A recent case made it very clear that insurance companies will try to move mountains to get a disability claim covered by ERISA. Insurance companies, which usually are cold to anything but profits, are “hot” for ERISA as the law has been adjudicated down through the years by the courts.
This point was highlighted in Hill v. Lincoln National Life, WL 5863007 (N.D.Cal., 2013), a case in which there was a lot of confusion about the type of coverage a claimant had. Ms. Hill said ERISA did not apply to the disability policy she had while the defendant, Lincoln National, argued strenuously that it did apply.
What should interest those not familiar with ERISA is: Why do both sides fight so strenuously over the ERISA issue?
The answer is simple. If the case is decided under ERISA, the insurer may be protected, even for egregious conduct. The company can deny the most obvious claim for benefits without the threat of having to pay extra for the denial. They can starve a claimant through a long litigation without worrying about having to pay more when the claimant prevails. No risk, no loss. So, why not hang on to the money for as long as you can?
ERISA preempts state law which would otherwise provide a claimant some relief against the tactics used by insurers. For example, a jury may decide an individual, non-ERISA disability claim in state court. But, ERISA precludes the use of a jury. All ERISA cases are decided by a Federal judge without a jury. There are no witnesses and no testimony.
In addition, depending on the language used in the ERISA plan, the Federal Court must give deference to the ERISA plan administrator’s decision. In other words, if ERISA applies, the court can only reverse the administrator (usually an employee or associate of the insurance company which will have to pay the benefits claim) if it finds the decision was “arbitrary and capricious”, a very tough standard for a claimant to prove.
Some other factors which make the application of ERISA to a claim a most important factor:
• Strict time limits on filing the claim, medical reports and documents which support the claim. A claimant’s failure here can bounce a claim forever.
• State laws with penalties and doubling of recoveries, do not apply in ERISA since ERISA preempts state law. Insurance companies can delay, obfuscate and prevaricate with almost total impunity.
• Medical reports from insurance company doctors who never see a claimant are given as much weight by the courts under ERISA as the treating doctor’s opinion.
• Social Security disability decisions, no matter how well founded, are not binding on ERISA insurers.
Knowing this, we can see whether a case is decided under ERISA or under state law is an issue important to both the insurer and the claimant.
The success or failure of the claim may very well depend on it.