Employee Benefits and ERISA

The general understanding in the legal community regarding ERISA disability plan benefits litigation is that the federal courts have so strongly skewed the playing field in favor of the insurance industry, that claimants face an uphill battle at best in challenging benefits denials or terminations. Perhaps the best synopsis of this idea is found in the following quote from an unpublished opinion of the Honorable Richard Enslen, which both highlights the problem and yet holds out hope for a fair resolution:

“Caveat Emptor! This case attests to a promise bought and a promise broken. The vendor of disability insurance now tells us, with some legal support furnished by the United States Supreme Court, that a woman determined disabled by the Social Security Administration because of multiple disabilities which prevent any kind of work cannot be paid on the disability insurance she purchased through her employment. The plan and insurance language did not say, but the world should take notice, that when you buy insurance like this you are purchasing an invitation to a legal ritual in which you will be perfunctorily examined by expert physicians whose objective it is to find you not disabled, you will be determined not disabled by the insurance company principally because of the opinions of the unfriendly experts, and you will be denied benefits. Fortunately, the law, though left moribund by the Supreme Court's legal interpretations, does not allow the purveyor of such empty promises to win the day.” Loucks v Liberty Life Assur. Co of Boston, 337 F.Supp.2d 990, W.D. Mich., Oct 01, 2004, subsequently vacated at F.Supp.2d 2005 WL 756674, W.D. Mich, Mar. 28, 2005 (not reported).

ERISA litigation is a minefield for unfamiliar practitioners. The ERISA statute, and the derivative corpus of administrative regulations, are complex, technical and fraught with pitfalls for the unwary. The good news is that U.S. District Courts reviewing disability benefit denials are becoming wise to the standard tactics of insurers attempting to hide behind the "arbitrary and capricious" standard of review that often applies in ERISA governed claims.

The following is a very quick look at the first questions that arise in a review of a potential ERISA claim:

Q: When is a disability claim governed by ERISA?
A: Generally, the ERISA statute brings disability claims squarely under federal law and broadly preempts application of any state law or regulations. More specifically, whenever a disability plan is funded through insurance, it is most likely that federal preemption will apply. However 29 U.S.C. ß 1004 contains certain ìsafe harborî provisions that avoid preemption and may be pursued under state contract law. Most prominent of these are ìpayroll practiceî plans that an employer self-funds under its general account as a species of the employee's ìnormal compensationî. To similar effect are governmental plans, church plans excess benefits plans and disability insurance purchased directly by an individual. Obviously, it is generally desirable to have a claim that can be pursued in state court under routine contract principles that avoid the more stringent provisions of the ERISA statute.

Q: What remedies are available under ERISA?
A: ERISA's specific remedies preempt state law. Only the damages permitted by statute are recoverable. 29 U.S.C. ß 1144 and 1132. Under ERISA, damages typically include the benefits due, interest thereon and, in the court's discretion, attorney fees.

Q: What is the statute of limitations?
A: The ERISA statute does not set forth a statute of limitation, but rather defers to the individual state's statute of limitation that most closely resembles the cause of action, which typical sounds in contract. Therefore, the ìstatute of limitationsî for a lawsuit against a plan provided in the state of Michigan would be six years pursuant to MCL 600.5807(8). However, the plan itself typically has a much shorter contractual limitation to bring legal action by a plan participant. Two or three years from the last date proof of loss was required to be submitted is typical but, of course, each policy must be individually examined.

Q: What is the body of evidence that applies in an ERISA case?
A: With limited exceptions, in a lawsuit challenging benefits denial or termination, both side are limited to the formal documentary Administrative Record generated by the claims administrator that evaluated and decided the claim and, with limited exceptions, neither side can conduct further discovery or otherwise undertake to expand the record. Accordingly, a lawsuit challenging benefits denial necessarily depends greatly upon the substance of the record made by the claimant and his/her attorney during the claims procedure. Early identification and attention to all of the foregoing issues will usually materially enhance the prospects of an ERISA case, and often make the difference between success and failure.

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