How Does ERISA Impact Life Insurance Claims?

When a loved one passes away, the last thing a family should have to face is a complex and challenging battle to receive the life insurance benefits they are owed. Unfortunately, if the life insurance policy was an employee benefit, the claim is likely governed by a federal law known as the Employee Retirement Income Security Act of 1974, or ERISA.

ERISA was originally enacted to protect employees’ retirement savings and health benefits, but it also applies to many group life insurance plans. While its intent was to protect beneficiaries, the law’s intricate rules and limited remedies can make the claims process much more difficult, often giving insurance companies the upper hand.

Here’s a breakdown of how ERISA impacts life insurance claims and what beneficiaries need to know.

The ERISA Framework: What Makes These Claims Different?

ERISA-governed life insurance claims operate under a different set of rules than individual policies purchased directly from an insurance company. The key differences include:

• Federal vs. State Law: ERISA is a federal law that preempts state insurance laws. This means beneficiaries cannot sue for common-law claims like “bad faith” or “breach of contract,” which are available in state court for individual policies.
• Administrative Appeals: Under ERISA, a beneficiary cannot immediately file a lawsuit after a claim denial. They must first “exhaust administrative remedies” by going through a strict, internal appeal process with the insurance company. This is a mandatory and critical step and failing to meet the deadlines can result in the permanent loss of the right to sue.
• Limited Remedies: In an ERISA lawsuit, a beneficiary’s recovery is typically limited to the policy’s benefits, plus potential attorney’s fees and interest. Unlike state-law cases, they cannot recover punitive damages or compensation for emotional distress.
• No Jury Trials: ERISA lawsuits are heard in federal court, but they are almost always decided by a judge, not a jury. The judge’s review is often limited to the “administrative record,” which includes only the documents and evidence that the beneficiary submitted during the administrative appeal process. This makes the appeal stage the most important part of the entire process.

The Crucial Administrative Appeal Process

The administrative appeal is the single most important step in an ERISA life insurance claim. Here’s what the process entails:

1. Receive the Denial Letter: The insurance company must provide a written explanation for the denial. This letter must outline the specific reasons for the decision and the policy provisions that were relied upon. It must also inform the beneficiary of their right to appeal and the deadline to do so.
2. Gather Evidence: The burden is on the beneficiary to present a comprehensive and convincing case during the appeal. This is the only chance to submit new evidence. This may include:
   • The complete life insurance policy and any riders.
   • A copy of the death certificate.
   • Medical records or an autopsy report.
   • Correspondence with the employer or HR department.
   • Any other documents that refute the insurance company’s reason for denial.
3. Adhere to Strict Deadlines: ERISA sets strict deadlines for the appeal. Beneficiaries typically have 180 days from the date of the denial letter to submit their appeal. Missing this deadline can be fatal to the claim.
4. The “Full and Fair Review”: Once the appeal is submitted, the insurance company is required to conduct a “full and fair review.” The decision on the appeal must be made within a reasonable timeframe, typically 60 to 120 days.

Common Reasons for ERISA Life Insurance Claim Denials

Insurance companies may deny an ERISA-governed claim for various reasons, including:

• Lapse in Coverage: The employer may have failed to pay premiums, or the policy may have lapsed after the employee left their job but before they converted the group policy to an individual one.
• Misrepresentation: The insurer may allege that the deceased made a false statement on the initial insurance application, even if the error was unintentional or due to an administrative mistake by the employer.
• Beneficiary Dispute: When there is a dispute over who is the rightful beneficiary (e.g., in cases of divorce or a failure to update a beneficiary designation), the insurer may hold the funds until the dispute is legally resolved.
• Exclusions: The insurance company may claim that the cause of death is not covered under the policy’s exclusions, such as those for suicide or risky activities.

The Role of Legal Counsel

Given the complexities of ERISA, navigating a denied life insurance claim can be overwhelming. An experienced ERISA attorney can be invaluable by:

• Building a Robust Administrative Record: They can ensure all necessary evidence is gathered and presented correctly during the appeal, as this is the only record a judge will review if the case goes to court.
• Identifying Legal Flaws: They can analyze the denial letter for any legal or procedural errors made by the insurance company.
• Ensuring Deadlines Are Met: An attorney can ensure that all critical deadlines are met, protecting the beneficiary’s right to pursue their claim.
• Litigating if Necessary: If the appeal is denied, an attorney can file a lawsuit in federal court and represent the beneficiary throughout the legal process.

In conclusion, ERISA’s unique framework significantly impacts the life insurance claims process, making it a procedural minefield for the uninitiated. Understanding these rules, especially the critical importance of administrative appeal, is essential for any beneficiary facing a denied claim.

If you are facing a denied life insurance claim under an employer-sponsored plan, time is not on your side. Contact Johns Law Group today for a free consultation. We will review your case, explain your options, and help you take the steps necessary to protect your right to benefits.