THE SIMPLE ANSWER: ERISA
Actually it happens all the time, and nationwide. ERISA controls the vast majority of employer-provided benefits throughout the country, including life insurance, accidental death and dismemberment insurance and short and long-term disability insurance. Although ERISA was enacted to protect claimants’ rights, in reality and in practice, it actually gives insurance companies the upper hand over the victim pursuing a claim for insurance benefits. The insurance companies exploit the huge legal advantage given to them by the following features of ERISA’s stacked deck.
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THE INSURANCE COMPANY’S INHERENT CONFLICT OF INTEREST
The unfairness of ERISA begins with an initial claims process wracked with conflicts of interest. When a victim makes a claim, the initial decision to pay or deny it is almost always made by the insurance company itself, who obviously loses money by paying and profits from denying claims. After all, an insurance company’s entire business model is to maximize receipt of premium payments received from their insureds who think they’re buying protection, while minimizing what it pays in claims. Who wouldn’t expect rampant abuse in the form of unjust million dollar claim denials under such a model?
ERISA’S FAULTY ADMINISTRATIVE APPEAL PROCESS
If the insurance company initially denies the claim, a typical result, ERISA prohibits the claimant from filing a lawsuit until completing what the insurance company calls an “independent” administrative appeal. But who then decides whether to uphold or overturn the original denial at the administrative appeal level? You guessed it – the same insurance company. By “independent”, they simply mean different claims personnel of the same insurer that initially denied the claim. Do you think the claims personnel know the result their insurance companies, who write their paychecks want? The typical result is denial of the claim on administrative appeal.
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TWO WAYS THAT ERISA EFFECTIVELY TIES THE HANDS OF FEDERAL JUDGES WHO WANT TO BE FAIR:
FIRST, ERISA RESTRICTS THE EVIDENCE A FEDERAL COURT CAN CONSIDER AT TRIAL
After the insurance company denies the administrative appeal, ERISA allows the victim to file suit in federal district court. A federal district court judge ultimately conducts a “trial”, but one which is different than what most people would picture. Unlike most lawsuits, ERISA suits are not tried before a jury. Nor do any live witnesses testify. Instead, the trial evidence is limited to the “administrative record”. That is, the judge is only permitted to consider the same evidence the insurance company reviewed in the process of denying the claim.
The actual administrative claim file is filed into the court record, and attorneys representing the victim and the insurance company file trial briefs arguing the merits of their respective clients’ cases in light of ERISA law and the evidence in the administrative record. The district court judge reviews all of this, may or may not allow the attorneys to give oral arguments, and issues an opinion and judgment for either the insurance company or the claimant.
What this means for the claimant, is that the initial claim and administrative appeal process is critical to success. If he or she does not present important evidence to the insurance company during the initial claim or administrative appeal, the court is generally prohibited from considering it at trial. ERISA law can require that the judge completely disregard even evidence that it considers critical or outcome determinative if presented at trial if it was not made part of the administrative record before the claimant files suit.
For that reason, handling the initial claim and administrative appeal process properly before filing suit is crucial. The claimant’s ERISA attorney’s job is to assure that ALL evidence conceivably helpful to the claimant is gathered and made part of the administrative record before filing suit. Otherwise the judge cannot consider it when the case inevitably lands in court after the insurance company denies the claim.
SECOND, ERISA’s “STANDARD OF REVIEW” CAN FORCE JUDGES TO UPHOLD CLAIM DENIALS EVEN WHEN THEY THINK THE INSURANCE COMPANY WAS WRONG
In addition to ERISA’s constraints on the courts’ consideration of evidence, ERISA law in most cases requires that the court give “deferential review” to the insurance company’s decision to deny a claim. This often means that a judge must uphold a denial even if he or she thinks the insurance company was wrong, and even if he or she would have ruled the other way. It’s not uncommon for a judge to expressly state in a written opinion that he or she believes the insurance company was wrong for denying a claim, and that the judge would have ruled differently, but must rule in the insurance company’s favor because of ERISA’s deferential “standard of review”.
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