ERISA May Be The Key To Your Case

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.





Not An ERISA "Back Door"

Unbeknownst to some insureds and their attorneys, ERISA can thwart the most obvious intentions of insureds if they are negligent in following up on changes in beneficiary status.  Most of the time this issue is involved in matrimonial and estate cases.

Except in the most unusual cases, a spouse who divorces his or her mate, does not want the proceeds of his or her estate (ERISA andotherwise) to go to the divorced mate.

Yet, should the participant in an ERISA plan fail to properly change the plan beneficiary to reflect the changed circumstances of his or her life, the ERISA plan administrator is forced to pay benefits to the beneficiary listed in the plan, Kennedy v. Plan Administrator for DuPontSavings & Investment Plan, 555 U.S. 285 (2009). 

Because ERISA preempts all other law which might affect this outcome, the beneficiary shown in the policyholders’ plan documents is the one who to whom the plan administrator has to deliver the benefits.

The Kennedy court based its decision on three main points:

* ERISA requires simple plan administration.
* Avoiding the danger of the administrator having to pay double benefit payments.
* Encouraging speedy benefits payments.

It is essential for a plan participant to get to the administrator as quickly as possible with any change in circumstances.  To delay may mean

that ERISA may cause benefits to go to the wrong person or require extensive litigation and legal costs for the benefits to go to the personactually intended by the plan participant.

Although Kennedy supported the law of ERISA preemption strongly, it specifically left open the issue of whether preemption applied once the benefits had been paid as required by ERISA.

The United States Court of Appeals for the Fourth Circuit recognized that this “straitjacket” approach can lead to obviously inequitable results as shown in Andochick v. Byrd, 2013 WL 781978 (CA4 (Va.)) .

In that case, Mrs. Andochick married Mr. Andochick in February, 2005, and separated in July, 2006, at which time Mr. Andochick agreed to and signed a marital settlement agreement in which he gave up any rights to Mrs. Andochick’s survivor benefits and life insurance policies in both of which he had been made beneficiary by his wife at the time they were married.

Following Kennedy and a long line of cases, the Fourth Circuit Court of Appeals agreed with the District Court that  Mr. Andochick, as the named beneficiary in her ERISA plan, had to receive the benefits of the plan and the proceeds of his ex-wife’s life policy.

But, the Court also agreed that once proceeds were allocated to the ex-husband, state or Federal courts were not preempted from dealing with the proceeds in line with his waivers and free of ERISA preemption.

The opinion makes it clear that ERISA’s strict interpretation of which party gets ERISA 
benefits proceeds, is meant to facilitate the swift and smooth operation of ERISA plans.

Preemption is not meant as a back door through which a party can grab benefits to which, by all reasonable and equitable measures, he isnot entitled.