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ERISA: Where Bad Faith is Good Business?

Senior Nun Giving Two Middle Finger GesturesThere's no such thing as easy litigation. But ERISA litigation over employee-sponsored disability plans can be especially difficult: First, because people who've suffered from short- or long-term disability are already likely to feel vulnerable and overwhelmed, but also because their legal options can be limited.

Nearly every state has laws requiring insurance companies to act in "good faith." The problem is, employer-sponsored disability plans are subject to the Employment Retirement and Income Security Act (ERISA), a federal law that preempts states' good faith requirements.

How can they get away with that? Because the Supreme Court says they can. In its 2002 decision in the Great-West Life v. Knudson case, the court said, "We have therefore been especially 'reluctant to tamper with [the] enforcement scheme' embodied in the statute by extending remedies not specifically authorized by its text. Indeed, we have noted that ERISA's 'carefully crafted and detailed enforcement scheme provides strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.'" The Knudson decision went 5-4, but the court hasn't rethought itself and few experts think it will anytime soon.

As a practical matter, this can mean that insurance companies have a lower risk of loss in denying disability benefits: Without the fear of damages from a bad faith lawsuit, the insurance company only risks losing the benefits due, interest on those unpaid benefits, reasonable costs and reasonable attorney fees. As the Department of Labor noted earlier this year, insurance companies and plan managers have all sorts of economic incentives to deny claims.

ERISA also means that most litigation filed over disability benefits will be heard in federal court-and by a judge, not a jury. As the Knudson case seems to show, judges are encouraged to be conservative in their review-often, the standard isn't whether the denial was actually wrong, but whether it was "arbitrary and capricious."

You don't have to go through this painstaking process by yourself. If you're ready to go the distance in getting your disability benefits, the experienced attorneys here at Underwood Law Offices are ready to walk with you every step of the way. Contact us for a free consultation today.

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