© 2014 by Michael A. McKuin

Attorney at Law

Post Office Box 10577

Palm Desert, CA 92255

(California State Bar No. 103328)


The information provided at this website is intended for educational and promotional purposes only. It is strictly general in nature and under no circumstance should it be considered legal advice.  Every case is unique and a competent, qualified lawyer must be consulted for legal advice regarding any specific case. 


What You See Ain't What You Get
By: Michael A. McKuin


Revised:  November 2014

A Potpourri of Protected Rights

On its face, ERISA is a truly magnificent law. One of its architects, Sen. Jacob Javits, described it as "the greatest development in the life of the American worker since Social Security". The language of the ERISA statute is replete with promises of protection for plan participants and beneficiaries. Reporting and disclosure requirements are imposed upon plan administrators -- and most noble of all -- ERISA imposes "fiduciary duties" on anyone, who makes final decisions about paying benefits.


Pick up any plan booklet, describing medical or long term disability benefits, and you’ll find a wonderfully profound and inspiring "Statement of Rights under ERISA". There in black and white is an explanation of the rights guaranteed by the federal law.  A careful reading of it might conjure up images in your mind of the "Bill of Rights" to our Constitution. But let me assure you, if those two documents were in any way similar, we would all be living in gulags.   The more you understand about ERISA the more you will realize things aren’t quite what they seem.

Without question, ERISA was the preeminent scam of the 20th century. While proclaiming to give employees greater rights and protections, the law actually stripped them of many of their rights, especially as against insurance companies, who underwrite benefits and administer health or disability plans. Several factors coalesce to make ERISA the scam that it is:

The Pre-emption Clause

ERISA states that: "[T]he provisions of . . . this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . ."   Under that clause, any inconsistent State laws are rendered meaningless, including important consumer laws relating to health or disability insurance, while there are no Federal consumer insurance laws. Therefore, by structuring employer-sponsored insurance plans as "employee welfare benefit plans", the insurance industry has carved out the single greatest immunity from civil liability ever devised.

No Incentive to Treat Claimants Fairly

In the old days, before "ERISA pre-emption", under the law of various States, insurance companies had an obligation to deal in "good faith" with policyholders. If they didn’t, they could be held liable in State court for punitive damages. That punitive damages exposure might far exceed the amount of the claim itself. For that reason alone, insurance companies were very conscientious in processing and paying legitimate claims. Although relatively few "bad faith" verdicts were ever rendered, the mere threat of liability had a wonderfully self-policing effect on the entire insurance industry.

ERISA pre-empts most State "bad faith" lawsuits and there are no punitive damages available under ERISA, no matter how oppressive the insurance company’s tactics and no matter how frivolous its claim denial.  There is no right to a jury trial under ERISA. The most an aggrieved claimant can usually recover in a lawsuit is the amount of benefits due, interest, costs and a discretionary award of attorney fees. Thus, the most an insurer can lose is what it would have paid if it had handled the claim properly in the first place, plus perhaps some attorney fees.  This absolutely removes any incentive that an insurance company might otherwise have to treat claimants fairly. Thanks to ERISA, insurance companies enjoy immunity for unfair and deceptive practices. Facing no sanctions for bad conduct, they routinely deny meritorious claims., ERISA provides insurance companies with a virtual license to steal.


The Perversion of the Legal Concept of "Fiduciary Duty"

As I said ERISA imposes "fiduciary" responsibilities on anyone who exercises final decision-making authority with regard to plan benefits. An ERISA plan will have a "named fiduciary", such as a "Plan Administrator". This is usually the employer.  If the plan is insured, and if the insuring company has been delegated the right to make final decisions regarding the payment of claims, then the insurer is a deemed "fiduciary" under ERISA.

"Fiduciary duty" is the highest responsibility imposed by our civil law. It is a trust law concept, requiring that a fiduciary place the interests of the "beneficiaries" above his own. Under this fundamental legal concept, there is no room for any kind of self-interest of the fiduciary that conflicts with the interests of the beneficiary. The beneficiary’s  interest is paramount. ERISA took this revered concept and turned it into an abomination.  In the field of ERISA law, fiduciary duty means little and conflicts of interest are expected.  See ERISA’s Conflict of Interest Dilemma .  ERISA has radically transformed everything we once thought we knew about trust law, insurance law consumer rights and remedies.

If an insurance company has been delegated the right to make final decisions regarding benefit payments (which is something that practically every insurance company arranges for by drafting the appropriate plan documents), then it is a "fiduciary" under ERISA. It doesn't take a degree in rocket science to figure out that entrusting any insurance company with "fiduciary" responsibility is like putting the fox in charge of the proverbial hen house. Or to mix metaphors, it would be like hiring Willie Sutton as your financial advisor. I would very much like to see any corporate charter, which states that an insurance company is established for the purpose of protecting plan participants. You won't find one. Insurance companies are formed for the sole purpose of making profits for their shareholders.

The Standard of Review / Playing Against a Stacked Deck

ERISA cases can be difficult to win. Typically, the court will employ a deferential standard of review, which means  that the Plan final decision will be upheld, unless the Court finds it to be an "abuse of  discretion".   Under that analysis, if there is "substantial evidence" to support the decision, it  can be upheld, even if it is technically wrong. "Substantial evidence" is a nebulous term. It has been described as "more than a scintilla but less than a preponderance". Basically, it means whatever a Judge may think it means. This clearly gives insurers and/or plan administrators a tremendous advantage over a claimant in any dispute over benefits.  However, in the wake of recent case law, this advantage is no longer quite as insurmountable as was in the past.  See article: Abatie v. Alta The New "Non-Sliding", Sliding Scale for Reviewing Decisions of Conflicted ERISA Fiduciaries
Moreover, recently, states, such as California, have enacted statutes, banning clauses in health and disability policies (as well as contracts, certificates, or other agreements), which grant insurance companies discretion to determine eligibility for benefits or to interpret plans.  (See: Insurance Code §10110.6).  In California, this would apply to all such policies issued or renewed on or after January 1, 2012 and it applies to all such policies, which insure California residents, regardless of where the policies were "issued".   Insurance companies, however, have tested creative ways to try to get around the ban.  (See article:  Discretionary Bans and ERISA’s Savings Clause.).  However, in May 2017 the Ninth Circuit issued its decision in Orzechowski, v. The Boeing Company Non-Union Long-Term Disability Plan  ( No. 14-55919), holding that “By its terms, §10110.6 covers not only ‘policies’ that provide or fund disability insurance coverage but also ‘contracts, certificates, or agreements’ that “fund” disability insurance coverage.”  Therefore, unless the Supreme Court takes up the issue, it appears that for insured plans discretionary review for ERISA benefit plans is dead in California.

No Attorney Fee Recovery Where It Counts

Before a lawsuit can be filed, a claimant must first exhaust administrative  remedies under the Plan.  It is during that administrative appeal process that the "administrative record" is assembled.   Once a lawsuit is filed, the door to that record generally slams shut, meaning a court will not consider any new evidence at trial that was not before the insurer or administrator at the time the final decision was made. 


Since the burden is on the claimant to prove s/he meets the definition of “disability” (and because it is such a high burden to meet), thorough preparation of that administrative record is critical to winning in court.  Very few claimants have any idea how to do that and they are completely outgunned by the more knowledgeable insurance companies and claims administrators, who do know.


Therefore, it is essential that the claimant be represented by competent legal counsel at the administrative appeal stage.  For the attorney to do the job correctly, it requires that s/he expend an enormous amount of time and effort creating or augmenting the administrative record. 

The only way to recover attorney fees under ERISA is to first win the case in court [1]  and then apply to the court for a discretionary award of fees -- and even then, the claimant can only recover attorney fees incurred during the litigation.  ERISA does not provide for any award of attorney fees for the time spent by the attorney building the administrative record. Thus, ERISA imposes upon the innocent claimant the burden of not only establishing that the claim denial was wrongful, but also the burden of paying a substantial part of the legal costs in doing so.  Few claimants can afford to pay an attorney’s hourly rate. Therefore, most ERISA cases are pursued on a contingency fee basis.


Many ERISA claims denials are reversed at the administrative review phase -- especially when the claimant is represented by competent counsel. Since fees are not recoverable at that point, any contingency fee must come directly out of the benefits recovered.  Therefore, the claimant effectively loses benefits by winning benefits. Although a claimant will no doubt fare better with a good attorney than without one, the sad fact is that the claimant loses benefits either way.

How Did We End Up Here

How did a seemingly innocuous federal statute, designed to give employees greater rights, end up doing the exact opposite?    ERISA just evolved into the scam that it became. Historical developments, augmented by court decisions over four decades brought us to where we are. The multiple employer trusts of the late 1970s and 1980s played a significant role in ERISA's early development.   ERISA, as we know it today, is a fraud carried out almost entirely by the insurance industry.  But, it’s a fraud sanctioned by the federal judiciary and allowed by Congress to continue. The insurance lobby in Washington, D.C. exerts considerable influence to keep things the way they are; and there is no equally powerful or effective consumer lobby. ERISA reform is not exactly a "hot button" issue for most Americans. ERISA claimants are like voices crying in the wilderness. They form no powerful political force. In fact, most of us don’t even think about medical or disability benefits, until the time comes when we need them.


Although the above remarks are decidedly negative, do not despair.  Many of these cases are very winnable in the hands of the right lawyer. Therefore, any person facing a disability claim denial should seek competent, experienced legal counsel, immediately.   






[1]    A "win", however, does not necessarily mean that one must win a judgment for benefits at trial.  Fees can also be awarded if a claimant prevails on a "significant issue in litigation".  See:  Smith v. CMTA-IAN Pension Trust, 746 F.2d 587, 589 (9th Cir. 1984). ("As a general rule, ERISA . . . plaintiffs should be entitled to a reasonable attorney's fee if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit." ) 





ERISA Disability Lawyer