The “Administrative Appeal” is the Most Important Part of the ERISA Process

Why? The short answer is because it is your last, best chance to prove your case. To understand why that is so, it is necessary to explain in some detail how ERISA works.

What is ERISA, and Why is it So Complicated?

“ERISA” is an acronym for the Employee Retirement Income Act of 1974.  ERISA was enacted by the United States Congress for the primary purpose of enhancing “the protection of employee benefits.”

Despite its stated purpose, ERISA has not had the effect of enhancing the protection of employee benefits.  Indeed, it has quite the opposite effect, acting more like the “Insurance Company Get Out of Jail Free Act.”  There are several reasons why this is true.

ERISA protects insurance company wrongdoing in several ways.  It is easiest to understand what is wrong with ERISA by comparing insurance claims not governed by ERISA.  A traditional insurance claim is based upon the insurance contract.  The process starts when the insured files a claim.

If the insurance company refuses to pay, the insured may sue the insurer in state court for traditional “breach of contract” and “bad faith” damages.

→ In an ERISA case, when the insurer denies a claim, the insured may not file a lawsuit until he or she goes through an “administrative appeal” to the insurance company.  What this really means is the insured is forced to let the insurance company review its own claim denial.  The process usually takes about nine months, during which the claimant is not receiving benefits.           

The insured, through his attorney, has the right to conduct “discovery,” meaning he has the right to find out exactly what the insurance company did and/or failed to do, and exactly what it knew (or chose not to know) when making its claim decision.

→ In ERISA cases there is little or no discovery.  For instance, we may not get a chance to test the accuracy of the insurance company’s medical determinations.  This often results in a “he said, she said.”

The insured claimant has the right to present his case to a jury.  The claimant gets to tell his story to the jury, face to face.  The jury gets to look every witness in the eye to assess credibility.  In a disability case, the members of the jury get to see for themselves how sick or injured the claimant is.

→ In ERISA cases there is no jury trialA federal judge decides the case looking at the paper record.  The judge generally never lays eyes on the claimant.   It is difficult to evoke much sympathy by asking the judge to read a stack of paper.  If the insurer calls the claimant a liar, exaggerator or malingerer, the judge does not get a chance to assess the claimant’s credibility in person.

At trial, the claimant can call friends and family and treating physicians to the witness stand to explain the facts directly to the jury.

→ Friends and family cannot testify in ERISA cases.

The claimant’s attorney has the right to cross examine the insurance company witnesses (claims people, management, company doctors) to expose bias, half-truths, outright lies, and departures from accepted industry standards of conduct.

→ There is little, if any, opportunity to do this in ERISA cases.

In a traditional insurance case, the insured must only prove that he is “more likely than not” entitled to benefits

→ In an ERISA cases the judge cannot award benefits even if he finds that the insurance company got it wrong.  ERISA requires the judge to “defer” to the insurance company.  He must find the claim denial not only wrong, but also “unreasonable.”  In other words, the insurance company gets a finger on the scales of justice. 

In a traditional insurance case, if the jury finds that the insurance company has denied the claim in bad faith, it can add “bad faith” damages to the benefits under the insurance policy.  In Georgia, that “bad faith” damages mean a 50% penalty in addition to the benefits, plus the insured’s attorney’s fees.   In some states, “bad faith” exposes the insurer to punitive damages.  These damages acts as a strong deterrent to insurance company wrongdoing.

→ The final insult: ERISA “preempts” state law bad faith remedies.  Even if the judge finds the denial of the claim outrageous and in bad faith, the judge may only award the benefits the insurance company should have paid in the first place.   He can never award bad faith or punitive damages.

As you can see, ERISA creates little, if any, incentive for insurance companies to pay “close” claims (or some that aren’t so close).  If the insurance company loses, they simply have to pay what they should have paid long ago.  Don’t take our word for it; take from the UnumProvident, one of the biggest writers of ERISA-governed group disability benefits.  In a now-infamous internal memo, a high level executive noted that the Unum had recently paid out 12 claims totaling 7.8 million dollars.  He concluded that if the same claims had been governed by ERISA, Unum’s liability would have been “between zero and $0.5 million.”

Put in plain English, Unum executives were admitting that ERISA would allow them to get away with denying over $7,000,000.00 of otherwise legitimate claims, taking money away from their insureds and breaking the promises made in their policies.

In a 2010 law review article, University of Michigan Law Professor Andrew Stumpff concluded, not surprisingly, that employees are actually worse off for the enactment of ERISA – precisely the opposite of what Congress intended 35 years ago.

What Can We Do About It?

As you can see, ERISA is a real minefield for employees and insureds.  The news is not all bad, though.  An experienced attorney, hired early in the process, can help level the playing field.  For instance, an ERISA attorney should know of ERISA regulations enacted by the United States Department of Labor, holding insurance companies to very clear standards of conduct.  An experienced ERISA attorney should know how to make sure that the most compelling evidence makes its way into the insurance company claim file, so that it a federal judge later reviews the matter, the claim will get the judge’s attention. Having an attorney early in the process also lets the insurance company know that you intend to pursue your claim as far as it takes.

The Most Important Part of the ERISA Process Is Your Administrative Appeal. 

Now we can answer the question that started this discussion.  The Administrative Appeal is the most important part of the ERISA process because is your last chance to submit evidence in support of your claim.  No new evidence comes into the case during the lawsuit, unlike just about any other kind of lawsuit imaginable.  A properly presented administrative appeal can, and often does, persuade the insurance company to pay your claim.  If the insurance company still refuses to pay, the properly prepared “administrative record” becomes what the federal judge will review.  On the other hand, if a piece of evidence is missing from the insurance company claim file, it will not be part of the federal lawsuit.

If we have one piece of advice for ERISA claimants, it is to contact an ERISA attorney immediately after the claim has been denied, to give the attorney as much time as possible to help with the administrative appeal.  ERISA gives the claimant only 180 days to prepare the administrative appeal.  That is not very long to try to develop an entire “case-in-chief” on a complex disability or life insurance matter.  The longer a claimant waits to contact an attorney, the less chance we have of helping.  A claimants who tries to handle the appeal on his or her own almost always does irreparable harm to the case.

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If your claim has been denied, call us or use the form on the Contact page, and we can provided a free consultation.


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