Understanding ERISA – Part 1

ERISA
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When many folks file disability claims, they are shell-shocked by the denial of their disability benefits. They have worked hard their entire life. Many purchased disability insurance just in case they became ill or suffered a severe accident, so they cannot understand how benefits could be denied. Some have even been awarded Social Security benefits.

They thought they were doing it right, buying insurance that was described as long-term disability insurance or long-term income protection. That long-term disability insurance was supposed to kick in and start paying a monthly benefit after they had been disabled for six months. The shiny brochures said it would provide them with monthly income when they were disabled, replacing some of that lost income with regular monthly payments. What they were told was that the monthly income could continue until they reached age 65 or normal retirement age. It sounded great. It really wasn’t expensive – at least the cost was low when compared to the cost of an individual policy of disability insurance purchased from an agent. What a deal!

When a worker becomes disabled and hasn’t worked for many months, the worker often becomes depressed because he or she is hurt and/or sick and can no longer work. The worker is also financially distressed when they realize the disability benefits promised in the shiny brochure are not coming in. They either stopped or never began.

What is the problem? All of their doctors’ reports agreed – they are disabled from work, and those reports were submitted to the insurance company. Their doctors have even performed some tests which proved that the disability is real; the worker is not faking or exaggerating a disability. However, the insurance company has not had them examined by a doctor or seen them in person.

How ERISA is Different

Known as the Employee Retirement Income Security Act (ERISA) of 1974, ERISA is a federal law that sets minimum standards for most pension and health plans in private industry. The aim is to ensure that the plans deliver the promises they say they will deliver. ERISA has established standards that relate to retirement, health, life insurance, disability insurance and apprenticeship plans. For these reasons, ERISA is also known as the Pension Reform Act. The law is so important that no less than three federal agencies are tasked with its enforcement – the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guarantee Corporation.

ERISA benefit claims are different from most insurance claims in that they run counter to normal expectations about how things are supposed to work. ERISA benefit cases are difficult to win. But with proper representation undertaken early in the process, the chances for favorable results and settlements increase significantly.

As a federal act, ERISA is not subject to modification by an individual state. ERISA cases are almost always resolved in federal courts based on cross motions for judgment. Jury trials and bad faith are not allowed. The claims are usually tried on the record. ERISA cases are treated as trust cases, with the insurance company as the trustee. Most policies and plans grant discretionary authority to the insurance company. Decisions of the trustee will not be disturbed unless abuse of discretion is shown, which requires the disabled former employee to show that the denial of bene- fits was an abuse of discretion. The disabled former employee must not only show that the denial or termination of benefits was wrong, but that the decision was unreasonable as well. Some Federal Courts in Alabama have found that the denial of benefits was wrong but reasonable, and affermed denial of benefits.

The insurance companies abuse their discretionary authority by hiring record reviewers to review the records and express an opinion that the former employee is not disabled. Furthermore, they tend to rely on the record reviewers and disregard the treating physician.

Though Alabama cannot change the federal ERISA law, the state does have the authority to regulate insurance, which means it has the authority to fix the problem of discretionary authority. The legislature has the authority to ban discretionary authority in ERISA plans and policies, while the State Insurance Department has the authority to ban discretionary authority clauses in insurance policies. About half the states ban discretionary authority. If discretionary authority were banned in Alabama, ERISA cases would be tried as insurance contract claims and the only issue would whether the former employee is disabled.

ERISA is complex, and nationwide relatively few attorneys handle ERISA cases on a regular basis. There are very few in northern Alabama. Myron Allenstein

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