Is There ERISA Hope?

It was both startling and refreshing last Tuesday (September 28, 2010) to watch the U.S. Senate Finance Committee hold a hearing on the real problems claimants have with ERISA, a statute which, when enacted by Congress in 1974, was supposed to be the “greatest piece of legislation for the working man since Social Security”.

The inequities which have developed through the years since then, seem to have arisen from how courts have interpreted the legislation. Courts seem to have bought the insurance company party line that without the insurance companies having an advantage (“deference’), the ERISA system would fall apart, disability income insurance would be priced out of the market and there would be no insurance for anyone.

Although there seems to be very little chance that the present contentious Congress will make any real effort to clarify ERISA to undo the damage courts have done to claimant’s rights, the remarks of Finance Committee Chairman, Senator Max Baucus, offer a glimmer of hope.

At the hearing, Committee Chairman Baucus said there was a huge ERISA problem and that he was disturbed by the testimony he heard at the hearing. He cited what he called “abusive insurance company tactics” and the conflicts of interest inherent in the system. A promise by him to compare what happens to long term disability claims under ERISA and Social Security, seems to offer a way bring the ERISA claims system more in line with what Congress said it intended in the legislation.

Those of you who follow this blog are aware of the one-sided way courts seem to look at ERISA, particularly as it pertains to LTD claims. The litany of cases which support this statement include the leader, Firestone v. Bruch, 489 US 101 (1989) , which decision unwittingly bestowed upon the insurance industry an undeserved mantle of impartiality and evenhandedness.

For whatever reason, in Firestone, the U.S. Supreme Court decided that if an employer in an ERISA plan gives discretion to the administrator of the plan (usually an insurance company selected by the employer), a claimant is not entitled to an actual trial by an impartial judge. Firestone decrees that a court may only “review” the insurance company denial of benefits on the record and may overturn a denial only if the claimant proves that the denial was “arbitrary and capricious”, after giving the insurance company position “deference”. What a tough, tough hurdle!

The policy behind the decision appears to be that it is more important to keep a lid on insurance costs than it is to provide employees with a fair and impartial consideration of their right to a fair and Impartial consideration of their right to benefits when they are stricken with a long term, disabling illness or injury

Talk about putting the fox in charge of the hen house! Giving this devastating power to insurance companies has led to a rash of cases in which obviously disabled persons have been denied benefits despite being clearly unable to work. The Firestone decision was the keystone in ERISA law which unconscionably built a bridge of profits for insurers on the blighted lives of totally ill and injured workers and their families.

To add insult to injury, the courts consistently failed to recognize the damage Firestone had caused, and usually refused to grant discovery to claimants who needed the discovery if they were to have any hope of obtaining evidence that the denial was “arbitrary and capricious”.

For years, until MetLife v. Glenn, 554 US 105 (2008) , courts seemed blind to the inherent conflict of interest insurance companies had judging the validity of a claim they would have to pay.
Insurance companies took advantage of this Firestone-induced exalted position by engaging in all sorts of shady tactics that made a disability claimant’s position as underdog even more daunting:

• They established stables of I.M.E. doctors who would deny claims from behind a desk, without ever seeing the claimant, while at the same time earning the major source of their annual annual income from doing so.
• They paid their employees bonuses and other financial incentives based on the number of claims the employees terminated or denied.
• They found ways to delay, delay, delay, while insureds, unable to work and earn money, burned up their resources just to try to go on living.
• They insisted that claimants apply for Social Security disability benefits so they could offset the Social Security benefits against their own benefit obligation, then ignored those same Social Security disability awards when they later decided they to terminate their own obligation to pay benefits.
• They did all of these things without facing any penalty for their egregious conduct. 

So, after all of these years of insurance companies being in the driver’s seat, one can see why this Senate Committee hearing raises hopes for ERISA claimants. But, don’t become too excited. In addition to the problem of legislative inertia, the insurance companies have yet to marshal their lobbyists, publicists, advertising forces and friends in Congress to their cause, which is – keep the status quo.

As we have said several times before, the key to today’s world is: Follow the money!

And, the money is all on the insurance companies’ side.