Legal Fee Law Reins In Insurers

Posted on April 12, 2010 by Michael Quiat

The scales of Justice weigh heavily in favor of insurance companies generally, but even more so in disability income claims. After all, insurers are well funded, have their health, and employ plenty of lawyers who are familiar with the “ins” and “outs of the business.

A typical disabled employee, on the other hand, frequently has little or no funding (being unable to work), has little experience in law, and hasn’t a single friend, relative or neighbor who even knows where a law school is located, let alone having attended one.

The issue of whether a mental or physical impairment truly prevents a claimant from performing the duties of employment can be a complex question, even if it is conscientiously considered by people who have no financial interest in the outcome. When you add the financial interest insurance companies have in the outcome of these questions, the issue becomes more vexing because if they agree that the employee is disabled, they pay – and insurance companies hate that.

This leads to a situation in which insurers make claimants run through hoops in an effort to discourage them because there is very little downside to such conduct. Most states make each litigant pay for his or her own legal fees and costs. So, if an insurer makes a claimant sue and loses, what’s the downside?

In the 2nd Circuit Court of Appeals, which includes New York, Connecticut and Vermont, ERISA claimants get a leg up from a line of cases starting with Birmingham v. SoGen-Swiss International Corporation Retirement Plan, 718 F. 2d 515 (2nd Cir. 1983), which hold that although the award of counsel fees and costs is discretionary with the court, the 2d Circuit favors awarding counsel fees in ERISA cases unless there is a particular justification for not doing so. This judicial attitude in the Circuit makes insurance companies think twice in ERISA matters before saying “No” just because they can with impunity.

A road map for evaluating the merits of the right to attorney’s fees, was set forth in Chambless v. Masters, Mates & Pilots Pension Plan, 815 F. 2d 869 (2nd Cir. 1987) and has generally been followed in the Circuit. The major points of the scorecard are:

• Culpable conduct (i.e., arbitrary and capricious) by the insurer.

• The defendant has the financial resources to satisfy an award.

• The merits of the case favor such an award.

• The award of attorney fees would tend to deter defendant insurer and others from violating ERISA regulations in the future.

• The results in the case confer a common benefit in that the defendant and other insurers will think twice before violating ERISA’s requirements in future.


Nobody wants an illness or injury which eliminates their income or employment. But for those unfortunate enough to face this condition in the 2d Circuit, there is some comfort in knowing that if they are covered by ERISA, arbitrary denials can cause insurers to bleed.


 

 

 

 

 

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Back To Basics

Posted on November 17, 2009 by Michael Quiat

Sometimes getting back to basics is the most helpful way to keep people informed about their disability income insurance coverage. One of the most basic of the basics is to read and understand your disability income insurance policy. It has always distressed us to find that many, many people don’t read their policy - the contract under which they will present a claim for benefits.

The first basic is what type of disability income insurance you have. Is it a group policy covered by ERISA or is it an individual policy?

Many policyholders are not certain of the difference the answer to this question makes in terms of coverage and requirements for proving a claim of disability.

An ERISA policy purchased by an employer for employees is not nearly the same as a policy bought by an individual. The ERISA policy is somewhat of a mystery to the employee because usually no policy is delivered to the individual. The employer has the policy and may give the employee only a Summary Plan Description (“SPD”) of what is in it.

Anyone familiar with insurance companies and policies knows a summary does little good when a claim is contested and the insurance company looks into every nook and cranny of the policy language to find a reason not to pay.

So, if you are covered by an ERISA policy it would be most wise for you to take a good look at it before a disability arises so that you know what protection you have or don’t have and can prepare yourself before a sickness or injury strikes. Ask your boss or your Human Resources Director for a copy so you can read and understand the ERISA policy yourself.

But because a disability income policy may be privately purchased and not subject to ERISA doesn’t mean that it doesn’t remain a mystery. If a policyholder doesn’t read and understand the terms of the policy, the individual doesn’t really know what protection is afforded and is, therefore, as much in the dark as an uninformed ERISA policyholder.

Relying on an insurance agent’s or an insurance company ad’s description of what protection is in the policy is never a good idea. It is a particularly bad idea when a disability income policy is involved because of the complications of exactly what is covered, how it is covered, for how long it is covered, and the difficulty of the hoops the policyholder will have to go through to get benefits.

In both ERISA and individual policies, once you know what you have, you are able to decide if that coverage is what you want for yourself and your family. If it is – fine. If it is not, then you may seek to change your individual policy or buy additional individual coverage to add to an ERISA or private policy to bring your coverage up to your standard.

Either way, once you understand your policy, you will be certain of what protection you have before disaster strikes and it is too late to do anything about it.

We know all too well that insurance policies are boring to read and difficult to understand. But, don’t be lazy. Don’t be intimidated. Take your time. You can do it!

But, if you do all of the above and you still have questions, get the answers you need now while you can still do something about any changes you might want to make for the sake of yourself and your family.

 

 

 

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