Equity in ERISA?

Why do legislators and courts appear to see more to fear from individuals’ hypothetical cheating than they do from insurance companies’ actual, institutionalized cheating? Our close review of ERISA cases leads to the exact opposite conclusion.

A recent Seton Hall Legislative Journal article makes this perfectly clear when it points out that there is no deterrent written into ERISA that would make insurers think twice before using all means available to delay and obfuscate an employee’s right to ERISA benefits.

The article points out that ERISA affords plaintiffs little opportunity to obtain compensatory and no opportunity for punitive damages, no matter how egregious the conduct of the insurance company. The only downside for insurers is that ERISA authorizes payment of claimant’s attorney fees by the insurer, but only after a series of preconditions are met

In his article, the author, Thomas Kelly III, tracks Reliance Standard Life Insurance Company persisting in following a course of litigation conduct even though it had expressly been overruled by the Third Circuit in previous cases.

At issue was the meaning of “regular occupation” in the Reliance policy language. Reliance refused benefits because it said “regular occupation” meant a typical work setting for the occupation for any employer in the general economy, without so defining the term in its policies.

Not so, the Third Circuit ruled, holding that “regular occupation” means the usual work that an insured is actually performing immediately before the onset of the disability.

Despite the clear ruling of the Third Circuit which was appealed to the U.S. Supreme Court (certiorari denied), Reliance brought at least five more cases to the Third Circuit arguing for its definition of the term “regular occupation”.

The author suggests (and we concur) that the only way to deter insurers from defending on “old” grounds is to make them pay for the privilege.

As is obvious, ERISA plaintiffs, unable to work, have to look to other sources upon which to live while the company is “delaying” its way to a final ruling. These alternate sources, if they are available, may include liquidating banks accounts, IRAs, selling a home, home equity loans and cashing in life insurance policies.

Such actions are likely to trigger interest charges, early withdrawal penalties and the sale of property at a loss. Yet, the employee can’t recover these losses even though, based upon previous decisions, the insurance company position could never prevail.

The delaying tactic gives the insurance company a double gift:

* It puts extreme financial pressure on the plaintiff to settle disadvantageously or give up the claim.
* At the same time the insurer retains the use of claimant’s funds
without fear of paying interest or consequential damages.

What better invitation for insurance companies to deny, deny, deny, bad faith or not?

The author suggests economic cures that would really make the insurance company and the employer think twice before engaging in such egregious conduct:

* Punitive damages available for a knowing or bad-faith violation of ERISA.
* Making employers vicariously liable for such misconduct when a plan administrator has been delegated to operate the plan.
* Consequential damages should be available when a claimant can prove a plan
administrator caused the loss
* The tax deduction for employers policy premiums should be forfeit when a knowing violation of ERISA can be shown.

It is only when ERISA permits insurance companies to be hit as hard as they hit claimants that their decades-long egregious misconduct toward employees may start to slow.

 

 

 


 

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