By Scott B. Elkind, Esq.
When the Employee Retirement Income Security Act (ERISA) was enacted in 1974, it was obviously not fully thought out despite the best of intentions. This Act was proclaimed to be an all encompassing law by which employee benefits would be governed under a single regulatory scheme in order to provide a more understandable and efficient system for regulation of employee benefits. Unfortunately, this has not turned out to be the case.
As could be expected, the main beneficiaries ERISA have been its main proponents, the insurance industry and other big businesses. Instead of having to deal with regulations of the separate states, many of which had more stringent laws, the business interests utilized the doctrine of federal preemption. Preemption allows for a uniform federal to trump the differing laws of the states. Therefore, ERISA has now trumped most state-based control of employee benefits.
Although the business interests will be quick to tout the benefits of ERISA which allow for a uniform administrative scheme for processing and appeal of claims, they will not discuss the ugly truth behind this statute. The scary fact is that plan administrators and insurers of benefits have nearly no liability for violating the statute and recourse can be difficult and unsatisfactory to claimants.
ERISA mandates that following a claim denial that a claimant file an administrative appeal within a proscribed time limit. The plan administrator will encourage a claimant to file an appeal on their own, stating that such appeals are common and are "no big deal." This is a lie and a trap.. The appeals are a Big, Hairy Deal. The administrator knows that a weak appeal will result in a poorly supported claim record. Once the appeal period is over, the record will be closed, sealing a claimant's fate in court where they will not be able to introduce any new evidence.
Not only will a claimant's case be jeopardized by a poorly supported claim file, the claimant's fate is sealed by the fact that there are no jury trials under ERISA.
If that is not bad enough, the common standard of review in most civil trials known as "preponderance of evidence" (or the "51% " or "more right than the other party" rule) is not operative under ERISA. Instead, the standard of review in most cases will be that the conduct of the plan administrator in turning down will need to be found to be "arbitrary and capricious" under the abuse of discretion review employed. Even worse, the decision of the plan administrator is deemed correct with the burden of proof to demonstrate otherwise placed on the claimant even when the plan administrator and insurer of the benefits ARE THE SAME PARTY!
Even if the claimant is able to prove that the claim decision is unreasonable, the court can only award the back benefits. There are no compensatory or punitive damages available to deter the bad conduct of plan administrators. Even found to be wrong in their denial, the plan administrator can turn down a claim after paying the back benefit and start the entire abusive process over again without fear of any sanction.
Given no penalty for improper claim denials, businesses can easily take the chance that a claimant will:
- Give up and not bother to file an appeal at all
- File a poorly supported appeal without an attorney
- File a poorly supported with an attorney who does not regularly practice in the ERISA field
These companies are aware that there are few skilled attorneys in the ERISA field who will represent claimants given the adverse legal standard held against their clients. Therefore, the net result of ERISA has been to encourage businesses to deny claims to an even greater extent.
In the end, ERISA serves as an excellent example of the law of unintended consequences. The good intentions expressed by Congress have been exploited by big business to the detriment of employees. And, given the reticence of the courts to intervene and create new remedies, nothing stands in the way of continued injustice unless Congress intervenes. Sadly, given the lobbying power of all the business interests involved which prefer the continuation of ERISA in its present form, reform of the statute to strengthen the rights of claimants remains unlikely.