If You Obtain Insurance Through Work, It May Fall Under ERISA; What Does It Mean if ERISA Applies to My Insurance Case?

By Eric L. Buchanan

Introduction

Many people don’t realize that if they obtain insurance through work, that their insurance policy is not considered a regular contract, but is considered an employee benefit.  A federal law, the Employment Retirement Income Security Act of 1974 (ERISA), applies to most employee benefits, including insurance policies at work.  Because ERISA applies to those benefits and insurance policies, disputes over coverage and claims for employee benefits and insurance fall under a different set of rules than would apply to a normal contract.

ERISA is a comprehensive Federal statute that applies to many claims related to employee benefits.  If an employee has a problem getting his medical insurance to cover a claim, or has been denied life insurance or long-term disability insurance benefits under a policy issued at work, the claim is likely covered by ERISA.  ERISA is a complicated area of the law that throws up many hurdles that stand between employees (and their attorneys) and their employee benefits.

People who have been denied benefits under a policy issued at work, or who have questions about their claim, should contact an experienced ERISA attorney to get help with a claim. ERISA was passed in response to a significant perceived problem, that employee benefits were subject to varying and often conflicting state laws, and that employees’ rights were not adequately protected by state laws.  Employees often had significantly different rights depending on the state in which they worked, while large, multi-state companies often had conflicting obligations.

Congress also perceived problems involving possible corruption and self-dealing involving large pension plans.  In order to provide Federal oversight of employee pensions and uniform national standards, Congress enacted ERISA to regulate employee pension plan.  At the last minute, ERISA was amended to include other employee benefits, referred to in ERISA as “employee welfare benefits,” which include all the non-pension benefits, such as health care coverage, long-term disability insurance, life insurance, long-term care insurance, accidental death and dismemberment/disability insurance, and other similar benefits provided to employees by private employers.  Thus, ERISA applies to two broad categories of employment benefits, pension benefits and welfare benefits.

The intent of Congress in enacting ERISA was to protect the “interest of participants in employee benefit plans . . . by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts. .”  29 U.S.C. § 1001(b).  The language of the ERISA statute draws heavily from trust law as well as contract law. Congress instructed the courts to develop a common law of ERISA, using both trust and contract principals. The Department of Labor also has authority to issue regulations governing the processing of ERISA claims.

After over 35 years of case law, ERISA welfare benefits litigation has become a dangerous landscape, with pitfalls and mine fields full of traps for the unwary.  For example, ERISA preempts almost all disputes over benefits that are provided by private employers.  ERISA limits the remedy of a claim in a benefits case to the benefits that should have been paid under the plan, plus maybe attorneys’ fees, but precludes other state law remedies, such as claims for bad faith failure to pay an insurance claim, or fraud and precludes punitive damages or other state law remedies.

ERISA also lives in its own world of civil procedure, where ordinary rules do not ordinarily apply.  For example, a claimant must first present all evidence to the insurance company and appeal all of the insurance policies internal appeals before filing a suit.  Once a suit is filed, a claimant may not submit more evidence to be considered, and no discovery is permitted regarding the merits of the claim; the Court instead reviews only those documents that were before the plan administrator.  While some discovery may be permitted into any conflict-of-interest by the insurance company or administrator, the extent of that discovery is often-litigated.

Additionally, when reviewing the limited record, most claims are reviewed by the court under a standard of review that is deferential to the decision made by the insurance company.  Further, even if a plaintiff is successful in convincing a court that the ERISA administrator or insurance company acted arbitrarily, sometimes the only remedy awarded by the court is to send the claim back to the insurance company for another review, which often simply gives the insurance company or administrator an opportunity to write a better denial.

Lastly, in many claims, such as LTD claims, if a claimant successfully convinces the court to award benefits, the most the court can award is the back benefits that are due, with a little interest, and then the claimant’s case is back in the hands of the insurance company or administrator to decide if the person is still entitled to benefits going forward.

ERISA Preemption

ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan … .” 29 U.S.C. § 1144(a). A saving clause then provides that some state laws are not preempted: “nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.” 29 U.S.C. § 1144(b)(2)(A).

In broad strokes, the case law holds that laws that provide additional remedies or causes of action outside of ERISA are still preempted, while state laws that regulate insurance in other ways may not be.

ERISA preemption means that almost all employee benefits plans that provide such benefits as health insurance, life insurance or disability insurance are preempted by Federal ERISA law; however, plans sponsored by governmental employers and churches are not usually preempted by ERISA.  29 U.S.C. § 1004(b).  If ERISA applies, most claims should be filed in federal court (except for claims that are limited to claims for benefits over which state courts have concurrent jurisdiction), and if a plaintiff files a claim that is properly preempted by ERISA, the defendant may remove the claim to federal court without regard to the well-pled complaint rule. 29 U.S.C. § 1132(e).

ERISA Procedures Pre-litigation

Before filing a law suit, a claimant must exhaust the available remedies under the plan, so long as the plan’s procedures be reasonable.  Following ERISA’s enactment in 1974, the Secretary of Labor issued a set of regulations describing reasonable claims procedures. 29 C.F.R § 2560.503-1, as published at 42 Fed. Reg. 27426 (May 27, 1977).  The regulations were recently overhauled, and “new” claims regulations were published. 65 Fed. Reg. 70265 (Nov. 21, 2000), with minor amendments published at 66 Fed.Reg. 35887 (July 9, 2001).  In regards to claims for disability benefits, the “old” regulations apply to claims filed prior to January 1, 2002, and the “new” regulations apply to claims filed after that date; the regulations have a later effective date for health care claims.

The claims regulations requires that every plan shall establish and maintain reasonable claims procedures.  29 C.F.R. § 2560.503-1.  At a minimum, a reasonable claims procedure must be described in the summary plan description, and must not be administered in a manner that unduly inhibits or hampers the filing or processing of claims. Pursuant to a “written request,” plan procedures must allow claimants to “review pertinent documents” and “submit issues and comments in writing.”

A claimant may submit a written request for plan documents; if the administrator does not provide the documents within 30 days, the claimant may seek a penalty of up to $110 per day after the 30 days. 29 U.S.C. § 1132(c)(1).  At any time a participant may request copies of any summary plan descriptions, insurance policies and other documents under which the plan is established or operated.  29 U.S.C. § 1024(b)(4).  If there has been an adverse claim determination, the claims regulations require that all the documents pertinent or relevant to the claim should be provided to the claimant.

The claims regulations also establish maximum time limits for an administrator to consider a claim and minimum time for a claimant to appeal. If a claimant does not appeal within the time limits, his claim will likely be denied for failure to exhaust administrative remedies.  For example, in a claim for disability benefits under an ERISA plan, the administrator has 45 days to make a decision, which can be extended by two 30 day extensions.  A claimant must be given 180 days to appeal a disability case.  On appeal, the administrator has 45 days to make the appeal decision, which can be extended by 45 days.  For other types of ERISA benefits, such as health insurance or life insurance, the deadlines are different.  The detailed time-deadlines and basic requirements of the regulations are as follows:

Under 29 CFR 2560.503-1, to be reasonable, claims procedures that apply to disability claims under the new DOL claims regulations (claims filed after January 1, 2002) require:

The plan must provide reasonable claims procedures, including making timely decisions and allowing certain minimum times to appeal.

After the initial claim is filed, the plan/claim administrator must make a decision within certain time limits.

  • For a disability claim:
  • the administrator must make a decision within 45 days; however, if the administrator determines that “special circumstances” require an extension of time” the administrator may take two extensions of 30 days if it notifies the claimant in writing that it needs more time. 29 C.F.R. § 2560.503-1(f)(1) and (3).
  • If denied, the time to file an appeal must be reasonable, but not less than 180 days.
  • For health care claims, several different time limits apply, depending on the type of health care claim.
  • For “urgent care claims” the administrator must notify the claimant of its decision, whether adverse or not, within 72 hours, unless the claimant fails to give the administrator all the information it needs.  If the administrator determines it did not receive all the information it needs, it must notify the claimant of that fact within 24 hours of receipt of the claim.  If the administrator determines not enough information is provided, the administrator must give the claimant a “reasonable time” of at least 48 hours to provide the information. A decision on the claim must be made within 48 hours after the claimant provides the information to the administrator or within 48 hours of that the time expires to provide such information.  29 C.F.R. § 2560.503-1(f)(2)(i).
  • For “concurrent care decisions” (where the insurance company or administrator has agreed to provide ongoing periodic treatments)
    • If the administrator decides to stop or reduce the treatments, it must give the claimant its decision, allow a time to appeal, and allow for additional time for its final decision before benefits can be reduced.  29 C.F.R. § 2560.503-1(f)(2)(ii)(A).
    • If the claimant requests an extension of treatments beyond what was originally approved, the administrator or insurance company must make a decision within 24 hours of the request for extension, so long as the request is made at least 24 hours before the expiration of the course of treatment that was approved. 29 C.F.R. § 2560.503-1(f)(2)(ii)(B).  Any appeal of any denial of ongoing treatment shall be made within the time limits for “urgent care claims,” if it is an “urgent care claim” (48 hours); however, if it is not an “urgent care claim” then the time deadline is the same as it would be for ordinary “pre-service” or “post-service” claims (discussed below). Id.
  • For “pre-service claims” (where approval is sought before the medical service is provided) the insurance company or administrator must notify the claimant of the decision, whether favorable or not, “within a reasonable period of time appropriate to the medical circumstances” but not later than 15 days after receipt of the claim.  The administrator may extend that time by another 15 days if it “determines that such an extension is necessary due to matters beyond the control of the plan” an notifies the claimant in writing.  29 C.F.R. § 2560.503-1(f)(2)(iii)(A).  If the administrator determines the extension is necessary because the claimant failed to provide information necessary to decide the claim, the claimant shall be afforded 45 days from receipt of notice to provide such information. Id.
  • For “post-service claims” the insurance company or administrator must notify the claimant of any adverse decision within 30 days of the receipt of the claim, which may be extended one time for 15 days if the administrator “determines that such an extension is necessary due to matters beyond the control of the plan” and notifies the claimant of such in writing before the original 30 days expires. 29 C.F.R. § 2560.503-1(f)(2)(iii)(B).  If the administrator determines the extension is necessary because the claimant failed to provide information necessary to decide the claim, the claimant shall be afforded 45 days from receipt of notice to provide such information. Id.
  • For other claims that do not involve disability benefits or health care claims, the administrator may take up to 90 days to make a decision, which can be extended for another 90 days if “special circumstances require” additional time, as determined by the administrator. 29 C.F.R. § 2560.503-1(f)(1).

If the administrator fails to make a decision within the time required, the claimant’s claim is “deemed exhausted” and the claimant may file a complaint in court under ERISA § 502(a)(1)(B).

The ERISA welfare benefits claims regulations were amended in 2001; however, the regulations from before the amendments sill apply to claims that were originally filed prior to January 1, 2002.  While it would be almost impossible for any medical care claim to fall under the old regs, disability claims that have been paid benefits for years would always be governed by the old regulations if the claimant first filed his or her claim prior to January 1, 2002.

The old regulations still require that the plan must provide reasonable claim procedures, but there are some minor differences in what is defined as a reasonable claims procedure.

A big difference in the old regulations is the time deadlines, which, for disability claims, give more time to the insurance company or administrator and less time to the claimant.  Specifically, an initial decision must be made within 90 days after the application, which can be extended by 90 days.  The time to file an appeal must be reasonable and related to the nature of the benefit but not less than 60 days.  The decision on appeal must be made within 60 days, which can be extended another 60 days.

Under the old regulations, if the administrator does not make a decision within the required time limit, the claim may be deemed denied.

ERISA Litigation Procedures

The Court of Appeals for the Sixth Circuit has established procedures to guide courts in considering such claims in Wilkins v. Baptist Healthcare Systems, Inc., 150 F.3d 609 (6th Cir. 1998). Under Wilkins, the Court of Appeals explained that during judicial review of an ERISA claim for plan benefits the district court’s review is “based on the record before the administrator.” Wilkins at 617-8. The Court of Appeals held that such cases are neither properly resolved using a bench trial, nor by ordinary summary judgment procedures, but rather by means of judicial review of the record, wherein a district court issues a judgment on the record, considering the evidence before the decision-maker, the ERISA documents, and counsel’s arguments.

Standard of Review

A plan participant is entitled to seek judicial review if a plan fails to pay plan benefits.  29 U.S.C. § 1132(a)(1)(B).  For such claims, the Court of Appeals explained in Wilkins, at 613:

With respect to review of the plan administrator’s denial of benefits, both the district court and this court review de novo the plan administrator’s denial of ERISA benefits, unless the benefit plan gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).

The Supreme Court explained in Firestone Tire, at 110,

ERISA abounds with the language and terminology of trust law. See, e.g., 29 U.S.C. § §  1002(7) (“participant”), 1002(8) (“beneficiary”), 1002(21)(A) (“fiduciary”), 1103(a) (“trustee”), 1104 (“fiduciary duties”). ERISA’s legislative history confirms that the Act’s fiduciary responsibility provisions, 29 U.S.C. § §  1101-1114, “codif[y] and mak[e] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts.”   H.R.Rep. No. 93-533, p. 11 (1973), U.S.Code Cong. & Admin.News 1974, pp. 4639, 4649. . . In determining the appropriate standard of review for actions under § 1132(a)(1)(B), we are guided by principles of trust law. Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570, 105 S.Ct. 2833, 2840, 86 L.Ed.2d 447 (1985).

The Supreme Court’s analysis in Firestone Tire explains that,

ERISA was enacted “to promote the interests of employees and their beneficiaries in employee benefit plans,” Shaw v. Delta Airlines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983), and “to protect contractually defined benefits,” Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S., at 148, 105 S.Ct., at 3093.   See generally 29 U.S.C. §  1001 (setting forth congressional findings and declarations of policy regarding ERISA).

Id at 113.  Because of that, and other reasoning found in the Court’s decision, the Court held that the presumed standard of review to be applied by district courts under § 1132 (a)(1)(B) is de novo.

However, the Court further explained that because plan administrators are “trustees” or otherwise can act in a fiduciary capacity, that the de novo standard does not apply if the “plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Id, at 115.  Thus “a deferential standard of review appropriate when a trustee exercises discretionary powers.” Id, at 111.

In reality, this has become the exception that has swallowed the rule.  Very quickly after Firestone Tire was decided, plan documents were amended to include language granting discretion to the administrator; now almost every plan claims that its decisions should be reviewed under the arbitrary and capricious standard of review.  To make matters worse, in the Sixth Circuit, almost any language giving authority to an administrator to make a determination has been interpreted to be grant of discretion.

Since almost every plan contains magic language that creates a deferential standard of review, the issue that courts must address is whether an administrator’s decision should be given less deference if the administrator acted under a conflict of interest.  The Court of Appeals has recently explained:

We note, however, that our deferential review of the benefit denial at issue here is tempered by . . . the fact that the Plan is funded largely by Defendant/Appellee Emerson Electric, and that the EBC is appointed by Emerson’s Board of Directors. The “possible conflict of interest” inherent in this situation “should be taken into account as a factor in determining whether the [EBC’s] decision was arbitrary and capricious.” Davis [v. Kentucky Finance Cos. Retirement Plan], 887 F.2d [689], 694; see also Borda v. Hardy, Lewis, Pollard & Page, P.C., 138 F.3d 1062, 1069 (6th Cir.1998).

University Hospitals of Cleveland v. Emerson Elec. Co., 202 F.3d 839, 846-7 (6th Cir 2000).  “There is an actual, readily apparent conflict here, not a mere potential for one” when the insurance company/plan administrator is the insurer that ultimately pays the benefits. Darland v. Fortis Benefits Ins. Co., 317 F.3d 516, 527 (6thCir. 2003), quoting from Killian v. Healthsource Provident Adm’rs, Inc., 152 F.3d 514, 521 (6th Cir .1998).

When a plan administrator regularly relies on the same medical experts, this also shows the insurance company is acting with a conflict of interest.  Those medical experts have an incentive to help a plan administrator deny claims in order to save the plan administrator money and in turn continue to be paid to review cases.  As the Court of appeals explained in Darland v. Fortis Benefits Ins. Co., 317 F.3d 516, 528 (6th Cir. 2003):

As the plan administrator, Fortis had a “clear incentive” to contract with a company whose medical experts were inclined to find in its favor that Darland was not entitled to continued LTD benefits. Regula v. Delta Family-Care Disability Survivorship Plan, 266 F.3d 1130, 1143 (9th Cir.2001) (noting “the conflict of interest inherent when benefit plans repeatedly hire particular physicians as experts” since “these experts have a clear incentive to make a finding of ‘not disabled’ in order to save their employers money and to preserve their own consulting arrangements”). Accordingly, the existence of an apparent conflict of interest must be taken into account as a “factor in determining whether there is an abuse of discretion.” Firestone Tire & Rubber Co., 489 U.S. at 115.

“Under principles of equity, a trustee bears an unwavering duty of complete loyalty to the beneficiary of the trust, to the exclusion of the interests of all other parties. Restatement (Second) of Trusts § 170 (1) (1957); 2 A. Scott, Law of Trusts § 170 (1967). To deter the trustee from all temptation and to prevent any possible injury to the beneficiary, the rule against a trustee dividing his loyalties must be enforced with “uncompromising rigidity.” Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (Cardozo, C. J.). A fiduciary cannot contend “that although he had conflicting interests, he served his masters equally well or that his primary loyalty was not weakened by the pull of his secondary one.” Woods v. City National Bank & Trust Co., 312 U.S. 262, 269.”

In Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 122 S.Ct. 2151 (2002), the Supreme Court noted that:

[i]n Firestone Tire itself, we noted that review for abuse of discretion would home in on any conflict of interest on the plan fiduciary’s part, if a conflict was plausibly raised. That last observation was underscored only two Terms ago in Pegram v. Herdrich, 530 U.S. 211 (2000), when we again noted the potential for conflict when an HMO makes decisions about appropriate treatment, see id., at 219-20. It is a fair question just how deferential review can be when the judicial eye is peeled for conflict of interest.

Rush Prudential, 536 U.S. at 384 fn. 15.

However, even though most plan’s decisions are now reviewed under an “arbitrary and capricious” or “abuse of discretion” standard of review, the Supreme Court recently held in Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008) that when courts consider cases where the ERISA decisionmaker also has a financial interest in the case, such as when an insurance company both makes a decision and would pay any benefits due out of its own funds, that this creates a conflict of interest.  The Supreme Court explained that courts should consider the  “dual role” of an entity as an ERISA plan administrator and payer of plan benefits as a factor in determining whether the plan administrator has abused its discretion in denying benefits, with the significance of the factor depending upon the circumstances of the particular case.

Other issues:

Disability benefits are often reduced by an offset for other benefits, such as social security benefits, worker’s compensation benefits or other benefits paid on account of disability; read the plan documents carefully.  If your client is paid disability benefits under an ERISA plan, and later is awarded social security or worker’s compensation benefits, the insurance company may claim an overpayment. Your client may or may not have to repay the “overpaid” benefits, but you need to be familiar with ERISA law to address this.

Your client may have other benefits available at work that are payable based on a finding of disability under the company LTD plan or the benefits may require a separate application (a waiver of life insurance premiums is common).  Be sure you ask the employer/plan administrator whether such other benefits are available and what should be done to apply for them.

Generally, there is no treating physician rule in ERISA claims, rather the terms of the plan apply.  Read the plan carefully to see what mistakes the insurance company made.  For example, many denials state the reason for the denial is a lack of objective evidence, while the actual plan does not require “objective evidence” to establish disability.

Top 11 Mistakes Made By Claimants and Inexperienced Attorneys:

  1. Submit all the information to support a claim as part of the appeal process. Because the record closes when a “final denial” (usually the second denial) is issued by the insurance company, you cannot add new evidence to support the claim after the claim has been denied for the final time.
  2. Do not assume that your medical records are enough to show you are disabled, or are enough information to support the claim. Many clients who appeal on their own tell us, “but I submitted all my medical records!” That is not enough, because you need documentation of specific restrictions and limitations, and other information that a good ERISA attorney know to add to the record.
  3. Do not wait until after a claim has been denied a second time before hiring an attorney! To avoid mistakes number one and two, get an experienced ERISA attorney involved in the claim as soon as possible, to that the attorney can help get all the right kind of evidence into the record, and help with other problems that often come up.
  4. Do not ignore the insurance company’s or plan administrator’s deadlines. Sometimes a case is lost, and can never be won, simply because the client missed the appeal deadline contained in the insurance company’s letters and in the plan. Once a deadline is missed, usually the case cannot go forward.
  5. Do not file suit until you have exhausted all your remedies. Good ERISA attorneys know this, and understand that a claimant must go through the required appeal procedures before going to court, and will make sure those appeals are done properly.
  6. Do not assume that a treating doctor’s conclusory opinion or a worker’s compensation rating is enough to establish disability; you must establish restrictions and limitations to support that the claimant cannot work. A good ERISA attorney will know what information should be obtained from the treating doctors to show a claimant meets the requirements of disability under a policy or plan.
  7. If the insurance company raises vocational issues, or uses their own vocation expert, hire an attorney who knows how to address those opinions, by either obtaining the right kind of information about restrictions and limitations, or, if necessary, bt obtaining the opinion of a vocational expert who understands the facts of your case and the vocational rules that apply.
  8. Do not delay in hiring an attorney, even if you have already been denied, because many policies contain contractual periods of limitations. Under many policies, the time to go to court is shorter than the time a person normally would have to file a lawsuit, and courts uphold those policy terms. Hire an attorney who understands those rules and will protect your rights by filing in court on time..
  9. Never argue that there is a “treating physician rule” that requires the administrator to give more weight to a treating doctor, but do look at the case law that usually says it is arbitrary for an administrator to rely on a paper review over the opinion of a doctor who actually examined the claimant. The Supreme Court has made it clear that there is no “treating physician rule” in ERISA disability cases. On the other hand, courts do give more weight to the opinion of a doctor who has actually examined a person over the insurance company’s file-reviewing doctor, especially if the insurance company had a right to have the person examined.
  10. While discovery on the merits is usually not available, discovery into the conflict of interest of a decision-maker can be fair game; never concede there is “no discovery” in ERISA cases. Be sure to hire an experienced ERISA attorney who understands what discovery may be sought in ERISA cases.
  11. Don’t delay filing for Social Security Disability if you might qualify. If you are totally disabled, and are not working, or are working very little, apply for social security benefits soon, so that you can protect your social security rights and get the maximum back benefits. If you ultimately lose the ERISA LTD case, at least you have a chance to receive the social security benefits. Also, if a person does not apply for social security, many policies allow the insurance company to reduce the LTD benefits by the amount the person would have received in social security benefits, had they applied. Also, a favorable decision from the Social Security Administration, saying the person is disabled, can be used as evidence in the LTD case, if the decision is available soon enough to submit it to the insurance company as part of the proof in the case.