ERISA Claims Procedure - How Disability & Life Insurance Claims are Supposed to be HandledThe Employee Retirement Income Security Act of 1974 ("ERISA") was enacted by Congress to provide a comprehensive statute designed to protect employee benefit plans and pensions, among other things. See Mertens v. Hewitt Assocs., 508 U.S. 248, 251 (1993). Through ERISA, Congress wanted to ensure that if an employee was promised a benefit, then they would receive it. Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996). Employers are not required to establish employee benefit plans, but if they choose to do so, then they must abide by ERISA.
ERISA provides a framework and set of minimum parameters through which an insurance company must administer an employee's claim for benefits for an employee benefits covered plan, such as for health insurance, disability insurance, or life insurance. ERISA creates certain rules and obligations for fiduciaries of an ERISA plan. In the ERISA context, a person is considered to be a fiduciary if they exercise "any discretionary authority or discretionary control respecting management of such plan ... ," or, any person who "has any discretionary authority or discretionary responsbility in the administration of such plan." Basically, an ERISA fiduciary is the person who decides whether or not to approve or deny any employee's claim for benefits. This is usually the insurance company's claim handler.
ERISA establishes standards of conduct, responsibility, and obligations for fiduciaries of employee benefit plans, and ERISA provides for appropriate remedies, sanctions, and access to the federal courts. Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996) (citing 29 U.S.C. §1001(b)).
ERISA requires every employee benefit plan to -
(1) Provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
(2) Afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.
29 U.S.C. § 1133.
Minimum Requirement for Claims Procedures of Employee Welfare Benefit PlansERISA sets forth the minimum requirements for an employee welfare benefit plan in processing a claim for benefits, as codified in 29 C.F.R. § 2560.503-1. This regulation provides, in excerpted and summarized part:
(1) Every employee benefit plan shall establish and maintain reasonable procedures governing the filing of benefit claims, notification of benefit determinations, and appeal of adverse benefit determinations;
(2) The claims procedures do not contain any provision, and are not administered in a way, that unduly inhibits or hampers the initiation or processing of claims for benefits;
(3) The claims procedures contain administrative processes and safeguards designed to ensure and to verify that benefit claim determinations are made in accordance with governing plan documents and that, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants;
(4) The claims procedures do not contain any provision, and are not administered in a way, that requires a claimant to file more than two appeals of an adverse benefit determination prior to bringing a civil action under section 502(a) of [ERISA];
(5) To the extent that the plan offers voluntary levels of appeal, including voluntary arbitration or any other form of dispute resolution, the claims procedures provide that:
(a) The plan waives any right to assert that a claimant has failed to exhaust administrative remedies because the claimant did not elect to submit a benefit dispute to any such voluntary level of appeal provided by the plan;
(b) The plan agrees that any statute of limitations or other defense based on timeliness is tolled during the time that any such voluntary appeal is pending[.]
ERISA basically lays out the minimum criteria that an insurance company who is providing benefits as part of an employee welfare benefit plan (usually in the form of health insurance, disability insurance, or life insurance) must abide by in deciding whether to admit or deny a claim for insurance benefits. ERISA requires that insurance companies must establish reasonable procedures for the filing of benefit claims, they must notify the claimants of whether their claim was accepted or denied (which seems simple enough), the insurance plan cannot be so complicated as to make it hard to actually file a claim or get a claim processed, and the insurance company must make their decision to admit or deny a claim in a manner that is consistent with the actual terms of the insurance policy.
If your claim for disability, health, or life insurance benefits has been denied, ERISA provides that the insurance company has to have an appeal process. In ERISA cases, there are usually one or two administrative appeals before the claimant can file a federal ERISA lawsuit. The administrative appeals are essentially just the submission of additional documentation supporting a claimant's rights to get the claim approved to the insurance company itself. Then the insurance company decides again whether to admit or deny the claim. ERISA mandates that insurance companies cannot require more than two administrative appeals before filing a federal lawsuit against the insurance company. ERISA also generally requires that claimants exhaust their administrative remedies before filing a federal lawsuit. Exhaustion of administrative remedies is a case law imposed requirement that simply means that a claimant has to first go through the administrative appeal process before filing a federal lawsuit. ERISA requires that if there is a multi-step administrative appeal process (for example, one mandatory administrative appeal and then a second voluntary administrative appeal), then the claimant only needs to go through the mandatory appeal before filing a lawsuit and that the insurance company cannot argue in federal court that the claimant failed to exhaust their administrative remedies if the claimant did not elect to take an additional voluntary administrative appeal.
Minimum Requirements for Manner and Content of Employee Benefit DeterminationWhen an individual's claim for health insurance benefits, disability insurance benefits, or life insurance benefits has either been approved or denied by the insurance company, the insurance company is required to send out a written notice to the individual, in a manner calculated to be understood by the individual, with the following information:
(1) The specific reason or reasons for the adverse benefit determination (benefit denial);
(2) Reference to the specific plan provisions on which the determination is based;
(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary;
(4) A description of the plan's review procedures and the time limits applicable to such procedures, including a statement of the claimant's right to bring a civil action under section 502(A) of [ERISA] following an adverse benefit determination on review[.]
Appeal of Adverse Benefit DeterminationsIf an individual's insurance claim is denied by the insurance company, then ERISA requires that the insurance company establish and utilize certain processes and procedures to allow an individual to appeal an adverse benefit determination. These requirements are, in summarized part:
(1) Every employee benefit plan shall establish and maintain a procedure by which a claimant shall have a reasonable opportunity to appeal an adverse benefit determination to an appropriate named fiduciary of the plan, and under which there will be a full and fair review of the claim and the adverse benefit determination.
(2) The claims procedures of a plan will not be deemed to provide a claimant with a reasonable opportunity for a full and fair review of a claim and adverse benefit determination unless the claims procedures -
(i) Provide claimants at least 60 days (or 180 days for disability insurance) following receipt of a notification of an adverse benefit determination within which to appeal the determination;
(ii) Provide claimants the opportunity to submit written comments, documents, records, and other information relating to the claim for benefits;
(iii) Provide that a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant's claim for benefits;
(iv) Provide for a review that takes into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
When an ERISA disability or life insurance claim gets taken to federal court, it is usually because the insurance company failed to properly follow the appeal procedures outlined above.