1. Why different laws apply to group and individual policies and why it matters
A large majority of long-term disability insurance claims in the U.S., about 80%, are governed by the federal ERISA statute. With a few exceptions, ERISA governs all long-term disability insurance claims involving group insurance policies or plans which form part of a physician’s employee benefits package. Policies that physicians purchase individually on their own are not governed by ERISA. Whether or not ERISA governs a doctor’s claim matters, big time, long before any lawsuit is ever filed.
If the insurance company denies a physician’s initial long-term disability insurance claim governed by ERISA, the administrative appeal, and the federal court lawsuit that follows if the appeal is denied, is a complex minefield for the unfamiliar. Disability insurance companies and their attorneys know and understand how to use ERISA’s complexities to their advantage. But claimants, and often their attorneys, typically don’t until it’s too late.
Unfortunately, many claimants whose claims are governed by ERISA file administrative appeals unrepresented, or represented by attorneys unfamiliar with ERISA law. The result is often the permanent loss of a benefits claim that could, and should have been successful. Understanding the following will help you avoid unnecessary losses.
2. What the insurance company hopes you don’t know about federal ERISA law until it’s too late
One thing the insurance company hopes you don’t realize until it’s too late is the importance of the administrative appeal.
What makes the administrative appeal in an ERISA disability insurance claim so critical? Can’t I always file suit and get serious about building a case later in court if the administrative appeal is denied?
The simple answer is “no”, and that comes as a surprise to many after it’s too late.
What makes the administrative appeal so critical, is that the federal judge in the ERISA lawsuit that follows, cannot consider any evidence that was not made part of the administrative record during the administrative appeal process. So the administrative appeal is your only chance to gather, create and build the best evidence to support your case later in court. The evidence you submit during the administrative appeal process becomes part of that record that the court can later consider. Whatever case you build (or don’t) is carved in stone before you ever file suit.
That the administrative appeal makes or breaks your case cannot be overstated. It is during this process, before a lawsuit can even be filed, that most claimants lose without realizing it.
A brief overview of the life of an ERISA disability insurance claim, and how it’s so different, underscores the importance of the administrative appeal for its success.
3. What is so different about an ERISA disability insurance case?
The process starts when someone files an initial application or claim for disability insurance benefits, usually without attorney assistance, and receives a written denial of their claim by the insurance company.
THE CLAIM PROCESS
Disability insurance policies purchased by physicians on their own, independent of their employment, are not governed by ERISA. For individual disability insurance policies not governed by ERISA, if the insurer denies the claim, the claimant can go directly to state court and file a lawsuit. No "administrative appeal" to the insurance company is required, and there is no requirement that the lawsuit be filed in federal court. Normal state court procedure, including all typical discovery methods are available. The claimant has the right to a jury trial, and all parties can introduce traditional evidence, including live witness testimony. Bad faith penalty remedies are available under state law that are unavailable under federal ERISA law. Typical litigation.
THE ADMINISTRATIVE APPEAL
However, if the claim is governed by ERISA, as most are, a mandatory administrative appeal process is required by ERISA before a claimant can file suit to challenge a denial of benefits. The claimant must file the administrative appeal with the same insurance company that denied the claim. Then that same insurance company, which also must pay benefits if it reverses itself, decides whether or not to reverse itself and pay benefits – crazy but true.
WARNING 1:The deadline for filing an administrative appeal on a denied disability insurance claim is 180 days from the date of the written denial. Missing an administrative appeal deadline is as fatal to a claim as the passing of a statute of limitations with very few exceptions. Missing it means the claim is over, and the denial cannot be challenged.
If the insurance company again denies benefits following a timely administrative appeal (a very common outcome), the claimant can only then file a lawsuit, which must be filed in federal court. State court is without jurisdiction.
THE FEDERAL COURT LAWSUIT…
While beyond the scope of this guide, which focuses on the critical administrative appeal of a claim denial, a bit about the lawsuit that follows helps highlight the importance of the administrative appeal. An ERISA insurance claim lawsuit in federal court is different from others. It doesn’t follow the typical federal procedural path. Most federal district courts use special scheduling orders tailored specifically to the unique way ERISA cases reach court resolution.
ERISA has its own statutory venue rules. Discovery is restricted, really almost nonexistent. The parties have no right to a jury trial. No witness testimony is presented. The only “trial” at all is a trial on briefs referencing the administrative record filed with the court, either on cross-motions for summary judgment or simply motions for judgment on the administrative record.
The court reviews a denial under an “abuse of discretion” standard, requiring it to give great deference to the financially- conflicted insurance company’s decision. Courts have even upheld the insurance company’s administrative appeal decision while expressly stating that it is contrary to how the court would have ruled independently on the evidence.
Choice of venue and choice of law considerations are critical because they can impact the standard of review, as some states have laws prohibiting “abuse of discretion” review, and such laws apply in ERISA cases. Most of the governing substantive law, however, is either ERISA-specific or federal common law jurisprudence, with much disagreement on many issues among and even within federal court jurisdictions.
WARNING 2: But most important, and most pertinent to the impact of the administrative appeal, the federal judge in an ERISA case cannot consider any evidence that was not made part of the administrative record, during the administrative appeal process, before suit is filed.
The insurance companies and their attorneys know this. So they load the administrative record with evidence and reports of their own consulting “experts” favorable to their position in denying the claim.
Most claimants and many attorneys don’t know this. So most claimants and many attorneys file “administrative appeals”, but submit no supporting evidence beyond medical records. They basically argue how unfair the denial is after they paid policy premiums for years. The arguments may be true, but they are not “evidence” that the insurance company or the court must consider. Filing an administrative appeal this way does absolutely nothing to help the claim, and it’s exactly what the insurance company hopes a claimant will do. It wastes the claimant’s best and only opportunity to build the best case for reversal, either on administrative appeal, or in court if the insurer denies the claim again.
But you won’t make that mistake. Instead, you’re going to BUILD a great appeal systematically as follows.