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.





Human, Or...?

Almost 40% of health insurance consumers don’t understand they can appeal an insurance company denial of a claim, according to a recent survey by the National Association of Insurance Commissioners, an organization of State insurance commissioners.

This statistic means a large percentage of policyholders accept insurer denials at face value even though history clearly shows that most of these companies do their best to deny, deny, and deny claims. Add to this group many claimants reluctant to push their claims in the face of what they see as the impenetrable wall of insurance company resistance and one can begin to fathom the rich returns to insurers and their shareholders of insurance company intransigence.

How this works to the benefit of insurance companies may seem to require monumental mathematical machinations. But it is really quite a simple formula. The insurer calculates its underwriting risk by taking a mathematical “worst case” scenario and calculating its premiums based on this scenario. This affords the insurer the highest amount of premium to cover its risk in the event the worst happens. This is good business practice because there is no guarantee that the worst won’t happen.

But, having collected the highest premiums, the insurance company then wages all out war on claimants, denying many perfectly valid claims. These insurers rely on the fact that many claimants don’t know a claim denial can be appealed and also on the natural reluctance of many claimants to undertake an appeal. (See Don’t Be A Wimp).

What a windfall for the insurance companies! They charge the highest prices for their product because they base the premium on the high end of the underwriting spectrum and then they cut their outlay on claims so as to push them to the lowest end of the spectrum. All of the cash saved in between goes to insurance company profits. And, when you are talking health insurance, the cash saved amounts to billions of dollars.

Can anything be done about this system which hits many sick and injured people at the worst time in their lives? Yes, it takes an all out effort by lots of people to get the word out – insurance company denials are not the Gospel. If a claimant has a valid claim, then they must appeal the denial and right the wrong.

Those who can help:

* Friends and family who know that the insurance company turndown is not the last word. They have to let their uninformed relatives and friends also know.
* Doctors who treat claimants and lawyers who pursue claims have to preach to the uninitiated that they have the right to appeal for benefits for which they may have paid premiums for years.
* In the interests of compassion, fairness and morale, Human Resources Departments should inform employees that they have the right to appeal an adverse ruling by an insurance company even though the employer may think its interest lies in paying the fewest claims.
* Web sites and bloggers have to continually get the word out to those seeking information on claims at their sites that there is life after an insurance company claim denial.
* State Insurance Commissioners should mandate that a denial of a claim must be accompanied by a “plain English” and unequivocal outline of the claimant’s right to appeal the decision and the method for filing such an appeal. To be certain of the simplicity and clarity of the information, the State may require the notice to be in a certain form approved by it.

Insurance companies are entitled to deny claims in proper cases. They have to protect the financial stability of their businesses and have a duty to their shareholders.

But, this duty should not include taking advantage of almost 40% of consumers or a policy of denying claims knowing that a substantial percentage of the turned down claimants either don’t know they don’t have to accept the turndown or don’t have the gumption to fight the denial.

This is especially true when many of these claimants are making health claims at a time when they are seriously sick or injured. Denial may be a good way to jack up profits but it’s an awful way for one human being to act toward another.

And, all insurance companies act through the agency of human beings. Or do they?