ERISA – Will It Change?

Lawyers who handle Employee Retirement Income Security Act (ERISA) claims will tell that insurance claims made on an individual policy and claims made on an ERISA plan are remarkably different.  ERISA requires that the insurer or third-party claims administrator engage in a dialogue with the claimant about the claim and the reasons for denial, allowing the claimant an opportunity to rebut the reasons for denial and compelling a fiduciary review of a denied claim.  The downside of that review is that if the claimant asks for judicial review of a denied appeal, the federal court will probably have to defer to the claim fiduciary’s decision and the evidence will be limited to the contents of the claim file.

There is no monetary remedy within ERISA for a violation of claims procedures nor does ERISA allow for consequential damages.  The remedies for claims violations are potentially (1) a remand to the claims fiduciary for another try, or (2) forfeiture of deference, i.e. a change in the standard of review from abuse of discretion to a preponderance of the evidence.  The 5th Circuit had never awarded an ERISA claimant a change in the standard of review as a result of claims handling violations.

The collective policy of Texas and other states is that deference is harmful because it impairs the rights of insured.  The 5th Circuit takes a different view, believing that ERISA deference provides a lubricant to a federal court system.  According to the 5th Circuit and many other federal courts, any harm to individual claimants is outweighed by the harm requiring de novo review of each ERISA benefit claim would bring to the court system.  The 5th Circuit is also at odds with the Department of Labor (DOL), as the DOL considers deference to be forfeited if the claims procedures are not followed.

It should be that compliance with the claims procedures, or minimum standards created by the DOL that are to be followed by a claims administrator of an ERISA welfare or pension benefit plan, are important.  There should be some negative consequences for non-compliance.  Remand offers no deterrent; it merely gives the claims administrator another opportunity to decide the claim.  Claimants should receive a level playing field, i.e. de novo review, unless the fiduciary claims administrator can prove that the claims procedure violation or violations were both harmless and inadvertent.