Know Your Rights With An ERISA or Disability Insurance Claim Denial
If you have a group policy that is part of an employee benefit plan it is likely governed by Federal law known as ERISA (Employee Retirement Income Security Act). If you have an individual policy that was purchased by you it is likely governed by State law. There is a tremendous difference between State and Federal law in this area.
California Law: Insurance Companies Prohibited from Acting in “Bad Faith”
California law applies to every insurance policy issued to a California resident, except for policies in employee benefit plans subject to Federal ERISA law.
Where California law applies, insurance companies must use “good faith and fair dealing” to not deprive their insureds of the policy benefits or protections. An insurance company acts in “bad faith” where it fails to pay benefits due under the policy “unreasonably” or “without proper cause”. The duty of good faith and fair dealing includes the duty to not unreasonably withhold benefits and to thoroughly and promptly investigate your claim. The insurance company must diligently search for evidence supporting the claim. Looking only for evidence to deny the claim is bad faith.
Under California law there are three levels of wrongful conduct by an insurance company. As the conduct worsens, the company’s potential liability increases.
- A simple breach of contract allows the insured to collect the contractual benefits – those promised to be paid under the policy.
- “Bad faith conduct” by the insurer in refusing to pay benefits allows an insured to collect for all their resulting losses, including emotional distress and attorney’s fees.
- Fraud, malice or oppression makes the insurer liable for punitive damages – an additional sum intended to punish this misconduct.
Federal Law: ERISA Claims Under Employee Benefit Plans
Federal Law known as the Employee Retirement Income Security Act of 1974 (ERISA) covers most employee benefit plans, including disability, life, medical and pension benefits provided through an employer.
ERISA has a two-step claims procedure. You first must file a claim, with proof that you deserve benefits, with the Plan’s Administrator. Typically, your employer will provide you with the claim forms. Most disability, life and health Plans are underwritten by an insurance company. (Unum, Prudential, MetLife, Hartford, etc.). In these cases your claim will be reviewed by the insurance company (referred to as the Claim Administrator). Both the Plan Administrator (employer) and the Claim Administrator (insurer) have a fiduciary responsibility “to act solely in the interest of the [Plan] participants and beneficiaries.” However, it may be fatal to your claim to assume that the Administrator will assist you in proving your claim. You are responsible for proving your own claim.
If the Plan denies your claim, you have the right to an administrative appeal. The Claim Administrator will review your claim a second time. You have a right to obtain a copy of the Administrator’s file. Get it. This file will tell you what they have reviewed and what their own internal consultants (medical reviewers, vocational analysts, surveillance video) are saying about your claim.
Fully developing the record on appeal (referred to as the Administrative Record) is critical in ERISA cases for two reasons. First, you want to convince the Administrator to reverse their denial and second, you want to create a strong foundation for a civil action if the administrator does not reverse their denial of benefits.
If your appeal is denied your final remedy is to file a civil action in Federal Court. ERISA limits your rights in court. You have no right to a jury and virtually no right to perform discovery. Thus all of your discovery needs to be done during the Administrative Appeal process. When the judge reviews your case he will be limited to reviewing what is in the Administrative File. You can not hold back the “good stuff” for trial. If it was not presented during the Administrative Review then the judge will not consider it.
ERISA also limits the damages recoverable. The law of bad faith does not apply to ERISA cases. Thus, unfortunately, a claimant cannot collect compensatory or punitive damages.
There are deadlines for submitting your claim, filing your appeal, and filing a civil action. Make sure you comply with these deadlines.