ERISA Denial Claims
The Employee Retirement Income Security Act of 1974, 29 U.S.C. §1001, et seq., controls many employee benefits, including pension and other retirement benefits, as well as sponsored life, disability, and health insurance coverage disputes. As such, most claims arising out of these areas are now "ERISA claims" as opposed to traditional insurance claims.
The rules governing ERISA claims are complicated. ERISA preempts state law claims, including claims for breach of contract, and substitutes any remedy allowed under common law or statute. This means ERISA preemption applies to state law claims for lack of good faith and the corresponding claim for punitive damages. Consequently, if an insurer handles an ERISA claim in bad faith or maliciously, the insured's can only recover the amount due under the contract.
Moreover, under ERISA, an insurer is granted broad discretion to decide if it should pay a claim, and a decision to deny a claim is entitled to great deference by a reviewing court. The decision will be affirmed unless the reviewing court determines the denial was arbitrary and capricious. Moreover, insurers typically include discretionary clauses in all of their policies, which gives even greater authority to determine whether or not to pay a claim. In essence, the standard of review and inclusion of a discretionary clause allows insurers to interpret the meaning of any particular contractual term on a case by case basis.
As a result, insurers will employ contractual interpretations that avoid coverage—and because of the weight given to an insurer’s decision making, courts defer so long as the insurer's position is at least arguably reasonable. I should be noted that Michigan has banned discretionary clauses. In American Council of Life Insurers v. Ross, 558 F.3d 600 (2009), the Sixth Circuit upheld the Michigan rules banning discretionary clauses, meaning that Michigan Courts can review contractual interpretation on a de novo basis.
Another major difference between a typical insurance claim denial proceeding and claims proceeding under ERISA is the lack of discovery. The Federal Rules of Civil Procedure do not apply to ERISA cases. The final judicial decision is made exclusively on the administrative record existing at the time of the claim’s denial. The lack of discovery is justified as a means to limit the facts presented in the ERISA lawsuit to those known to the insurer at the time of the claim. A claimant is not entitled to have a jury or judge receive and weigh facts not introduced during the administrative proceeding upon which the lawsuit arises.
Given these substantial obstacles, many claimants find judicial recourse very difficult. Much of the record of the case is determined prior to a lawsuit being filed. Consequently, obtaining experienced counsel—as early as possible—it critical. ERISA cases are difficult, complex, and full of potential pitfalls. As such, having legal guidance at every step along the way will greatly increase your chances of prevailing on a disputed claim.
If you are presently engaged in a dispute regarding employment benefits covered by ERISA, contact the experienced attorneys at Neumann Law Group for a free consultation.