ERISA and Long Term Disability

Washington, DCIn the 1970s pension plan corruption was a problem; some big contractors took the money and ran.

To that end, Congress vowed to protect the worker and The Employee Retirement Income Security Act ("ERISA") was passed by congress in 1974. It was intended to protect the large segment of the working population who were in unions or made contributions to pension funds as part of their employment agreement.

From 1974 to 1986, everything went according to plan; ERISA mapped out a set of rules requiring the Department of Labor to oversee pension funds and ensure they weren't stolen.

So what went wrong? The Republican Administration was pro-business. They had innovative lawyers who argued in Supreme Court a legal theory that said the entire field of employee benefits covered by ERISA was pre-empted; no state law rights could apply.

As a result, state laws were no longer applicable and ERISA actually ended up harming workers. For example, in California if you work for a private company and insurance is offered to you through that company as a condition of employment, you give up your ability to sue for the unreasonable denial of insurance benefits. This will apply in the context of health and life benefits for most workers. Consequently, rights were taken away for many working people. This meant that any group benefits you received from your employer came only from ERISA.

Now the rule is either you are:

1. Eligible for ERISA because employer benefits are provided to you through your private employer.
   
   or
   
   
2. As an individual you purchased a private policy, in which case ERISA doesn't apply.

There are three ways to avoid being subject to ERISA (and benefit from state law).

• You purchased a policy privately
  
• You work for the public sector - state, city, county
  
• You work for a church institution or hospital that is funded by a religious order.

Eligible for ERISA
Employer-sponsored health, life and long term disability (LTD) plans are governed by ERISA. The disadvantage of this is that denied or dissatisfied claimants have difficulty taking their cases to court. Many people who have been denied benefits by their insurance plans have complained that ERISA gives insurance companies an advantage.

For instance, Employee A obtains insurance through his employer, a construction company. If the insurance company denies his claim, the employee must file an appeal because ERISA law requires everyone to exhaust their administrative remedy. If an appeal is not filed, legal action cannot be pursued to contest the denial of the benefit. If his appeal is rejected, the employer must file a case in federal court without the benefit of a jury trial. As well, there are strict rules applicable to the review by the trial court regarding this claim.

Claimants can usually only recover back benefits (and not future damages), although your chances are better to recover if you seek an attorney who specializes in ERISA and LTD cases. The ERISA law does provide for attorney fees to be paid if the court orders it.

Not Eligible for ERISA
Privately purchased LTD policies are not subject to ERISA and claimants are permitted to take their cases to State Court. You get a jury trial and in most states, you are entitled to extra damages which would include any consequential loss involved in not getting your benefits.

For instance, if you didn't get a certain health procedure and died, your next of kin can sue in state court for your wrongful death. Under ERISA, they could not sue. In another example, if the insurance company didn't pay your disability benefits and you lost your house, you could sue your insurance company for the consequential loss of your house and equity. Under ERISA, you could not sue.

Your Employer
Keep in mind that an employer does not provide you with insurance. Instead, they are asking an insurance company to provide the working group with benefits. If you buy insurance privately, you will have many more rights. In either case, you are not suing an employer.

Unfortunately, most employers think they are doing a good thing by offering ERISA benefits to their employees. The problem is that they never know the insurance company is going to apply stricter standards to the benefits because it is subject to ERISA. Make no mistake - insurance companies recognize that and apply the rules differently every day based on the ERISA laws.

The Insurance Company and the Courts
Insurance companies know that if they have an ERISA claim, they can get away with denying that claim on an arbitrary basis - they know that you have to appeal and take your claim before a federal a federal court and before judges who are historically more conservative. Also there is a limited review of their decisions. The rules applicable to ERISA provide a far more limited review of claims denials than state court.

In state court, you have a jury trial. If there has been a wrongdoing or arbitrary denial of benefits, a jury will normally punish the insurance company for that wrong,

What You Can Do

• Obtain a copy of your insurance policy and read the fine print, including the definitions to make sure your claim meets the plan's stipulations and requirements.
  
  
• Document all communications regarding your claim, including telephone calls and e-mails to everyone involved, including your doctor.
  
  
• Send all correspondence to the insurance company by certified mail and request a return receipt. This way, the insurers can't say your letter wasn't received.
  
  
• If you are required to get an "Independent Medical Exam (IME) bring someone along to document all that is said. And remember, your insurance company pays for the IME.
  
  
• Keep a journal of your daily activities because your insurance company might also be keeping a record; you might be watched by an insurance investigator.
  
  
• If you are a private sector employee and your claim has been denied, find an ERISA attorney right away so you can get help with you appeal. Keep in mind that you usually only have 60 days to file an administrative appeal after your claim has been denied - sooner is better than later.