ERISA protects employees with employer-provided disability benefit plans. As a federal law, ERISA preempts many state laws which relate to these plans, to prevent conflicting statutes. However, a recent federal case in Texas found that ERISA does not prohibit a state from regulating insurance contract rules.
Wilfred Brasseur was a computer engineer in Texas. After Brasseur was no longer able to work, he filed for long-term disability benefits. After the insurance company denied Brasseur's claim, he sought a review of the decision. However, the insurance company claimed that under ERISA, their discretionary decision was only reviewable based on an abuse of discretion.
The legal standard for reviewing an insurance policy decision can have a major impact on whether the individual will get a meaningful review of that decision. The standards of review in ERISA cases are generally the “arbitrary or capricious” standard or the de novo standard.
The arbitrary and capricious standard is very high and gives deference to the insurance company's decision. In order to win, the insured would have to show that the company abused their discretion in denying the claim. Alternatively, the de novo standard gives the decision a full review. The court could review the evidence available and make their own decision based on a new review.
Generally, ERISA disability benefit claims are reviewed de novo; however, when the insurance plan gives the administrator discretion to determine eligibility, the arbitrary and capricious standard would apply.
The insurance plan in Brasseur's case was provided by Life Insurance Company of North America and originated in Illinois. The plan gave discretion to the administrator's factual determinations, which decided Brasseur was not disabled. The insurance company argued for an abuse of discretion standard of review.
However, under Illinois state law, insurance policies are prohibited from having a discretionary standard that gives the insurance company discretion to deny claims. The insurance company argued that ERISA preempts any state laws, and therefore, any review of their decision must be based on the abuse of discretion standard.
In their decision, the court evaluated whether ERISA would preempt Illinois' state insurance law. The preemption clause provides that ERISA will supersede state laws that relate to employee benefit plans, but does not preempt certain state laws that regulate insurance. Regulation of insurance is left to the states.
Illinois state law prohibits discretionary clauses, which “reserve the discretion to the health carrier to interpret the terms of the contract, or to provide standards of interpretation or review that are inconsistent with the laws of” the state.
The court found that nothing in ERISA prohibits the state from regulating insurance contracts, in this case, prohibiting discretionary clauses. As a result, Brasseur will be able to get a new review of his disability benefits claim.
Greg Paul has 18 years of experience fighting for his clients to make sure they get the disability benefits they deserve. We represent individuals and families who have been denied benefits by their insurance company or plan administrator. You have a limited time to appeal your disability denial, so do not delay. If you have been denied short-term or long-term disability benefits, contact our office for a free consultation.