ERISA is an acronym for the Employee Retirement Income Security Act of 1974. The body of ERISA law includes the federal statute 29 U.S.C. 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 two decades — ERISA controls or impacts practically all employee benefits in the private sector, including employer-sponsored health and disability insurance plans.
How does ERISA affect me?
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.
“What is an “employee welfare benefit plan”?
Practically speaking, an “employee welfare benefit plan” is any plan of benefits provided by an employer to an employee, including employer-sponsored medical and disability insurance coverage.
Doesn’t ERISA protect my right to receive benefits under my medical or disability plan?
Yes, to an extent, but the protections of ERISA are rather obscure and minimal. Although ERISA purports to give employees greater rights and protections, ERISA has actually stripped employees of many of their rights, particularly against insurance companies who underwrite and/or administer medical or disability plans. The biggest problem is that the federal ERISA law preempts 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.
If my insurance company wrongfully denies my benefits, can’t I sue for “bad faith” and get punitive damages?
No, not if your plan is governed by ERISA. The federal ERISA law preempts 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 an insurance company’s claim denial.
If my insurance company wrongfully denies my claim, what can I sue for?
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 few claimants are willing or able 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 that an insurance company might otherwise have to treat the claimant fairly.
What does the term “fiduciary duty” mean?
“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 those 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.
Doesn’t ERISA impose fiduciary duties on the plan administrator (or insurer) in processing my benefits claim?
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 ERISA 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”. However, under ERISA law, such conflicts of interest are expected and to some extent even condoned. This is the ultimate paradox of ERISA.
Doesn’t ERISA require my benefit plan conduct a “full and fair” review of my claim?
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 U.S.C. 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.
What is the “Administrative Record”?
The “Administrative Record” is basically anything that the plan administrator (or insurer) 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 may also include any internal reports of the plan’s own reviewing physicians or vocational “experts”. Incredibly, the existence and content of such internal reports may not even be disclosed to the claimant. Frequently, plan administrators (and insurers) will build their own private “administrative record” that the claimant knows nothing about until after an attorney is hired and litigation has commenced. But by that time, 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 “administrative record”.
Why is the “Administrative Record” important?
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 “administrative record”. If the claimant hopes to have any chance of winning in court, it is crucial that he assemble a record, during the administrative review stage (prior to even filing a suit) that is highly favorable to the claim. This means not only submitting all relevant information in the claimant’s possession, but discovering and responding to any evidence in the plan administrator’s (or 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 plan 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.
If I have good medical evidence in the “administrative record” to support my claim, aren’t the odds in favor of me winning a lawsuit?
No, because in ERISA litigation the claimant plays against a stacked deck. Usually, the court will employ a “deferential standard of review.” This means that the plan “fiduciary’s” final decision will be upheld, unless the court finds it to be “arbitrary and capricious.” As long as there is “substantial evidence” in the “administrative record” to support that final decision, 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 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 plan administrator a tremendous advantage over the claimant in any dispute over benefits.
If I file a lawsuit to recover my benefits under ERISA, do I have a right to a jury trial?
No. As a general rule, there is no right to a jury trial in an ERISA benefit dispute. Usually these cases are decided in federal district court by a judge, who reviews the plan administrator’s final decision denying a claim.
If my claim denial is reversed, am I entitled to recover my attorney fees?
No. The only way to recover attorney fees under ERISA is to first win the case in court and then 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.
How are attorney fees usually paid in an ERISA case?
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 is usually reduced or eliminated if there is an ultimate fee award by the court. However, many ERISA claims denials are reversed at the administrative review phase, especially when the claimant is represented by counsel. As discussed above, ERISA does provide for any award of attorney’s 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 that without one, the sad fact is the claimant gets the short end of the stick either way.
Is there any hope at all for me if I have a valid ERISA claim?
Of course there is. Although my remarks about the subject are decidedly negative, ERISA is not the panacea that many sloppy or unscrupulous insurers or plan administrators 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 ERISA plan administrators (as well as their claims representatives and 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 had 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.
Is it relatively easy to find an ERISA attorney to handle my case?
No. Finding an attorney who is willing to take an ERISA case on a contingency fee basis can be a very difficult task. 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 rather low. Also, the amount of time that must be devoted to what is document-intensive litigation, coupled with the prospects of delayed payment, low payment or no payment, make such cases “undesirable” to most attorneys. The net result is that many ERISA claimants are unable to even find legal counsel and many legitimate claims are never pursued, which further results in yet another giant bonanza for the insurance and managed-care industry.
How is any of this fair?
It isn’t. Physicians, attorneys, 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 had done that quite well. However, ERISA got completely off track when it veered into the areas of medical and disability benefit claims. The impact that it has had in those areas has been devastating for consumers. There are some legislative proposals pending in Congress that would ameliorate some the harsher aspects of ERISA, while basically leaving the law intact. But, in this writer’s opinion, the only way to restore fairness to this system is to drastically curtail ERISA’s preemption 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 lobby in Washington D.C., I don’t expect that to happen anytime soon.