ERISA in the South – How Federal Courts Review Group Insurance Claims in Alabama, Florida, & Georgia
ERISA – The Employee Benefits Law
If you live in Alabama, Florida, or Georgia and participate in an employer-sponsored group disability plan, group life insurance plan, or other group benefits plan, there is a unique method that courts use to review appeals of denied group plan benefits. These group plans are covered under a federal law called ERISA, which stands for the “Employee Retirement Income Security Act.” If you file a benefit claim and it is denied, ERISA requires that you appeal the denial back to the same insurer that just denied the claim. These group insurers are called “plan administrators,” and if the administrator denies your appeal, your next appeal is a lawsuit. That lawsuit will wind up in federal court in most cases, and the law includes a mix of legal standards that you really need to know about before you ever file a claim. In ERISA claims, it is not a matter of just having the right claim forms or records to win. Depending on your employer’s plan, the standards that apply to ERISA lawsuits can mean that you have to prove much more than just having enough evidence to tip the scales in your favor.
Unique Law in the South – The Jurisdiction of the U.S. Court of Appeals for the Eleventh Circuit Court
Unlike any of the other federal Circuits, the U.S. Court of Appeals for the Eleventh Circuit has developed a six-step framework for analyzing an administrator’s benefits decision. The Appeals Court tells the lower trial courts (the District Court where your case would start) what to do. The Eleventh Circuit’s legalese explanation is found in a 2011 case, and it tells the District Judges which report to it that they must do the following to review an ERISA decision:
(1) Apply the de novo standard to determine whether the claim administrator’s benefits-denial decision is “wrong” (i.e., the court disagrees with the administrator’s decision); if it is not, then end the inquiry and affirm the decision.
(2) If the administrator’s decision in fact is “de novo wrong,” then determine whether he was vested with discretion in reviewing claims; if not, end judicial inquiry and reverse the decision.
(3) If the administrator’s decision is “de novo wrong” and he was vested with discretion in reviewing claims, then determine whether “reasonable” grounds supported it (hence, review his decision under the more deferential arbitrary and capricious standard).
(4) If no reasonable grounds exist, then end the inquiry and reverse the administrator’s decision; if reasonable grounds do exist, then determine if he operated under a conflict of interest.
(5) If there is no conflict, then end the inquiry and affirm the decision.
(6) If there is a conflict, the conflict should merely be a factor for the court to take into account when determining whether an administrator’s decision was arbitrary and capricious.
Blankenship v. Metropolitan Life Insurance Company, 644 F.3d 1350, 1355 (11th Cir. 2011).
Why is this unique? No other Circuit Court in the country requires a judge to first determine whether the ERISA plan administrator (usually the insurance company in a disability insurance or life insurance claim) was wrong. No other Circuit lays out a step-by-step test like this, nor does any other circuit break up the analysis into component parts. No other circuit separates out how an insurance company’s conflict of interest impacted its decision in this way, particularly leaving it until the end of the analysis.
NOTE: It is for another day to talk about whether the Eleventh Circuit’s method is good or bad. The purpose of this article is to inform people about these standards, so employees making ERISA claims can be educated from the day they file their claim.
Let’s evaluate what these steps mean for you when you make a group benefit claim:
Step 1 – The Evidence Must Show that You Are Entitled to the Benefit
It goes without saying, but you have to provide evidence to the insurance company or plan administrator that you are entitled to the benefit. In a disability case, you have to give them evidence that proves you are disabled. In a life insurance claim, you must prove you are the the insured person in fact has died, and you are the beneficiary. This seems obvious, right?
In court, it is not so obvious. If your claim is denied, that means the insurance company created or gathered evidence which says the opposite of what you are trying to prove. They have something saying you are not disabled or not entitled to the life insurance benefits. In your disability case, the disability insurer may have a doctor review your file who says that you do not have any serious impairment or any limitations from your conditions. Perhaps there is a competing beneficiary in a life insurance case.
The judge has to weigh the evidence at Step 1 and decide if the scales tip in your favor. This is called “de novo” review. De novo comes from Latin, and it means “starting from the beginning” or anew. The judge is taking a fresh look at the evidence to decide whether the overall evidence shows that you should have won, and the insurance company was wrong. If the judge’s fresh look leads he or she to conclude the insurer was correct, then you plainly lose. However, if the scales tip in your favor (more than 50% of the evidence proves your claim), that does not mean you win…it just means your case stays alive and that the judge moves on to Step 2.
Step 2 – The Judge Has to Decide if the Plan Gives the Administrator “Discretion”
Whether your employer’s ERISA plan gives “discretion” to the administrator that decided your claim has a major role in how your case gets decided. “Discretion” is a magic word in the law. You can translate it to mean “ultimate power that can only be changed if shockingly abused.” That is not the textbook definition, but it really is what means.
The Eleventh Circuit requires judges to study the ERISA plan for language that gives an administrator discretion, because that impacts how much the judge has to defer to the administrator’s decision. An administrator with deference can be 99% wrong in some judges’ eyes, yet they still win, because they did not completely abuse their power. In fact, there are many ERISA cases that say that an administrator that is wrong still wins, unless their decision is totally unreasonable. That is a pretty low bar for them to meet.
Keep in mind that the company or person that decided your claim has to be the one named in the plan as having the discretion. Occasionally, a plan names one company, yet another one makes the decisions. That is not enough to be granted discretion.
The judge in your case has to find language that a) literally says the administrator which made the decision has “discretion” to make claim decisions, or b) says enough similar words to convey the same power. Read below in Step 3 for how discretion given to your administrator impacts the level of proof you must have to have to win your case.
Step 3 – If the Administrator Has Discretion, the Judge Has to Decide if There Is Any Factual Basis for the Decision
If the judge finds language which he or she believes gives the group plan insurer or administrator discretion over claims decisions, it completely changes the playing field. It changes it so much that disability insurance companies and life insurance companies fight tooth and nail to prove that group plans grant them discretion. If a judge says that your benefit plan’s group insurer or administrator has discretion, your burden of proving your case just got much harder.
Recall at Step 1, the judge was checking the evidence to see if you could just tip the scales your way. There, you just had to show that you have enough evidence overall to prove you should have won and the insurer’s denial was wrong. However, at Step 3 in the Eleventh Circuit’s ERISA standard of review process, you no longer just have to tip the scales in your favor a little bit; you must show that the administrator had nothing reasonable they could have hung their hat on to deny you. Picture the scales of justice having to slam down under the weight of all of your evidence, not just tipping your way.
Some people put it this way: you have to show that the administrator had no real facts to rely on when they denied you. You can do this many ways. Some of those ways include proving:
- the insurer twisted the evidence and stated that it said something it did not;
- the insurer ignored evidence that a reasonable person would have considered overwhelming in your favor;
- the insurer favored their own expert’s opinion over testing or other scientific evidence that proves your claim;
- the insurer did something that tainted the decision, such as feeding evidence to their experts that misstated the evidence;
- the insurer made up evidence; and
- the insurer failed to get experts that were legally qualified to give opinions or their adjusters made medical decisions for which they were not qualified.
If you cannot show that the administrator was totally unreasonable in relying on the facts that it used to deny your claim, you will lose in court. Another way to think about it is to consider the standard in criminal cases – beyond a reasonable doubt. Though that is not the standard here, picture a judge applying that standard like a criminal jury would. The judge has to look at your case, and think that beyond ANY reasonable doubt, the insurance company was wrong when it denied your claim.
Just being wrong is not enough. The disability insurance or life insurance company has to be OVERWHELMINGLY wrong. Some judges think this means that they have to be so wrong that no reasonable person could keep a straight face and avoid laughing at their decision.
Step 4 – The Judge Must Reverse the Administrator’s Decision if There was No “Reasonable” Basis to Deny the Claim. But if There Was a “Reasonable” Basis, the Judge Looks to See if the Administrator Had a Conflict of Interest.
If the judge decides the insurance company was unreasonable, then you win. If you show that the evidence is so overwhelming in your favor or the insurer did something that was over the top unreasonable, the judge has to find in your favor. Unfortunately, that is such a high hurdle to jump that statistics in the federal court system show that this happens about once out of every 5 cases. That means there is around 20% chance of winning when a plan granted discretion to the administrator.
If the judge thinks the administrator was reasonable, he or she must then evaluate whether they had a conflict of interest. The most obvious conflict of interest is the fact that most insurance companies are paying the claims for disability and life plans out of their own money.
Step 5 – If No Conflict, a Reasonable Decision is Upheld.
Sometimes, an administrator is not an insurer. They may be a hired third party administrator which gets paid a flat fee for each claim. They may be a committee of people from outside companies. If the facts show that the claim decision-maker had no conflict of interest and the decision was reasonable (again, based on some reasonable, even if not totally correct evidence), the judge upholds the denial and you lose.
Step 6 – If There is a Conflict, the Judge Must Factor That in and Decide if the Administrator Acted “Arbitrarily and Capriciously”
In those cases when a conflict of interest exists, a judge has to weigh that factor in. It may be structural, such as the insurance company company which pays its claim from its own assets. It may be actual, such as the insurance company adjuster who gets a big bonus when his division makes more money or wins a competition in her division for who can cut off the most claims in a quarter. No matter the facts, the judge has to weight he conflict to see if it influenced the decision.
These days, insurers have gone to great lengths to cover up the impact of conflict in their decisions. Our lawyers have literally taken depositions of adjusters who claimed that they had no idea how their bonus was computed or what factors went into their bonus. Imagine working for a company where you had no idea how you could earn a bonus, or whether you would get a bonus if the company was profitable. We have also heard adjusters say that they did not know that their 401k would grow if their company’s stock price went up, when they held their own company’s stock in their 401k. To not know that your company’s stock price is either ludicrous or ignorance. Most of these people are college educated, but they still testify to things like this.
At the end of the day, do not count on a judge deciding that the life or disability insurance company had a conflict that caused them to deny your claim. Win the case with overwhelming evidence, and you do not need to worry about their conflict.
Takeaway – Why You Must Know This Before You File Your Claim
Most people think that if they fill out the claim forms and send them in, they can win a disability or life insurance claim. Not so. The insurance company that administers your group’s plan is looking at your claim trying to decide if they can get away with denying it. If they have discretion under your employer’s ERISA plan, they get leeway that they would not have if you had private insurance or if the plan did not give them discretion. When they have discretion, the level of your proof rises up. You have to go far beyond just sending them forms. You may need expert reports from different types of experts. You may need witness statements from non-experts. You may need other types of documents to prove your claim. Think of it like directions on a map. If you did not have the map or the directions, you would never know how far you have to go. And in an ERISA case, you may have to go on a long journey to make an insurance company pay you the benefits that are rightfully owed to you.