What Does Erisa Have to Do With Insurance?
| Citation | Vol. 14 No. 7 Pg. 0018 |
| Pages | 0018 |
| Publication year | 2009 |
by Michael J. Hannan III
ERISA is the Employee Retirement Income Security Act of 1974.[1] Congress enacted this law in order to create uniform standards of conduct, responsibility and obligation for fiduciaries in employer-provided benefit plans, such as insurance-funded retirement, health, life/AD&D and disability plans, and to provide appropriate remedies, sanctions and access to federal court for claimants.[2]
With regard to claims filed under such plans, ERISA takes issues that used to be governed by insurance and contract law and places them in the context of trust law. Employers who sponsor and/or administer ERISA plans, third-party plan administrators (TPAs), insurers, reinsurers and reinsurance managers who insure and/or have the discretion or responsibility to administer ERISA plans (and decide claims) are no longer subject to the remedies provided under common law contract principles should they breach their duties.[3] Instead, they are plan fiduciaries (the trustees) for the administered ERISA plans (the trusts) and are given a variable level of discretion to administer their duties. Thus, insurers are held accountable as fiduciaries to an ERISA plan, not as parties to a contract.
The degree of scrutiny given decisions made by ERISA fiduciaries has been the subject of enormous litigation, with a significant U.S. Supreme Court decision having been handed down last year.[4] In addition, the regulations placed upon ERISA fiduciaries by the Department of Labor for reviewing claims and providing claimants with fair notice of a decision have been tightened in recent years. By contrast, the remedies available to a claimant who is denied benefits under an ERISA plan have been well-settled since the 1980s.
This article is an overview of how ERISA affects the aggrieved insurance claimant. The lawyer who takes the case may think that there is a state law claim for breach of contract, when often this is not the case. The lawyer has to determine whether the claim is preempted and governed by ERISA.
Read the Policy or Certificate of Coverage
The first step in this regard is to check to see whether the policy is a group policy issued to a private employer. This should be on the face of the group policy, a certificate of coverage or a plan booklet that is distributed by the employer at the time of enrollment. ERISA governs only private employers or employee organizations. Any governmental organization, such as a state agency, is exempt from ERISA.[5] Likewise, any church or religious organization that offers group benefits is exempt from ERISA.[6]
Make sure that it is not an individual or supplemental policy, such as when an independent insurance agent arrives at the place of employment to take individual and voluntary applications for supplemental benefits not routinely provided by the employer. To determine whether such a plan is exempt from ERISA, one must check to see whether the plan satisfies ERISA's "safe harbor" provisions.[7] If the employer-purchased insurance does not satisfy the safe harbor provisions, and the employer is a true "plan sponsor,"[8] confirm that the policy satisfies the requirements of an "employee welfare benefit plan."[9]If so, ERISA governs the claim. Next, the lawyer must check the status of the claim.
Make Sure That Administrative Remedies Have Been Exhausted Before You File Suit
Read the claim denial letter from the insurer. It has to comply with ERISA's statutory and regulatory requirements concerning a full and fair review.[10] It should also have been sent within 15 to 90 days of receipt of the claim, depending on what kind of insurance and claim are involved, e.g., healthy vs. urgent care, or life vs. disability.[11]In appropriate cases, the insurer can obtain an extension in order to issue a decision.[12] If the letter is procedurally proper in content and timeliness, a claimant has 60 to 180 days to "appeal" the decision to the insurer, again depending on the type of insurance involved.[13] If you file suit before the appeal has been pursued, your case will likely be dismissed without prejudice or remanded by the trial court to the employer/administrator/insurer to re-review the case.[14] If you need time to gather more information to submit to the administrator or insurer, ask for additional time. Absent unusual circumstances, an insurer/claims administrator must decide appeals of denials of claims within 45 to 60 days, again depending on the kind of insurance and type of claim involved.[15] Claimants should know that they are entitled to submit new information not available at the time that they initially submitted their application.[16]
During the administrative appeal, your client has the right to demand certain information from the employer/ administrator/ insurer, including a complete copy of the claim file maintained for your client, a copy of the pertinent policy provisions being applied to that claim and any internal guidelines, manuals and procedures used to assist the employer/administrator/insurer in administering the claim.[17] If you do not receive any such requested information, such as the claim file, you may be able to recover a statutory per diem penalty for any delay in receiving such information.[18] Seasoned ERISA claimants' lawyers have learned to submit as much as they can on appeal so that it becomes part of the "administrative record." Building up the "administrative record" will be important for your client because, in many cases, it will provide the sole foundation for the trial court's review of a denial of the claim on appeal.
What To Do When the "Uphold" Letter on Appeal is Received
Such a letter, whether it be from the employer, TP A, insurer, etc., will advise you that it is unable to reverse the decision on appeal. At that point, you have exhausted your administrative remedies, and you can now file suit. If the insurer does not reach a decision on the appeal within the prescribed time limits, even after requesting extensions, this can be a constructive denial of the appeal, which used to be called a "deemed denial."[19] If this occurs, or the claimant otherwise feels that she did not receive a full and fair review of her claim, you can file suit.
You do not have to file suit initially in federal court. ERISA confers "concurrent jurisdiction" on claims for benefits under ERISA upon both federal courts and state courts, with equal original jurisdiction.[20] ERISA allows civil actions to establish your clients' rights to benefits under the plan (declaratory relief), to obtain payment of previously denied benefits (injunctive relief) and to compel plan fiduciaries to act accordingly.[21] For these reasons, you can file suit in the superior courts of Georgia because they have equity jurisdiction.
What Remedies are Available?
If you wish to avoid a motion to dismiss your complaint in whole or in part, you should plead only those remedies specifically allowed under ERISA's civil enforcement statute, 29 U.S.C. § 1132. These remedies are payment of accrued benefits through date of judgment,[22] any injunctive or declaratory relief needed to enforce your client's rights[23] and attorney's fees and expenses of litigation.[24]
Recovery of pre-judgment interest on benefits under ERISA has been a topic of recent decisions. ERISA itself has no pre-judgment interest provision. Although the U.S. Court of Appeals for the 11th Circuit initially left such an award to the discretion of the trial court, it subsequently held that, in general, pre-judgment interest is not recoverable unless it is expressly specified as a benefit under the plan.[25]In response, some district courts have allowed such a recovery on claims for benefits because the courts may award "other equitable" relief under 29 U.S.C. § 1132(a)(3).[26] Indeed, the 11th Circuit has left the door open to recovery of interest under that specific theory.[27] In a case where interest is awarded, state law provisions for the amount of interest to be used can be "borrowed" to fashion ERISA "common law."[28]
Remedies under state law, such as punitive damages or other extra-contractual damages, are preempted. There are two kinds of ERISA preemption: (1) "complete" or "super" preemption; and (2) "conflict" or "defensive" preemption.[29]Complete preemption creates the federal subject matter jurisdiction for the federal courts under 28 U.S.C. § 1331, which is why the usual defense practice is to remove the case to federal court. The 11th Circuit has established a four-part test to determine whether complete preemption exists.[30] Defensive preemption is what leads to the limitation of remedies.[31]
Why are the Remedies So Limited?
This is because of ERISA's preemption of all state law claims that could be considered an "alternative enforcement mechanism,"[32] e.g., O.C.G.A. § 33-4-6 and common law claims for breach of contract. ERISA's broad preemption was specifically intended by Congress. ERISA's preemption clause provides that its provisions "shall supersede any and all state laws in so far as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and are not exempt under section 1003(b) of this title."[33]
Congress did not define the phrase "relate to" in this statute. As the 11th Circuit has pointed out, "it has fallen to the courts to deduce Congress' intent and to apply this interpretation into the facts of each case that arises."[34]The U.S. Supreme Court and the 11th Circuit have consistently given "relate to" a broad, common-sense meaning: A state law claim having any "connection with" or "reference to" an employee benefit plan gives rise to ERISA preemption.[35] A state law may "relate to" a benefit plan, and thereby be preempted, even if the law is not specifically designed to...
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