For a more complete discussion on Pillsbury & Levinson's significant ERISA practice, please visit our ERISA site.
"ERISA" stands for the Employee Retirement Income Security Act. The Act was passed by the U.S. Congress in 1974 and applies to most insurance obtained as an employee benefit from one's employer. Unfortunately, ERISA is one of the worst and most poorly understood laws ever passed by Congress. ERISA gives insurance companies enormous advantages that may induce them to deny claims unfairly. In large part, ERISA gives insurance companies significant immunity against important remedies no matter how outrageously they act or how malicious the denial of benefits.
What Restrictions Does ERISA Place on Insureds?Under ERISA, a policyholder may:
- NOT sue an insurance company for breach of the insurance contract
- NOT sue an insurance company for Insurance Bad Faith
- NOT sue an insurance company for any damages caused by the wrongful denial of benefits no matter how egregious, outrageous, or malicious is the conduct of the insurance company
- NOT sue for punitive damages no matter how egregious, outrageous, or malicious is the conduct of the insurance company
- NOT have the right in many instances to admit ANY evidence in a trial against the insurance company
- NOT get a jury trial
- NOT get any kind of trial in many instances
- NOT sue in state court. In most instances the policyholder must sue in federal court, which is generally more conservative than state courts
- NOT be entitled to insurance benefits sometimes, even if the policyholder proves that the insurance company was wrong when it denied the claim
- NOT be entitled to insurance benefits, unless it is proven that the insurance company acted in an arbitrary and capricious manner
- NOT be entitled to conduct any pre-trial discovery, such as taking depositions of insurance company witnesses in many cases.
California, like many other states, has developed the law of Insurance Bad Faith which]is specifically intended to protect the rights of policyholders to sue insurance companies that unreasonably deny benefits. This law provides many important and powerful tools to protect policyholders against abusive conduct by insurance companies. Unfortunately ERISA largely nullifies important aspects of this law as well as many other laws in California that are designed to keep insurance companies from acting improperly. In essence, ERISA immunizes insurance companies from the consequences of abusive behavior and in so doing it encourages insurance companies to deny claims in bad faith. Why? Because there is no penalty for doing so!f
Which Claims Are Affected By ERISA?
Generally, any insurance policy that is issued as a benefit of one's employment is covered by ERISA. This would include disability, health, and life insurance policies. If you have a claim under any such policies, you are probably limited to the very few rights available under ERISA. There are some exceptions to ERISA. Generally, the insurance policy must fall in one of five categories. It must be either:
- Issued to you as an employee of any governmental body. This can be any governmental body either local, county, city, state, or federal
- Issued to you as a member of a religious organization
- Issued to you individually and not as part of your employment
- Issued to you as the owner of a business, provided that not a single employee is also insured under the policy
- Issued to you by an employer where your participation is purely voluntary, and the employer has not endorsed the coverage.
Unless your policy falls within one of these five general categories, your claim is, in all likelihood, controlled by ERISA.
How Did ERISA Happen?
The devastating effect of ERISA is, in reality, a fluke of legislative history. It was originally passed for a single purpose to protect retirement and pension benefits. Prior to ERISA, many employers were promising lucrative retirement and pension benefits, but when it came time for the employee to draw down on these benefits, either the money was not there or the employer was bankrupt or out of business. ERISA was intended to fix this problem by requiring appropriate segregation of pension and profit sharing funds, insurance for these funds and proper vesting requirements.
However, when ERISA was passed in 1974, certain amendments were made in conference that were not debated on the floor of either the House or the Senate. They were then rushed through Congress so that President Ford could sign the bill on Labor Day in 1974. These amendments were later the subject of a variety of opinions by the United States Supreme Court. Without any legislative history as reference and without adequate briefing by any of the parties of concern, the Supreme Court adopted interpretations of ERISA, which, rather than protect consumer rights, strip insureds of all rights granted them under state law.
The history of this disaster is described in detail in "The Tragedies of ERISA".
Are There ERISA Traps I Need to Be Aware Of?
Unfortunately, ERISA is a very complicated statute and there are many technicalities that can prevent a policyholder from ever having a chance to correct an erroneous decision. Once a claim is denied, there is always an appeal available to seek reconsideration. These appeals rarely result in the payment of a claim. It is often helpful to consult an ERISA expert to assist in handling an appeal.
If you choose to handle an appeal on your own, following are a few suggestions you may wish to consider:
- Ordinarily, you must appeal if you are given the right to do so. Failure to appeal in many circumstances may mean that you can never sue the insurance company;
- Ask for your entire file from the insurance company. You have an absolute right to have a copy sent to you at no charge;
- Ask for a complete copy of the insurance policy;
- Ask for any procedures or guidelines that were applicable to your claim;
- Take the time deadlines seriously. Failure to comply with time guidelines may result in a complete waiver of the right to appeal;
- Make a thorough case in your appeal. Send the insurance company strong supporting letters from the appropriate doctors and/or witnesses and any applicable articles or other information supporting your claim. If you don't submit these in your appeal, you may never be able to use this type of evidence in the event of a lawsuit;
- If you are able to sue the insurance company, the only evidence the court may be permitted to look at is the information that you and others send to the insurance company. Therefore, be sure to send all pertinent and supporting information;
- It is unlikely that the state Department of Insurance will be able to give you any significant help;
- Obtain a copy of the Department of Labor Regulations.
What Are The Department of Labor Regulations?
Insurance companies processing claims under ERISA must comply with these regulations. They are easily available at The U.S. Department of Labor Web site.
Some of the important provisions in these regulations are:
- That the insurance company must maintain reasonable claims procedures and provide written claim determinations within a specified time period. 29 CFR 2560.503.1(f);
- That the insurance company must provide a detailed written explanation for the basis of any denial and afford the insured the right to appeal the denial and have a full and fair review of the claim and adverse benefit decision. 29 CFR 2560.503.1(g)-(j);
- That the denial shall state the specific reason for the denial, including reference to the specific policy provision(s) and a description of any additional material or information necessary to perfect the claim. 29 CFR 2560.503.1(g)(1)(ii),(iii);
- That the insurance company shall provide a description of or a copy of any internal rule, guideline, protocol, or other similar criterion that was relied upon in arriving at the denial. 29 CFR 2560.503.1(g)(1)(v)(A);
- Upon request, a policyholder may obtain the entire file relating to the claim free of charge. 29 CFR 2560.503.1(h)(2)(i); 2560.503.1(j)(3);
Contact us if you have further questions about ERISA litigation.
f
