By: Eric Buchanan, Chattanooga, Tennessee. eric@buchanandisability.com
Because most group LTD policies are offered through work, these policies are usually considered to be employee benefits that fall under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA is a comprehensive federal statute that applies to many claims related to employee benefits, including LTD, medical insurance, life insurance, or pension benefits. ERISA benefits claims involve a complicated area of the law that throws up many hurdles that stand between employees (and their attorneys) and their employee benefits.
ERISA was passed in response to a significant perceived problem, that employee benefits were subject to varying and often conflicting state laws, and state laws did not adequately protect employees’ rights. Employees often had significantly different rights depending on the state in which they worked, while large, multi-state companies often had conflicting obligations. Also, large employers and unions could avoid liability for mishandling employee benefits by picking and choosing what state would be the home state for their employee benefit plans.
Congress also perceived problems involving possible corruption and self-dealing involving large pension plans. To provide federal oversight of employee pensions and uniform national standards, Congress drafted ERISA to regulate employee pension plans. At the last minute, ERISA was amended to include other employee benefits, referred to as ERISA welfare benefits; this includes LTD, health insurance, life insurance, and other benefits offered by private employers. Thus, ERISA covers two broad areas of employee 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 principles. The Department of Labor also has authority to issue regulations governing the processing of ERISA claims. Despite language in the ERISA statute purporting to protect employees, over time, ERISA case-law has developed into more of a shield for employers, insurance companies, and unions, and offers little protection for employees.
ERISA Preemption
ERISA applies to almost all disputes over employee benefits offered by private employers. Any state law claims, such as breach of contract or bad faith, do not apply because the rules under 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).
ERISA preemption means that almost all employee benefits plans that provide health insurance, life insurance, long-term disability insurance, or similar benefits are governed by federal ERISA law; however, plans sponsored by governmental employers and churches are not usually preempted by ERISA. 29 U.S.C. § 1003(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-pleaded complaint rule (29 U.S.C. § 1132(e)); therefore, most ERISA claims are litigated in federal court.
Overview of ERISA Welfare Benefits Claims
The ERISA statute divides employee benefits into two broad categories: pension benefits and welfare benefits. Long-term disability benefits, as well as other benefits such as health insurance, life insurance, dental insurance, or other similar benefits fall under “ERISA welfare benefits.” If an ERISA plan participant or beneficiary is denied those benefits, the person must go through the ERISA plan’s required appeal procedures. If the claim is still denied, the person can bring an action under ERISA § 502(a)(1)(B) (29 U.S.C. § 1132(a)(1)(B)).
After over 40 years of case law, ERISA welfare benefits litigation, especially claims for long-term disability benefits, 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, and attorneys who file claims for such benefits in state court under breach-of-contract theories run the risk of having the claim dismissed, or, at best, they start out from the beginning not looking like they know what they are doing.
Because ERISA law preempts any state law remedies, a plaintiff may only obtain those remedies available under the ERISA statute and case-law. Usually, this is a remedy to obtain the benefits that should have been paid under the plan, plus maybe attorneys’ fees, and interest. Other remedies, such as punitive damages, made whole damages, bad faith damages or similar remedies are preempted.
ERISA benefits litigation lives in its own world of civil procedure, where the ordinary rules of civil procedure do not apply; in fact, the procedure is more similar to how social security cases are handled in federal court. But there are significant differences between social security cases and ERISA cases as well.
Unlike ordinary civil cases, and more like social security cases, a claimant must first present all evidence to the insurance company and exhaust all the insurance policy’s internal appeals before filing 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; a court instead reviews only those documents that were before the administrator. Unlike social security cases, there is not even an exception for new and material evidence; however, there may be an exception for information an insurance company or ERISA decision-maker should have obtained.
Unlike social security cases, some discovery may be permitted into any conflict-of-interest by the insurance company or administrator, but the extent of that discovery is often litigated and often limited. Like social security cases, and unlike most civil litigation, most courts hold that no jury trial is available, and typically review the case based on the record and arguments from counsel.
Additionally, when reviewing the limited record, courts usually review the decision under an arbitrary and capricious or abuse of discretion standard of review that is deferential to the decision made by the insurance company. Technically, the rule is that courts should review denials of ERISA benefits de novo, according to the Supreme Court in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), but that same decision held that if the parties agree to a different standard of review, that courts should apply the more deferential standard of review. Id. at 115. And, of course, most ERISA plans and insurance policies contain the deferential standard of review, and that exception has virtually swallowed the default rule.
Unlike social security cases used to be, and now like the new SSA rules, there is no treating physician rule in ERISA claims; rather the terms of the plan apply. Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834, (2003). And, unlike social security cases, there are few regulations and rules outside of the plan documents that plans must follow. There is a set of claims regulations under ERISA, at 29 C.F.R. § 2560.503-1, and a few other regulations that apply to ERISA plans, but nowhere near the extensive and comprehensive regulations that apply to social security cases.
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 ERISA welfare benefits claims (including 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, maybe, attorneys’ fees. However, once the case is “won” the best the person can do is be put back on claim, and then the case is back in the hands of the insurance company or administrator to decide if the person is still entitled to benefits going forward.
Some Statistics on ERISA Claims
An article from just a few years ago in The ABA Journal of Labor and Employment Law compiled various statistics about ERISA benefits claims. Sean M. Anderson, ERISA Benefits Litigation: An Empirical Picture, 28 ABA J. Lab. & Emp. L. 1 (2012). This paper studied ERISA benefits litigation from 2006 to 2010 and took a sampling of approximately 13,900 ERISA benefits cases filed during that five-year window.
Among the interesting statistics in this paper, slightly less than 70% of ERISA benefits cases were originally filed in federal court, while a little over 30% of cases were originally filed in state court, but were removed to federal court. Id. at 5. Of those that were filed in state court originally, only about 22% pleaded ERISA, while approximately 78% pleaded only state law claims. Id. Mr. Anderson points out that this means that almost a quarter of cases that fell under ERISA were originally filed in state court as non-ERISA cases but were removed. Id. Mr. Anderson surmised that this is because many attorneys were trying to avoid the application of ERISA despite clear law that ERISA would apply. Id. at 5–06. However, based on my own experience, I strongly suspect that, rather than intentionally trying to avoid ERISA, many plaintiffs’ attorneys just do not realize that ERISA applies to these types of claims.
Another interesting observation from this article is that about 75% of ERISA benefits cases settled and the court issued a decision in about 25% of the cases. Id. at 10. Of the total cases where the court decided, the court denied the claim for benefits about 47% of the time. Id. The court granted the claim for benefits only about 16% of the time, although this number includes only 14% where benefits were awarded outright and about 2% where the court ordered a remand with a strong suggestion that benefits be paid. Id. Over 31% of the cases ended in a wide range of other dispositions, including “cases that were remanded to state courts, transferred to other federal courts, dismissed for want of prosecution, voluntarily dismissed without a settlement, and terminated due to the bankruptcy of a party.” Id. Unfortunately, the article does not differentiate the number that were remanded to the administrator for further proceedings. However, from the statistics reported, it does appear that the court found for the defendant and denied benefits about three times more often than those cases where the court granted benefits outright (47% to 16%).