FREQUENTLY ASKED QUESTIONS
ERISA-Governed Medical and Disability Claims
Q1: What Exactly Is ERISA?
A1: ERISA is an acronym for the Employee Retirement Income Security Act of 1974. The body of ERISA law
includes the federal statute 29 USC. 1001, et seq.; the federal regulations; and the "common law" (decisional law
of the federal courts). ERISA was originally intended to address issues related to pension fund administration;
however, today -- primarily as the result of federal judicial decisions over the past two decades -- ERISA controls
or impacts practically all employee benefits in the private sector, including employer-sponsored health and
disability insurance plans.
Q2: How does ERISA affect me?
A2: If you are a "plan participant", or a dependent, enrolled in an ERISA-governed "employee welfare benefit
plan", ERISA has a very direct and profound effect upon your rights to receive plan benefits.
Q3: What is an "Employee Welfare Benefit Plan"?
A3: Practically speaking, an "employee welfare benefit plan" is any plan of benefits provided by an employer in
the private sector to an employee, including employer-sponsored medical and disability insurance coverage.
Q4: Doesn't ERISA protect my right to receive benefits under my medical or disability plan?
A4: Yes, to an extent, but the protections of ERISA are rather obscure and minimal. Although ERISA proclaims to
give employees greater rights and protections, ERISA has actually stripped employees of many of their rights,
particularly as against insurance companies who underwrite and/or administer medical or disability plans. The
biggest problem is that the federal ERISA law pre-empts important state consumer insurance laws, relating to
group medical or disability insurance, while at the same time there are no federal consumer insurance laws.
Thus, by structuring practically all employer-sponsored insurance plans as "employee welfare benefit plans"
under ERISA, the insurance industry has, in a very ingenious way, carved out the single greatest immunity from
civil liability ever devised.
Q5: If my insurance company wrongfully denies my claim for benefits, can't I sue the insurance
company for "bad faith" and get punitive damages?
A5: No. Not if your plan is governed by ERISA. The federal ERISA law pre-empts most state "Bad faith" lawsuits
(and punitive damages) and there are no punitive damages available under ERISA, no matter how oppressive
an insurance company’s tactics and no matter how frivolous an insurance company’s claim denial.
Q6: If my insurance company wrongfully denies my claim, what can I sue for?
A6: The most that an aggrieved claimant can usually recover in an ERISA lawsuit is the amount of benefits due,
interest, costs and a discretionary award of attorney fees. So, even if the claimant's case proceeds all the way to
judgment, the most that the insurer can lose is the amount that it would have paid if it had handled the claim
properly in the first place, plus perhaps some attorney fees. Since many claimants are unwilling or unable to "go
the distance" in fighting their insurance plans, some unscrupulous insurance companies are assured of winning
the war, under ERISA, even if they lose a battle here and there. No matter how egregious an insurance
company's conduct, ERISA provides it with a virtual license to steal. This absolutely removes any incentive that
an insurance company might otherwise have to treat the claimant fairly.
Q7: What does the term "fiduciary duty" mean?
A7: "Fiduciary duty" is the highest responsibility imposed by our civil law. It is a trust law concept, which requires
that the fiduciary place the interests of the "beneficiaries" above that of his own. Under this fundamental legal
concept, there is absolutely no room for any kind of self-interest of the fiduciary that would conflict with those of
the beneficiary. The beneficiary’s interests are said to be paramount.
Q8: Doesn't ERISA impose fiduciary duties upon the plan administrator (or insurer) in processing my
claim for benefits?
A8: Yes. ERISA imposes "fiduciary" responsibilities on anyone, who exercises final decision-making authority
over plan benefits. Unfortunately, however, in the field of ERISA law, "fiduciary duty" means little. The main
problem is that the way the courts have construed ERISA, nothing prohibits ERISA fiduciaries, from operating
under a "conflict of interest". As stated above, under the most basic concepts of trust law, a fiduciary's interest is
not supposed to conflict with that of the "beneficiary". But under ERISA, such conflicts of interest are expected
and to some extent even condoned. This is the ultimate paradox of ERISA. However, there have been some
encouraging recent developments in the federal case law. (See article: Abatie v. Alta Health & Life Ins. Co.).
Q9: Doesn't ERISA require that my benefit plan conduct a "full and fair" review of my claim?
A9: Yes. ERISA requires that if a claim is initially denied, there must be "a full and fair review by the appropriate
named fiduciary of the decision denying the claim." 29 USC Section 1133(2). Therefore, practically all ERISA
plans will have some kind of an internal appeal process, by which claim denials are reviewed, administratively. As
a general rule, the claimant must exhaust that internal review process, before he can file a lawsuit. That may
seem like a good thing on the surface, but it isn't. Such claims reviews are seldom "full" or "fair". More
importantly, the internal administrative review process is nothing more than a trap for the unwary, because it is
during that process that the "administrative record" is assembled.
Q10: What is the "administrative record"?
A10: The "administrative record" is basically anything that the plan administrator (or insurer) looks at in reaching
its final decision regarding whether a claim will be paid or not. It generally includes any medical records, medical
reports, vocational reports, bills submitted by the claimant; and any claim-related correspondence. But it may
also include any internal reports of the plan's own reviewing physicians or vocational "experts". Incredibly, the
existence and content of such internal reports may not even be disclosed to the claimant. Frequently, plan
administrators (and insurers) will build their own private "administrative record" that the claimant knows nothing
about until after an attorney is hired and litigation is commenced. But by that time, the administrative record may
have "terminated" i.e. It may be too late to augment that record. If that happens, the claimant is deprived of the
opportunity to examine, comment upon or rebut important evidence in the "administrative record".
Q11: Why is the "administrative record" important?
A11: The content of the "administrative record" is vitally important to the claim, because if a lawsuit is ultimately
filed, the court's review will generally be limited to that "administrative record". If the claimant hopes to have any
chance of winning in court, it is crucial that he assemble a record, during the administrative review stage (prior to
even filing a suit) that is highly favorable to the claim. This means not only submitting all relevant information in
the claimant's possession, but discovering and responding to any evidence in the plan administrator's (or
insurer's) possession. It is during this administrative review phase, where many ERISA claims are either won or
lost. Very few claimants, however, have any idea as to how to build an "administrative record" and they are
completely outgunned by the more knowledgeable insurance companies or plan administrators. Therefore, like
so many other aspects of ERISA, the so-called "full and fair" review requirement, discussed above, may actually
work to the detriment, rather than to the benefit, of the claimant.
By: Michael A. McKuin