ERISA is a federal law passed in the 1970s, to give employees security with their benefit packages. With a few exceptions, ERISA governs all disputes over employer-provided benefits. This includes any long-term disability (LTD) policy provided as part of an employee benefit plan.
“If there is a dispute about a disability insurance policy provided as part of an employee benefit plan, if the claim is denied or there is a disagreement over anything related to the policy, ERISA governs the dispute. ERISA lays out the processes and procedures you have to follow to have legal recourse,” explains Roy. Notably, ERISA requires anyone denied benefits to submit to all mandatory appeals offered by their insurance company.
“If you do not submit to the insurance companies’ mandatory appeal process, then you are prohibited from ever taking your case to court.”
Another major component of ERISA is it “only allows an insured to sue for back-benefits, interest, and, if successful, reasonable attorney fees and costs. ERISA does not allow recovery of incidental, consequential, or extra-contractual damages.”
“For instance, if you are denied LTD benefits, and, because of that denial you cannot pay for medical expenses, or if you can’t even pay for rent or food, those are incidental and consequential damages related to the denial,” says Roy, “and they are simply not recoverable under ERISA.”
However, as mentioned above, there are times when ERISA does not govern an employee package. For example, if the government or a religious organization employs you, then your employee benefit plan is excluded from ERISA. The same goes for a private disability policy purchased outside of an employee benefit plan. In those instances, if you get into a dispute over a denial of LTD benefits, the dispute becomes a matter of state law, which opens the door for recovery of more than allowed under ERISA.
For instance, in California and Washington, you are allowed to bring a tort claim for first-party bad faith against your insurance company. A first-party bad faith tort claim allows for recovery of extra-contractual damages like emotional pain and suffering, and other damages that are connected to the insurance company’s breach of contract.
However, “here in Oregon, while you can sue for third-party bad faith, a first-party bad faith claim is not allowed,” says Roy. For example, if you are involved in a car accident, you can make a bad faith insurance claim against the other driver’s insurance company if their insurance company refuses to pay for your injuries, but you cannot sue your own insurance company for bad faith.
Roy advises that you find out whether your policy is part of a benefit package. “You may feel more comfortable purchasing a policy on the open market rather than going through your employer. That way you could have more legal recourse if something goes sideways,” he says.
Most people take the policy as part of the overall plan but Roy suggests you familiarize yourself with contractual clauses: you might have to weather several months, so protect yourself and have some money in the bank as a buffer. Even if you are entitled to disability, it might take some time.
And you have to be realistic. “People need to understand that this is low-income living. No one gets rich living off disability benefits; policies are written to give you a percentage and often include caps, such as the amount and time,” Roy says. “Some injuries are only covered for a few years - please read the fine print in your policy.”
Recently, Roy represented a woman who had foot surgery that created a cascade of events. “Her first surgery was unsuccessful and a second surgery left her with an abnormal gait, which in turn caused her serious back issues. Her insurance company denied LTD, reasoning that her foot should be healed by now. They weren’t looking at her whole body - the entire picture. We showed that her injuries were much more serious than just her foot.”
Roy urges you to be pro-active and don’t assume that your insurance company is aware of any new issues. Let them know if you see a specialist and incur any other medical expenses. “The insurance company has an obligation to conduct due diligence and make a determination based on the evidence,” Roy adds.
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Chris Roy owns Roy Law, a Portland- and Seattle-based law firm representing individuals throughout Oregon, Washington and Idaho, who are applying for, or have been denied, long-term disability insurance benefits. Chris was born in Pendleton, Oregon, and raised in Prosser, Washington. He graduated cum laude from Gonzaga University in 1993, and the University of Oregon School of Law in 1998. Chris started Roy Law in 2009.