Disability Insurance Claims

Recently, we told you about how insurance companies got themselves into trouble in the ‘80s by inventing a new kind of policy – the “own occupation” policy. It’s designed to pay out if someone becomes disabled and can’t perform their job duties, but insurers made it so specific that an anesthesiologist can still collect if she’s working as a different kind of doctor, and a trial lawyer might be able to litigate and get benefits as long as he wasn’t trying cases in a courtroom.

They thought that they’d be able to make money from these because rates at the time were so high, but when those rates fell and people started filing claims, they were in big trouble. To cover their losses and protect their businesses, many insurers came up with plans to cut costs that involved finding ways to cancel more policies and deny more claims.

The point of an insurance policy is that it pools – and therefore dilutes – the risk of having something bad happen. For policyholders, this means that you pay into a plan slowly over time so that you won’t be financially ruined if you suffer from a serious medical problem at some point. Just file a disability claim. Of course, insurers are only able to cover the costs of these calamities because they have a large pool of people paying regularly. So it sort of makes sense that insurers would need to raise rates when more people make claims and collect benefits – their job is to maintain enough funds so that no one’s coverage is ever in jeopardy.

But what about when the insurance company gets themselves into this problem due to their own over zealousness actions or lack of foresight? Should policyholders still have to pay for their mistakes? You might not have an option one way or another.

More and more over the past several years, states have been trying to fight back against one of the more frustrating inclusions to ERISA policies. What is this inclusion? It’s called a discretionary clause, and basically it’s language in the policy that says insurers have sole discretion in construing the terms of the plan when they’re deciding whether or not to award a claim.

In theory, states still have the power to regulate insurance policies for their citizens, but their recent attempts to get rid of these discretionary clauses have proven to be less than successful so far. Why are discretionary clauses so important?

Recently we told you about how your lawsuit against your insurer can be “preempted” by ERISA if the type of policy you have falls under the guidelines for that law. This means that your case would be pulled out of a normal state court and tried in a federal one where the laws are far less friendly towards people fighting against insurance companies behaving badly.

Obviously, this is not something that you want, but there isn’t much you can do to keep it from happening. Whether or not a lawsuit will be tried under ERISA depends wholly on the type of policy that you have, and far too few of them in the US are exempt from ERISA.

Most people don’t know that they have an insurance policy that’s covered under ERISA law until they experience a problem with their insurer and decide to try to fight a denied claim. Instead of being allowed to sue for bad faith and get damages above and beyond what their policy is supposed to cover like someone with a non-ERISA plan, their case will be “preempted” and forced into courts that handle ERISA matters.

This means that that the actions available to you will become far more limited – as will the amount that you can expect to get if you win your case. ERISA regulations only call for claimants to get the original benefits that they were entitled to under their policy and possibly have the insurer cover the cost of their long term disability lawyer. But what about your pain and suffering? What if the insurer deliberately denied benefits they should have paid? Shouldn’t they be punished for their actions above and beyond what the policy calls for – and you rewarded for taking them to task? Not under ERISA.

ERISA insurance plan recipients who have been following me for any length of time probably know that they don’t have as many options available to them in regards to suing their insurers. You can’t punish them for acting in bad faith. You can’t get damages. You can’t sue for pain and suffering.

In fact, the only thing that you can really expect if you win your appeal is to get the benefits you should have gotten in the first place and (if you’re lucky) have the insurer pay your legal costs. Still, there are several different codes defining the “remedies” that are available to you, and if you’re considering filing an appeal it’s important that you understand them ahead of time.

If you have an insurance plan covered under ERISA law – and you do if your long term disability insurance comes through your employer – then there’s a “standard of review” that courts have to use when they look at the internal review decisions made by plan administrators. This review is something that you’re entitled to if you’ve gone through the internal review process and you don’t agree with the results, and typically there are three ways that courts go about reviewing administrators.

It’s not uncommon for someone with an insurance plan covered by ERISA to have their claim denied. What’s less common is understanding how ERISA works and how you’re supposed to appeal your insurance provider’s decision when you don’t agree with it.

Despite the fact that the vast majority of Americans have insurance plans covered under ERISA (due to the fact that their plans come through their employer), precious few have any real understanding of the law. Case in point: most think that if their insurer behaves badly in denying a claim, they can take them to court and sue their metaphorical pants off. Sadly, that’s just not true with ERISA plans. The best you can hope for is to get them to pay the benefits you should have received in the first place and hopefully cover the cost of your attorney.

It’s not just the outcome that will be different, either. If you’re going to appeal a denial on an ERISA-covered plan, you need to know what steps to take.

If you’re having trouble with your employer-sponsored health plan for a long term disability issue, you’re not alone. Lots of Americans have their claims denied or receive confusing answers from their insurers, and because they don’t really understand how a health plan covered under ERISA law works, they often don’t know what to do to fix the problem.

That’s why I decided to break down the basics of how most plans under ERISA are set up. It’s not going to make you an expert, and you definitely still want to work with an attorney if you need to file a lawsuit against your insurer, but hopefully it will at least make some things clearer.