No Bad Faith Damages In ERISA Disability Claims
When an insurance company denies a group disability claim without an examination by a doctor or even a phone call to the claimant’s treating physician, we are often asked, “Isn’t that bad faith?” Often, the answer is yes. Unfortunately, when you have coverage under your employer’s group Short Term Disability or Long Term Disability benefit plan, you are not allowed to recover damages for an insurer’s bad faith. Why? The short answer is that ERISA – the Employee Retirement Income Security Act of 1974 – does not permit lawsuits for damages over and above the benefits that are owed to you under the benefit plan.
ERISA is the federal law that regulates employee benefits. It is found in Title 29 of the U.S. Code. When you have a claim under an employer’s group benefit plan, state law does not apply. Instead, the federal law governs, and its actually voids state laws that allow you to recover any money beyond the benefits that the plan is supposed to pay. The reason why is a complicated area of law called “preemption.” Preemption can be described as the people in Washington, D.C. trying to take over an area of law so much that state law no longer can apply. The net effect is that when you make a claim, your rights are limited, because Congress took away some of your rights under traditional insurance laws.
Not all state insurance laws are preempted. However, any state law that attempts to add a type of lawsuit not spelled out under ERISA or give you a way to recovery money other than plan benefits will be preempted. Here is a passage from the U.S. Supreme Court’s decision in a case called Knudson v. Great West that explains why:
We have observed repeatedly that ERISA is a “ ‘comprehensive and reticulated statute,’ the product of a decade of congressional study of the Nation’s private employee benefit system.” [citation omitted] We have therefore been especially “reluctant to tamper with [the] enforcement scheme” embodied in the statute by extending remedies not specifically authorized by its text. [citation omitted] Indeed, we have noted that ERISA’s “carefully crafted and detailed enforcement scheme provides ‘strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.’ ”
In fact, in one of the earliest Supreme Court cases to address ERISA in 1987, Pilot Life Insurance Co. v. Dedeaux, the Court held that a Mississippi law authorizing bad faith damages against an insurance company did not apply to ERISA claims due to a federal concept called preemption which voids state laws when they apply to ERISA plans.
Takeaway: Congress passed ERISA in 1974, and courts all the way up to the Supreme Court have been steadfast in holding that you do not have any rights to sue for bad faith damages under ERISA. If you don’t like the fact that Congress and the courts took away your rights, you should call your Congressman. Your group disability insurance company can commit all of the bad faith it wants. The only thing that will happen is that people like you can sue them and recover the benefits that should have been paid in the first place. Only Congress can change that, and that will only happen if enough people like you tell their Congressman that preemption of state bad faith remedies is just wrong.
If you have questions about your ERISA disability insurance claim, please call ERISA attorney John V. Tucker at (866) 282-5260 or complete the TuckerDisability.com Online Contact Form. Mr. Tucker is a nationally recognized employee benefits attorney who represents individuals in group insurance claims and lawsuits