Disability Claims – ERISA vs. Non-ERISA

Explanation of ERISA Insurance Claims and Non-ERISA

What Is ERISA?

Most group disability insurance policies obtained through employment are governed by the Employees Retirement Income Security Act of 1974 (ERISA).  ERISA was put in place to provide employees a minimum standard of protection for participation in group plans.

ERISA is a federal statute that provides strict deadlines and guidelines for claimants and insurance companies in processing a claim, the submission of an appeal and ultimately the determination of eligibility for benefits under a disability insurance policy.

Even if state laws touch on employee benefit plans, ERISA preempts these laws and provides the exclusive remedy to obtain relief from insurance providers for employee disability coverage. Unless your employer is a church or a government agency, the insurance plan offered through your employment is probably governed by ERISA.

The attorneys at Donahue & Horrow have many years of experience working on ERISA insurance claims. We are available to you even before you file a claim if you have questions about the applications process or how to make a claim.

Contact the Los Angeles area offices of Donahue & Horrow for a no cost, informative initial consultation.

What Is the Purpose of ERISA?

Congress originally enacted ERISA to protect workers’ pension benefits, and to standardize the administration of “employee benefit plans.” Employer-sponsored life, health and long term disability insurance plans are considered “employee benefits plans” under ERISA. Unfortunately, certain aspects of ERISA have been seized on by insurers and the courts to severely limit the rights of people whose insurance is affected by ERISA.

How Does ERISA Impact Your Claim for Disability, Life or Health Insurance Benefits?

ERISA operates to preempt or supersede state laws that “relate to” employee benefit plans. It also provides the exclusive remedy for claims against insurance companies to recover on policies that are covered by ERISA. These two aspects of ERISA, taken together, severely limit the options of an insured person to force an insurer to pay a claim, or to recover damages from the insurer if it unreasonably refuses to pay insurance benefits. Under ERISA, there is no jury trial. Your lawsuit will be presented before a federal district court judge.

When individuals purchase their own insurance outside of an employer-offered plan, they may have more options for recovery if an insurer denies them benefits. If an individual’s insurer unreasonably or improperly denies him or her benefits, options for damages open up, including the right to pursue an insurance bad faith claim and damages. Unlike in plans governed by ERISA, policyholders may also have the right to a jury trial.

What Can I Recover if My Insurance Claim Is Subject to ERISA?

ERISA replaces the favorable consumer rights and remedies that we enjoy under California law with a much more restrictive federal law. Under ERISA, if an insurer unreasonably withholds policy benefits, the policyholder can only recover the benefits owed. The court is permitted to award, but is not required to do so, an amount for attorneys’ fees and interest. There can be no award for emotional distress, punitive damages, or for any damages incurred for losses suffered when the insurance claim was unreasonably denied.

ERISA Sounds Awful — Is It Really That Bad?

Sadly, yes. Because insurance companies know that their liability for claims subject to ERISA is limited to what they owe if they paid the claim voluntarily, insurance companies have no incentive to pay claims. Instead, ERISA creates a strong incentive for insurers to refuse to pay and to force the policyholder to file a lawsuit to recover benefits. Insurers know that if they lose the lawsuit, the worst case scenario is that they must pay only the benefits that were due and owing in the first place plus possibly interest and attorneys’ fees.

If you have questions about your group insurance plan or ERISA insurance claim, contact a knowledgeable lawyer at Donahue & Horrow LLP, for a free consultation. Insurance bad faith cases are handled on a contingency fee basis.