States! Help Your ERISA Claimants

There’s an ERISA problem that should have been eliminated years ago, but still persists to the detriment of disability claimants in too many of our states – the discretionary clause – which gives insurance companies a big leg up when contesting disability claims.

This gives the insurer, who is usually the administrator of an ERISA plan, the discretion to decide if a claim is covered by the very ERISA policy the insurer would have to pay on if the claim were approved. This power is further compounded by the decision in Firestone Tire & Rubber Co. v. Bruch, 489 US 101 (1989), in which the court ruled that a finding by such an administrator could only be overturned by a court finding that such a decision was “arbitrary and capricious," a legal phrase meaning that the court could not find a single reasonable basis upon which the decision could be based.

Needless to say, when an administrator rules against a claimant, this ruling puts a mountain in the way of the claimant on appeal. There are a legion of cases where a Federal judge has found that the decision of the administrator was all wet, but the court felt constrained to rule that the administrator’s ruling could not be changed because of Firestone.  In other words, even though the judge would have clearly found the administrator's decision incorrect, the court had to uphold the decision because it was not found to be “arbitrary and capricious”.

Adding to the problem is the Federal statute’s command that ERISA  preempts states' powers so that Federal law controls in ERISA cases. States cannot change ERISA law. But, there is an exception to this in the ERISA statute – states have the final say in the language of insurance policies issued in their state.

So, in 2004, the National Association of Insurance Commissioners, an organization of the state insurance commissioners of all 50 states, approved a model rule, proposing adoption by all state insurance commissioners, that prohibited discretionary clauses from the language of any policy issued in a state.

One would think that state insurance commissions or legislators would hop on this prohibition bandwagon quickly, but this has not been the case. As of this date, 16 states have prohibited the discretionary clause in ERISA policies while 34 states have left their citizens at the mercy of the discretionary clause when at a low point in their lives - when making a claim for disability income and treatment.

At the present time, the issue of banning the discretionary clause is before the legislature in Wyoming. Although the New York State Insurance Commission thoroughly denounced the discretionary clause as against public policy in 2006, it has yet to approve a rule giving that denunciation the force of law and leaving its citizens on a playing field heavily tilted against them when forced to make an ERISA disability claim.

Lawyers and ERISA policyholders in states where the legislature or the insurance commission has not yet righted this wrong should seriously consider writing their insurance officials to protect their citizens from this injustice.

For a list of states without discretion-banning law on their books and the addresses and phone numbers of the people to call ask for a change, click here.

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Comments (2) Read through and enter the discussion with the form at the end
Jeff Mehalic - May 5, 2009 9:50 PM

This is an excellent post on a very important topic, but I don't think you included the link to the list of states without discretion-banning laws and the contact information for regulators.
Good luck with your blog.

Art Uscher for Mike - May 15, 2009 2:37 PM

Thanks for your kind words, Jeff. It took a longer time than we anticipated to get the information and set it up so it would be convenient to use.
If you go to the new post of today, you will find a link to the 50-state insurance regulator information. We hope you find it helpful and continue to follow what Mike has to say.

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