What Is ERISA? Why Is It So Bad?

By Scott E. Davis, Disability Attorney

ERISA is the acronym for the Employee Retirement Income Security Act of 1974.  ERISA is a very broad, far reaching and complex federal law that governs every American employee’s benefits at their workplace.

Since it is federal law, ERISA supersedes and replaces state law, even though your state law may provide you with more consumer protections than ERISA does.  Over the course of the last four decades, a law that was initially meant to provide protections to American workers has become employer and insurance company friendly while providing few obvious protections for American workers.  While ERISA does charge your insurance company or employer with a fiduciary duty to administer your employee benefits in a full and fair manner, the reality is, this does not occur.

Many states require your insurance company to treat you with good faith, meaning they have a duty to investigate claims and pay them in a reasonable timeframe and manner, if they are legitimate.  If the insurance company does not do so, many state laws allow the insured to sue the insurance company for bad faith and to seek punitive damages.  This consumer protection is critical because it keeps the insurance companies honest.

Because your insurance company has a conflict of interest in making the decision in your claim and also paying you the benefits, it has an incentive to deny the claim to save money with literally no concern about a financial penalty.

With a duty of good faith and fair dealing, and a potential punitive damage claim, insurance companies are concerned about getting sued and potentially getting hit with a big jury verdict for the way they treated you.  Unfortunately, under ERISA, there is no duty of good faith and fair dealing and there is no punitive damage claim.  In essence, you have no way of making sure the insurance company treats you fairly under ERISA.  Because your insurance company has a conflict of interest in making the decision in your claim and also paying you the benefits, it has an incentive to deny the claim to save money with literally no concern about a financial penalty.

ERISA is also a bad law because you will never have the right to have a jury hear your case.  The right simply does not exist under ERISA.  Your lawsuit must be filed in federal court because ERISA is federal law and the case will be heard exclusively by a federal judge who will make a decision about whether the insurance company was wrong when it denied your claim.  The decision will be based solely on the evidence that was submitted to the insurance company before the lawsuit was filed.  You will not have the ability to submit new evidence once your case is in court and a judge will never hear you testify about your medical problems and why you are unable to work.  In addition, federal court judges are often more conservative and may be less skeptical.  ERISA is also bad because after all of the things that the insurance company may have put you through, the most they will ever owe you is what your monthly disability benefit is.

Discretionary language allows the insurance company to be the sole determiner of whether you are entitled to benefits and although the decision is subject to review by a federal judge, people are often shocked to learn that a federal judge is not there to second guess the decision, nor is the federal judge there to determine whether they agree with the decision. 

Disability policies that are governed by ERISA are almost universally insurance company friendly because they contain discretionary language.  What is discretionary language?  Buried deep in your disability policy will be a seemingly harmless sentence which states, “Your insurance company has discretion to determine who is eligible for benefits.”  Nobody ever reads this sentence and if they do, they do not understand that it is the explanation for practically everything the insurance company is allowed to do in their claim.  Discretionary language allows the insurance company to be the sole determiner of whether you are entitled to benefits and although the decision is subject to review by a federal judge, people are often shocked to learn that a federal judge is not there to second guess the decision, nor is the federal judge there to determine whether they agree with the decision.  Under discretionary review, a federal judge can only reverse the decision if they find there was an abuse of that discretion which is a very easy standard for the insurance company to meet.  Incredibly, no matter how wrong you think the decision may have been, a federal judge will uphold the decision if it finds a “reasonable basis” for the decision.  Armed with discretionary language, the insurance company simply needs to provide enough evidence to show there was a reasonable basis for the denial.

A common tactic or strategy in ERISA disability claims is for the insurance company to refer your file to an alleged independent medical doctor who will review your medical records and render an opinion as to whether or not you are unable to work.  In my experience, these medical reviewers are often not independent or impartial and frequently review disability claims for insurance companies.  Simply put, they know who is buttering their bread.  These physician reviewers frequently ignore treating physician’s opinions and statements about your ability to work, even though they have never seen you, and arrive at different conclusions that may go against all the evidence in your case.  Many insurance company denials will simply recite their reviewing doctors report, regardless of what your physicians may have to say, and deny the claim.  All too often, armed with their physicians reports, the insurance companies may have enough evidence to show a reasonable basis for their denial.

ERISA is also bad because many of the common protections that Americans enjoy in our justice system do not exist under ERISA.  As mentioned, there is no right to a jury trial – a jury of your peers will never hear about all of the things that the insurance company did when it denied your claim.  Other rights individuals have in our court system, such as engaging in discovery to learn information about how the insurance company decided your claim, conflicts of interest that behind the scenes may have resulted in the denial of your claim that you were never told about, there is limited discovery in federal court in ERISA cases.  Simply put, it is difficult to get the goods on the insurance company.  Another problem is, under ERISA, you will not be able to submit additional evidence in federal court that was not already submitted to the insurance company when it made its final denial.  In other words, you have little to no ability to develop your case and submit evidence in federal court.  Whereas, in any other legal venue, individuals can always submit evidence, even after a lawsuit has been filed.

ERISA is bad because it provides very few consumer protections and instead, in practice, protects insurance companies and employers.  Insurance companies and employers are aware of this protection and they may have an incentive to deny legitimate claims without fear of financial penalty.

In summary, ERISA is bad because it provides very few consumer protections and instead, in practice, protects insurance companies and employers.  Insurance companies and employers are aware of this protection and they may have an incentive to deny legitimate claims without fear of financial penalty.  It is important you understand this fact the first time the insurance company denies your claim so that you can retain a knowledgeable ERISA attorney who can help you navigate your claim in order to get your benefits paid.  Contact us at (800) 588-1710 before you file a claim so that we can guide you through your ERISA disability claim and help you avoid having it be denied.

© 2015  Scott E. Davis, Disability Attorney