Frequently Asked Questions
About ERISA-Governed Benefit Claims
By: Michael A. McKuin
Q1: What do I do if my claim is denied?
A1: If your long term disability benefits are provided by your private employer, your benefit plan is likely governed by the federal ERISA law. If your claim has been denied by the plan or the insurance company, you must administratively appeal that denial usually within 180 days or you may lose your benefits.
Q2: Do I need an attorney to appeal my claim denial.
A2: In a word, yes. An ERISA administrative appeal is far too complicated for any lay person to attempt. In fact, it's so complicated that not just any lawyer will do. The lawyer must have a high level of expertise in the ERISA field and substantial federal ERISA litigation experience.
Q3: What Exactly Is ERISA?
A3: ERISA is an acronym for the Employee Retirement Income Security Act of 1974. The body of ERISA law includes the federal statute 29 USC. 1001, et seq.; the federal regulations; and the "common law" (decisional law of the federal courts). ERISA was originally intended to address issues related to pension fund administration; however, today -- primarily as the result of federal judicial decisions over the past four decades -- ERISA controls or impacts practically all employee benefits in the private sector, including employer-sponsored health and long term disability insurance plans.
Q4: How does ERISA affect me?
A4: If you are a "plan participant", or a dependent, enrolled in an ERISA-governed "employee welfare benefit plan", ERISA has a very direct and profound effect upon your rights to receive plan benefits.
Q5: What is an "Employee Welfare Benefit Plan"?
A5: Practically speaking, an "employee welfare benefit plan" is any plan of benefits provided by an employer in the private sector to an employee, including employer-sponsored health, life and long term disability insurance coverage.
Q6: Doesn't ERISA protect my right to receive benefits under my medical or disability plan?
A6: Yes, to an extent, but the protections of ERISA are rather obscure and minimal. Although ERISA proclaims to give employees greater rights and protections, ERISA has actually stripped employees of many of their rights, particularly as against insurance companies who underwrite and/or administer medical or long term disability plans. The biggest problem is that the federal ERISA law pre-empts important state consumer insurance laws, relating to group medical or disability insurance, while at the same time there are no federal consumer insurance laws. Thus, by structuring practically all employer-sponsored insurance plans as "employee welfare benefit plans" under ERISA, the insurance industry has, in a very ingenious way, carved out the single greatest immunity from civil liability ever devised.
Q7: If my insurance company wrongfully denies my claim for benefits, can't I sue the insurance company for "bad faith" and get punitive damages?
A7: No. Not if your plan is governed by ERISA. The federal ERISA law pre-empts most state "bad faith" lawsuits (and punitive damages) and there are no punitive damages available under ERISA, no matter how oppressive an insurance company’s tactics and no matter how frivolous its claim denial may be.
Q8: If my insurance company wrongfully denies my claim, what can I sue for?
A8: The most that an aggrieved claimant can usually recover in an ERISA lawsuit is the amount of benefits due, interest, costs and a discretionary award of attorney fees. So even if the claimant's case proceeds all the way to judgment, the most that the insurer can lose is the amount that it would have paid if it had handled the claim properly in the first place, plus perhaps some attorney fees. Since many claimants are unwilling or unable to go the distance in fighting their insurance plans, some unscrupulous insurance companies are assured of winning the war under ERISA, even if they lose a battle here and there. No matter how egregious an insurance company's conduct, ERISA provides it with a virtual license to steal. This absolutely removes any incentive an insurance company might otherwise have to treat the claimant fairly.
Q9: What does the term "fiduciary duty" mean?
A9: "Fiduciary duty" is the highest responsibility imposed by our civil law. It is a trust law concept, which requires that the fiduciary place the interests of the "beneficiaries" above that of his own. Under this fundamental legal concept, there is absolutely no room for any kind of self-interest of the fiduciary that would conflict with those of the beneficiary. The beneficiary’s interests are said to be paramount.
Q10: Doesn't ERISA impose fiduciary duties upon the plan administrator (or insurer) in processing my claim for benefits?
A10: Yes. ERISA imposes fiduciary responsibilities on anyone, who exercises final decision-making authority over plan benefits. Unfortunately, however, in the field of ERISA law, fiduciary duty means little. The main problem is that the way the courts have construed ERISA, nothing prohibits fiduciaries from operating under a conflict of interest. As stated above, under the most basic concepts of trust law a fiduciary's interest is not supposed to conflict with that of the beneficiary. But under ERISA, such conflicts are expected and to some extent even condoned. This is the ultimate paradox of ERISA. However, there have been some encouraging developments in the federal case law in recent years.
Q11: Doesn't ERISA require that my benefit plan conduct a full and fair review of my claim?
A11: Yes. ERISA requires that if a claim is initially denied, there must be "a full and fair review by the appropriate named fiduciary of the decision denying the claim." 29 USC Section 1133(2). Therefore, practically all ERISA plans will have some kind of an internal appeal process, by which claim denials are reviewed administratively. As a general rule, the claimant must exhaust that internal review process before he can file a lawsuit. That may seem like a good thing on the surface, but it isn't. Such claims reviews are seldom full or fair. More importantly, the internal administrative review process is nothing more than a trap for the unwary, because it is during that process that the "administrative record" is assembled.
Q12: What is the administrative record?
A12: The administrative record is basically anything that the insurer or administrator looks at in reaching its final decision regarding whether a claim will be paid or not. It generally includes any medical records, medical reports, vocational reports, bills submitted by the claimant; and any claim-related correspondence. But it it will no doubt also include internal reports of the plan's own reviewing physicians or vocational experts, as well as reports and videos of surveillance of the claimant. Incredibly, the existence and content of such internal reports may not even be disclosed to the claimant. Frequently, insurers and claims administrators will build their own private administrative record that the claimant knows nothing about until after an attorney is hired and litigation is commenced. But by that time, access to the administrative record may have terminated i.e. It may be too late to augment that record. If that happens, the claimant is deprived of the opportunity to examine, comment upon or rebut important evidence in the very record relied upon to deny his claim.
Q13: Why is the administrative record important?
A13: The content of the administrative record is vitally important to the claim, because if a lawsuit is ultimately filed, the court's review will generally be limited to that record. If a claimant hopes to have any chance of winning in court, it is crucial that a record be assembled during the administrative review stage (prior to even filing a suit) that is highly favorable to the claim. That means not only submitting all relevant information in the claimant's possession, but also discovering and responding to any evidence in the insurer's possession. It is during this administrative review phase, where many ERISA claims are either won or lost. Very few claimants, however, have any idea as to how to build an administrative record and they are completely outgunned by the more knowledgeable insurance companies or claims administrators. Therefore, like so many other aspects of ERISA, the so-called full and fair review requirement, discussed above, may actually work to the detriment, rather than to the benefit, of the claimant.
Q14: But if I have good medical evidence in the administrative record to support my claim, aren't the odds in favor of my winning a lawsuit?
A14: No, because in ERISA litigation the claimant plays against a stacked deck. Depending on a number of factors, the court may employ a deferential standard of review, which means that the plan fiduciary's final decision will be upheld, unless the court finds the decision to be an "abuse of discretion". As long as there is "substantial evidence" in the administrative record to support that final claim denial, it can be upheld by the court, even if it is technically wrong. "Substantial evidence" is a nebulous term to say the least. For example, it has been defined by the courts as "more than a scintilla but less than a preponderance". Basically, substantial evidence may be whatever the Judge thinks it is in any given case. This clearly gives the insurer or administrator a tremendous advantage over the claimant in any dispute over benefits. However, this is another area of ERISA law that is currently undergoing a somewhat radical transformation. (See Article: The Standard of Judicial Review - Playing Against a Stacked Deck).
Q15. If I file a lawsuit to recover my benefits under ERISA, do I have a right to a jury trial?
A15: No. As a general rule, there is no right to a jury trial in an ERISA benefit dispute. These cases are decided in federal district court by a Judge, who reviews the insurer's or administrator's final decision, denying a claim.
Q16: If my claim denial is reversed, am I entitled to recover all my attorney fees?
A16: No. The only way to recover attorney fees under ERISA is to first "prevail on a significant issue" in litigation (which generally means winning the case in court). Then the claimant must apply to the court for a discretionary award of fees -- but even then, the claimant can only recover attorney fees incurred during the litigation. Although a claimant is usually required to exhaust all internal administrative appeals before he can file a lawsuit, any attorney fees incurred by the claimant for legal services rendered during the administrative review process are not recoverable, even if the claimant wins the litigation. And this is true, no matter how frivolous or wrongful the claim denial was in the first place. 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. This is one of the most fundamentally unfair aspects of ERISA. At a minimum, Congress should amend ERISA to allow for an application to the court for an award of all attorney fees incurred by a successful claimant, including fees incurred during the administrative review process.
Q17: How are attorney fees usually paid in an ERISA case?
A17: Since few claimants can afford to pay an attorney’s hourly rate, most ERISA cases are handled on a contingency fee basis. This contingency fee may be reduced and in some cases eliminated if there is an ultimate fee award by the court. However, many ERISA health and long term disability claim denials are reversed at the administrative review phase, especially if the claimant is represented by counsel. As discussed above, ERISA does not provide for any award of attorney fees for claimants, who successfully get claim denials reversed at the administrative review stage. Therefore, any contingency fee must come directly out of the benefits recovered. Although the claimant will no doubt fare better with an attorney than without one, the sad fact is that the claimant gets screwed either way.
Q18: Is it relatively easy to find an ERISA lawyer to handle my case?
A18: Yes and no. Recently, there has been an increasing number of lawyers, who have entered the ERISA field with the idea of building "volume" practices by spending large amounts on advertising, delegating responsibility for handling cases to paralegals or younger associates, rushing cases through to try to shoot for a low-ball settlement and then moving on to the next case. If they fail and find themselves in court, they may not be adequately prepared. Either way, the client’s interests are not well served. Finding a good attorney, who is willing to take an ERISA case on a contingency fee basis can sometimes be difficult. The unavailability of punitive damages means that there is no pot of gold at the end of the ERISA rainbow for an attorney to recover. In a typical ERISA claim dispute, the amount in controversy is relatively low in relation to the amount of attorney time required to pursue the case effectively. Thus, attorney fees are frequently low, compared to other civil cases (such as "bad faith" litigation). Also, the amount of time that must be devoted to what is a document-intensive administrative process and/or litigation, coupled with the prospects of delayed payment, low payment or no payment, can make such cases undesirable to most lawyers. Many ERISA claimants may be unable to even find competent legal counsel and thus legitimate claims are not pursued, which results in a windfall for the insurance industry.
Q19: How is any of this fair?
A19: It isn't. Doctors, lawyers, judges, consumer groups and politicians have all denounced this pitiful state of affairs. As I stated above, ERISA was enacted by Congress to address issues relating to pension fund administration and it has done that quite well. However, ERISA got completely off track when it veered into the areas of health, life and disability benefit claims. The impact that it has had in those areas has been devastating for consumers. In in this writer's opinion, the only way to restore fairness to this system is to drastically curtail ERISA's pre-emption of state law remedies, by reestablishing the right of an individual to sue his benefit plan in state court for damages for breach of contract and for "bad faith". However, given the strength of the insurance industry lobby in Washington, D.C., I don't expect that to happen anytime soon.
Q20: Is there any hope at all for me if I have a valid ERISA claim?
A20: Of course there is. Although my remarks about the subject are decidedly negative, ERISA is not the panacea that many sloppy or unscrupulous insurers think it is; nor does it give an insurance company or administrator carte blanche to do whatever it wants with regard to a particular claim.. There are still rules that must be followed, and quite often, insurers and claims administrators (as well as their managed care companies) either do not know the rules or they forget to follow them. As a result, many of these cases are winnable and a person whose claim has been denied should seek out experienced legal counsel, immediately. Because of the peculiar nature of ERISA litigation, as described above, the sooner an attorney is involved in the administrative review process following the initial claim denial, the greater the chances for a successful outcome.
Q21: I am a provider of medical services. Do I have the right to pursue my patient's claim for benefits under ERISA?
A21: Generally yes. If you have obtained an Assignment of Benefits form from your patient, you will usually have standing to pursue the patient's claim through administrative review and in court if necessary. This may not be true, however, if there is a provision in the patient's plan prohibiting assignments of benefits.
ERISA Disability Lawyer