Re disability, I believe (based on my dad's experience) that the disability portion isn't taxed. So, it's to his advantage to have as high a disability as possible, even if he must pay you the difference between what you would otherwise collect.
(As a side note, it pissed my dad off that someone getting a 30% disability from 5 years in the military is paid a sum for their loss of use of X body part for the injury, but because he retired, he just gets it tax free, rather than *in addition* to the retirement salary earned from 30 years of working.)