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Birmingham Bar Associations Bulletin Summer 2015

Insurance Law M. Clayborn Williams, SinclairWilliams, LLC Handling ERISA Insurance Cases: Five Mistakes that Can Hurt Your Client Many people think if they obtain insurance through their employer, their insurance policy is just an ordinary contract. When they encounter problems with that insurance, they become surprised to learn this is not exactly true. They learn that instead of having an insurance policy governed by ordinary contract law, they have a “plan” governed by the Employee Retirement Income Security Act of 1974, or ERISA.1 Confused about what this means, they turn to you for help. You have a robust practice, but ERISA is not one of your usual practice areas and you are not familiar with any of the landmines that could sink your client’s case. While there can be many potentially fatal turning points when handling an ERISA case, this article discusses five of the more frequent mistakes made either by claimants attempting to handle their ERISA claims themselves or by attorneys inexperienced in this complicated area of practice. An Introduction to ERISA Being one of the most far-reaching federal enactments in existence, it is only in the rarest of instances that ERISA will not apply to a case involving employerprovided insurance. This is what is known in ERISA as “superpreemption.” This extraordinary form of preemption means that almost all employee benefits plans that provide health insurance, life insurance, disability and other forms of insurance are subject to ERISA. It also means all conflicting state laws, whether statutory or common-law, are preempted.2 ERISA’s most pervasive impact is its limitation on your client’s relief. ERISA generally limits your client’s remedies only to the recovery of the benefit that should have been provided. Although in some instances it may be possible to recover interest on past-due monetary benefits and to recover attorneys’ fees (an event that can be unusual in Eleventh Circuit courts), no other award is typically permitted, including punitive damages. 3 Furthermore, all state law remedies, including insurance bad faith and fraud, are – with very few exceptions – precluded. 29 U.S.C. § 1144(a).4 This “superpreemption” also means that even though ERISA grants concurrent jurisdiction to both state and federal courts, ERISA cases may land in federal court if defendants want them there due to the existence of “federal question” jurisdiction. ERISA’s administrative procedures create obligations both for the claimant and the plan or insurance company. Courts often require claimants to strictly adhere to the procedures governing them, but for plans and insurance companies, courts often allow leeway depending on the circumstances. Thus, when handling a claim, particular attention must be paid to all ERISA-imposed requirements. Five Serious Mistakes Often Made by Attorneys Unfamiliar with ERISA Litigation 1. Failing to Identify and Pursue Potential “Ancillary,” “Collateral,” or “Follow-On” Benefits When There Is a Disability When a person becomes disabled, he or she may have disability coverage from his or her employer. This disability coverage provides a monthly benefit that usually is in an amount equal to a percentage of the employee’s pre-disability earnings, minus applicable offsets for things like Social Security disability benefits. In many cases (but not all), the employer has also provided for additional benefits for disabled employees. These are often termed “ancillary,” “collateral,” or “follow-on” benefits. Sometimes, these benefits automatically are provided, meaning the employee receives the benefit without needing to go through a separate application process under the plan. 22 Birmingham Bar Association


Birmingham Bar Associations Bulletin Summer 2015
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