer paid none of the premiums for the insur- ance policy. By its terms, the policy pays disability benefits up to a specified “monthly income benefit amount” if the insured becomes unable to work due to sickness or injury and the injury caused a loss of monthly earnings of 20 percent or more. The policy defines “monthly earnings” as wages, sala- ries, commissions, fees, and deferred income. The amount of benefits paid depends on the amount of income lost due to the disability. If the insured loses at least 75 percent of her monthly earnings, the policy pays 100 percent of the monthly income benefit amount.

In 1996, Mrs. Blausey suffered an injury to her elbow that made her work as a certified court reporter very painful. After she was diagnosed with a permanent disability, she filed an insurance claim and began to receive benefits in December 1996. She now receives $4,000 per month in disability benefit payments under her…