As featured in The Writ, May, 2011, p.6
ERISA stands for the Employee Retirement Income Security Act. That is a federal law governing employee welfare benefit plans. Usually, those plans include life, health, and disability benefits; and, usually, those benefits are funded through insurance.
From a claim/litigation standpoint, insurance companies love ERISA because it limits their financial risks and make them more predictable.
- First, ERISA preempts state law. That means no state-law claims, like for bad faith or punitive damages.
- Second, ERISA's remedies are generally limited to plan benefits, i.e., the underlying benefits at issue (no future benefits, like future disability payments). There is no emotional distress, loss of consortium, or any sort of consequential damages. This allows an insurance company to easily calculate its risk - past benefits, plus interest and attorneys fees. The insurance company doesn't have to worry about the often unpredictable threat "extra-contractual" damages.
- Third, ERISA provides federal jurisdiction, so the insurance company always removes ERISA cases to federal court. Insurance companies feel more comfortable in federal court. One reason is because it's usually easier to get admitted pro hac vice in federal court. I know at least one insurance company that used a single law firm to handle almost all of that company's ERISA cases filed in the Ninth Circuit.
- Fourth, ERISA changes the "standard of review." In insurance litigation, normally the plaintiff has to prove coverage (e.g., breach of contract, bad faith, etc.) by a preponderance of the evidence. But under ERISA, the insurance policy (often a group policy called a "plan"), often grants the insurance company (as the "plan administrator") full discretion to decide benefit claims. That means the plaintiff employee has to show that the "plan administrator" abused its discretion in denying benefits. That's a tough standard to meet. The insurance company's decision doesn't have to be the correct one, but one that is merely reasonable - not "arbitrary and capricious."
- Fifth, ERISA doesn't permit discovery. Instead, the litigation is basically treated as an "appeal" from an administrative claims process, so the "record on appeal" is limited to the claim file. A corollary to this is that there is no discovery. You can't, for example, depose the claims handler.
- Finally, ERISA precludes a jury. ERISA cases are tried to the bench, usually as a "paper trial" through motion practice and submitting the claim file, i.e., the closed "administrative record."
What can employee plaintiffs - or you as their attorney - do about all this? Not much. But there are a few things that can help.
- First, make sure ERISA governs. Often, insurance companies claim ERISA governs when it doesn't. The insurance company bears the burden of proving ERISA governs. Make the company prove it. Maybe the employer didn't really sponsor the life, health or disability benefit as part of its employee benefit plan. Maybe you're dealing with an individual policy, which is less likely than a group policy to be considered part of an ERISA plan. If you ask for proof and the insurance company responds with a settlement offer, then that might be a sign that ERISA doesn't really govern.
- Second, get involved as early as possible. This might mean helping the employee file the initial claim. Or, if the initial claim has been denied, helping the employee with the claim appeal process. (ERISA mandates an appeal process.) The claim file will eventually become the closed "administrative record" and you want to make sure it includes everything you need to support your claim. You will have hard time supplementing that record once litigation is started.
- Third, use ERISA. Its statutes and regulations provide numerous opportunities for the insurance company to mess up. And insurance companies do mess up. They miss mandatory notice deadlines. They fail to follow administrative appeal procedures. They draft denial letters that are boilerplate rather than being tailored to the claim at issue.
- Fourth, look for "conflicts of interest." The assumption underlying the "abuse of discretion" standard is that the insurance company is acting as a claim "fiduciary" and looking out for the employee's best interest. If you can show that the insurance company had a conflict of interest that impacted how the claim was handled, you can argue the abuse of discretion standard shouldn't apply so that the judge can review the claim "de novo." For similar reasons, you can argue that some limited discovery should be allowed to explore that conflict of interest. (Sometimes the "mess ups" mentioned above are the tell-tale signs of a conflict of interest.)
- Finally, demand attorneys' fees. ERISA allows the prevailing party to seek attorneys' fees. ERISA is a complicated area of the law and, in my experience, most fee applications by employee plaintiff's counsel are granted. That means the insurance company doesn't have to worry just about paying it own fees but yours also.
Brenden Griffin is a shareholder at Gabroy, Rollman & Bossé, P.C. He has focused on ERISA litigation in the life, health and disability context for the last 10 years.
