Fort Lauderdale life insurance lawyer summarizes ERISA-based life insurance claims
Fort Lauderdale life insurance lawyer summarizes ERISA-based life insurance claims
In this article we discuss life insurance claims which are based on ERISA.
What is ERISA?
ERISA is a federal law which governs employer-based benefit plans. It stands for the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA is codified under 29 U.S.C. §1001 of the US Code.
In the practical world, many individuals who are employed receive critical benefits through their employers. These benefits may come in the form of health insurance, disability, and life insurance. These employer-based benefits will normally be administered through a “plan” that is established or maintained by the employer. The law of ERISA generally governs these employee benefit plans, as well as the manner in which benefit claims will be processed by the plan administrator.
Let’s say your family member has been employed with XYZ Company in Broward County for many years. As an employee, this family member is a participant in XYZ’s employee benefit plan. One of the benefits provided for under the plan is life insurance. Assume you are the beneficiary of the life insurance given under the plan. If the family member passes away, you, as the beneficiary, would submit a claim for the life insurance benefit to the plan’s administrator. In such a scenario, ERISA would most likely govern the claims process.
Importantly, ERISA does not govern all life insurance claims. Generally speaking, life insurance policies which are not employer-based will be governed by state contract law, such as Florida law.
ERISA Benefits Claims Procedure
We now turn to some of the nuts and bolts of the ERISA claims procedure. ERISA regulations generally require employee benefit plans to establish and maintain reasonable procedures by which benefit claims are to be administered. The process starts with the filing of a benefit claim with the plan administrator. The “plan administrator” is generally the person or entity who administers the claims process. Typically, the plan administrator is the insurance carrier who is ultimately responsible for paying out the life insurance benefit.
If the claim is denied, the plan administrator must notify the claimant of the plan’s adverse benefit determination within a reasonable period of time, but not later than 90 days after receipt of the claim. However, according to ERISA regulations, the 90-day period may be extended by the plan administrator if special circumstances require an extension of time for processing the claim.
Assuming the initial claim is denied, the plan administrator must provide written notice of the denial to the claimant. The notice must contain, among other things, the specific reason for the adverse determination, a reference to the plan provisions on which the determination is based, and a description of the plan’s administrative claim review procedures.
Once the claim has been denied the claimant has an opportunity to file an appeal with the plan administrator. Per ERISA regulations, an employee benefit plan is required to provide the claimant with a full and fair review of the adverse benefit determination. The claimant will have at least 60 days following his or her receipt of the claim denial within which to submit the appeal.
It is very important for the claimant to go through the appeals process. Otherwise, if the claimant ignores the appeals process, he or she could potentially lose his or her substantive right to file suit in Court later on.
During the appeals process, the claimant will have an opportunity to make his or her case to the plan administrator. The claimant will be permitted to submit a written statement, documents and other records to the plan administrator for the latter’s review and consideration. Upon review, the plan administrator must notify the claimant of the plan administrator’s decision on appeal. If the plan administrator affirms the denial of the claim, the plan administrator must give written notice to the claimant which includes the specific reason for the adverse determination, reference to the specific plan provisions on which the determination was based, and a statement that the claimant has the right to bring action in court under the statutory provisions of ERISA.
Filing Suit under ERISA
Let’s assume that your appeal was not overturned. Once the claims procedure has been exhausted the only alternative available to the claimant is to file suit. Essentially, the claimant is seeking to recover an unpaid benefit. ERISA law provides for a statutory basis under which the beneficiary can sue the plan administrator to recover the unpaid benefit, that is, the life insurance. As we discussed above, the plan administrator is typically the insurance company. Specifically, under 29 USC §1132(a)(1)(B) of ERISA, a beneficiary may sue to recover benefits which should have been paid under the terms of the employee benefit plan.
In a nutshell, the beneficiary’s case theory would be that the plan administrator (probably the insurance company) wrongfully denied the claim; in so doing, the plan administrator violated the terms of the employee benefit plan.
ERISA actions are usually heard in federal court. Even if an ERISA action is filed in state court, which can be done, the attorneys for the defendant will normally remove the case to federal court anyway. Thus, if the claimant resides in Dade, Broward, Miami or Fort Lauderdale, the claimant’s case will likely end up in the United States District Court for the Southern District of Florida, which is federal court.
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ERISA Legal Standard
Let’s assume your ERISA claim ends up in court. How does the Court review the case? What is the legal standard that will be applied by the Court?
There are two differing legal standards which could be applied by a court in an ERISA case: the de novo standard of review and the deferential standard of review. Each standard of review will allow a different level of evidence that can be admitted in your case. From the claimant’s point of view, generally speaking, the more evidence he or she can admit to the court the better.
The de novo standard of review is usually more favorable to the claimant. This standard allows the court to review the case with a “clean slate” so to speak. The de novo standard is not limited to the administrative record, but allows the claimant to present facts which are outside of the administrative record for the court’s review. The “administrative record” is the material that was developed during the claims process. More specifically, it refers to the information and materials which were compiled and presented to the plan administrator for his or her decision during the appeals procedure. The administrative record will close at the conclusion of the appeals process.
As stated, de novo review will allow the court to consider facts that were not necessarily before the claims administrator. So, this openness to the admission of evidence will afford wider latitude to the claimant to make his or her case. In addition, the de novo standard of review involves a more simplified legal analysis for the court. The court will determine, under the de novo standard, whether the plan administrator’s decision was “wrong”. If the plan administrator’s decision was wrong, the judicial inquiry is over, and the court will reverse the decision in favor of the claimant.
The de novo standard of review will be applied by the court, unless the court determines that the plan documents have vested the plan administrator with discretion to determine eligibility for benefits or to interpret the plan’s terms. If the plan administrator has been vested with such discretionary authority, then the deferential standard of review will apply to the case.
The deferential standard of review is generally less favorable to the claimant. This standard of review essentially requires a more rigorous six-step analysis which must be applied by the court to assess the claim.
Why is this standard of review considered “deferential”? Because, in practical terms, the court will give wider latitude, or “defer”, to the plan administrator’s decision which was made during the appeals process, that is, before the lawsuit was filed.
The court in Capone v. Aetna Life Insurance Company, 592 F.3d 1189 (11 th Cir. 2010) lays out the six factors which are considered by a court in applying the deferential standard of review. The six steps are summarized as follows:
First step: The court applies a de novo standard of review to determine, at first blush, whether the claim administrator’s decision to deny benefits was wrong. In this step, the court will assess whether it agrees or disagrees with the administrator’s decision after the court reviews the plan documents and the administrative record. If the court agrees with the administrator’s decision, based upon the court’s review of the administrative record, the court will end the inquiry and affirm the prior decision.
Second step: If the court determines that the claim administrator’s decision was, in fact, wrong, the court must proceed to the second step. Here, the court must determine whether the claim administrator, under the plan documents, was vested with discretionary authority to review claims. If the court concludes that the plan administrator was not vested with such discretionary authority, the court will end the judicial inquiry and reverse the claim administrator’s decision in favor of the claimant.
Third step: If the court determines that the claim administrator, based upon the plan documents, was vested with discretionary authority to make claims decisions, the court will then act more like an appellate tribunal than a trial court. In such a situation, the court will evaluate whether the administrator’s decision was “reasonable” in light of the administrative record. Importantly, the court’s inquiry in this instance will be limited to the facts known to the claim administrator at the time that their decision was made.
Fourth Step: If the court determines that the claim administrator’s decision was not reasonably based, then the court will end the inquiry and reverse the administrator’s prior decision. If, however, the court determines that there were reasonable grounds to support the administrator’s decision, even if the court disagreed with it, the court must then determine if the administrator operated under a conflict of interest. The plan administrator operates under a “conflict of interest” when he is essentially acting in a dual role. Accordingly, if the plan administrator both makes the claims decision and is also responsible for paying the benefits claim from out of its own pocket, then there is a conflict of interest. In practical terms, a conflict usually arises where the plan administrator is the insurance company.
Step Five: If the court determines that the administrator has no conflict of interest, then the court will end the inquiry and affirm the administrator’s decision.
Step Six: If the court determines that the administrator had a conflict of interest, case law in the Eleventh Circuit provides that the claimant may attempt to prove that the conflict improperly influenced the administrator’s decision. If the participant is able to prove to the court that the administrator’s conflict improperly influenced the decision, the court will reverse the administrator’s decision. Otherwise, the decision will be upheld by the court.
As discussed above, whether or not the de novo or deferential standard of review applies in a life insurance ERISA case will depend upon a careful review of the plan documents. But, even if the “less friendly” deferential standard will apply to a claimant’s case, it does not mean that the claimant will lose their case. Rather, it could mean that the claimant will be faced with some more challenges along the way to, hopefully, a successful result.
If you have any questions, please contact Fort Lauderdale life insurance lawyer Joe Rosen for a thorough, no cost consultation about your life insurance matter.
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