What is 'ERISA,' and what does it have to do with my long-term disability (LTD) benefits in California?

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Glenn R. Kantor - Employee Benefits - Super Lawyers

Answered by: Glenn R. Kantor

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What is 'ERISA,' and what does it have to do with my long-term disability (LTD) benefits?

ERISA is an acronym for the Employee Retirement Income Security Act of 1974, 29 U.S.C. Section 1001, et seq. ERISA was intended to regulate and protect employees’ rights under their employer-provided pension plans. In 1986, the U.S. Supreme Court decided that ERISA also governed employer-provided insurance benefits (Pilot Life v. Dedeaux, 481 U.S. 41 (1986).) If you obtained long-term disability coverage as part of your employment benefit package, the odds are that the benefits are governed by the federal laws of ERISA, rather than state laws. Why? Because ERISA pre-empts all state laws pertaining to remedies for the improper denial of employer-provided insurance benefits. The important points here are threefold: 1) ERISA limits the remedies available for a wrongful denial of LTD benefits. This means you cannot recover extracontractual damages such as for out-of-pocket expenses or for emotional distress, and no punitive damages; 2) there are strict administrative appeal requirements that must be followed before you are even permitted to file a lawsuit for damages. And, if these procedures are not followed carefully, you can at best, limit your ability to introduce evidence to the court in support of your claim, or at worst, be absolutely precluded from ever being able to file a lawsuit; and 3) There is no right to a jury trial in an ERISA action for LTD benefits.

What if my claim for long-term disability (LTD) benefits is not governed by ERISA?

If you obtained your insurance as an individual, and not as part of a group plan, your benefits will most likely be governed by state law. Or, if your benefits were provided through your employment by either a religious institution (commonly referred to as a “Church Plan”), or a governmental entity, there is a good chance your benefits are exempt from coverage under ERISA. This is important because as pointed out above, your rights under state law are far more comprehensive. Under state law, insurance companies can be held to answer for their “bad faith” conduct. This means they are subject to paying not only the LTD benefits provided for in the plan, but also damages for emotional distress, out-of-pocket damages you may have suffered, and in the most egregious cases, even punitive damages. And, you have the right to a jury trial. For these reasons, insurance companies are far more likely to pay benefits when they are not governed by ERISA.

Does ERISA also govern benefits under life insurance policies?

The same rules apply for life insurance policies you obtain as part of an employee benefit package. Life insurance benefits are tricky, because often, employees think they have enrolled for benefits, and have premiums deducted from their salary, but when they pass, the insurance companies can deny benefits by saying that they never “approved” enrollment, or that the insured never provided adequate “evidence of good health,” or that the deceased was never eligible for benefits. This happens more often than people would think. These are common issues with group life insurance benefits. On the other hand, if the life insurance benefits are not governed by ERISA, because either the insurance was obtained individually, or the coverage is exempt from ERISA, a beneficiary who is denied benefits can take action against the insurance company under the far more beneficiary-friendly laws of the state. This includes the right to recover out-of-pocket damages, emotional distress damages and even punitive damages.

What if the insurance company refuses to pay long-term disability or life insurance benefits to the beneficiary?

Well, as indicated, the remedy depends on whether or not the benefits are governed by ERISA. If they are, an administrative appeal process must be followed … and must be followed very carefully so as not to run afoul of the rules and preclude recovery. If not covered by ERISA, an appeal is not usually required, but can often be a useful exercise to make certain the insurance company has all the evidence necessary to support the claim. In both cases, once an appeal is accomplished, and if the insurer upholds the denial of benefits, a lawsuit can be filed against the insurer.

Disclaimer: The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.

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