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What Is a Bad Faith Insurance Lawsuit? Is It Different From Group ERISA Disability Litigation?

There are many similarities between individually purchased and employer-sponsored long-term disability insurance. Both offer income protection and other financial benefits for policyholders in the event they become unable to do full- or part-time work for an extended period due to a disabling injury or illness.

However, there are important distinctions between the two as well. Should your insurance provider deny your claim, the appeals and litigation processes will be very different depending on what kind of policy you have.

If you wish to challenge a denial on an employer-sponsored group policy in federal court, you’ll have to do so through ERISA litigation. For an individually purchased policy, on the other hand, you’ll likely file what’s called a bad faith insurance lawsuit.

What Is a Bad Faith Insurance Lawsuit?

Bad faith insurance litigation isn’t just possible in a disability insurance dispute. Claimants file these lawsuits when any insurer denies their claims unreasonably or without a proper cause. If you purchase a long-term disability insurance policy individually and your carrier denies your claim, this is likely the avenue you will use to challenge the decision in court.

To succeed in this bad faith action, you must establish that your insurer failed to uphold one or more of its duties to you. For example, insurance companies have what’s called a “duty to investigate” claims they receive from policyholders and share their findings. If you can show that your provider did not do this properly prior to denying your claim, you may be able to establish bad faith on its part.

Bad faith insurance litigation varies based on your specific insurance contract and the laws around this type of lawsuit in your state. You can generally pursue this kind of litigation in federal court or state court if you can also sue a local defendant.

What Is ERISA Litigation?

The Employee Retirement Income Security Act of 1974 (ERISA) is a body of federal legislation that governs many different benefits employers provide to their workers, including group disability insurance policies. The law sets out the way in which you can challenge an arbitrary and capricious denial of a claim. There are a number of crucial differences between group ERISA cases and individual bad faith insurance litigation.

First, because ERISA is federal law, you may only file suit against your ERISA insurance provider in federal court, not state court.

However, before you get to court, you must timely file a comprehensive administrative appeal with your insurance provider. This process gives you the chance to add all old or new occupational, medical, or financial evidence. You can also add relevant legal arguments at this stage, such as ERISA case law that is relevant in your federal jurisdiction.

Omitting relevant records, reports, or case law at the administrative appeal stage can fatally damage your group ERISA claim. This is because you cannot introduce any new evidence when you sue an ERISA group disability insurer in federal court; the judge will only assess evidence submitted during your initial claim or your administrative appeal.

You should also note that ERISA lawsuits do not take place before a jury, as is the case in other types of court actions. Additionally, there is no witness testimony or cross-examination. Instead, the judge considers evidence from the entire administrative record and reaches a verdict on this basis. This expedites the trial process, meaning you’ll receive your settlement more quickly if you end up succeeding. However, it also poses a distinct set of challenges, which is why the help of a specialist Illinois ERISA attorney with a track record of success is such an advantage.

You should note that ERISA does not generally apply to disability insurance policies provided by churches, schools, or state and federal government employers.

Key Differences Between ERISA & Bad Faith Insurance Litigation

The following are some of the most significant differences to be aware of when it comes to ERISA vs. individual bad faith insurance litigation:

  • ERISA is governed by federal law, while the rules on bad faith insurance litigation vary from one state to the next,
  • You can only file ERISA lawsuits in federal court, whereas you may have the option of going to state court with a bad faith individual suit,
  • You can recover punitive damages in bad faith insurance litigation, but this is not possible with an ERISA lawsuit,
  • You must partake in a mandatory administrative appeals process under ERISA prior to filing suit against your insurer in federal court.

Getting the Best Results From your Long-Term Disability Insurance Lawsuit

At DarrasLaw, we represent clients across the United States with individual bad faith insurance lawsuits as well as claim disputes related to employer-sponsored (ERISA) long-term disability insurance policies. Though the approach to each type of case is different in several key respects, we’re equally well-equipped to manage both and win.

Request a free consultation via phone, email, or our website to schedule a free initial policy analysis or free claim assistance with our team of top-rated long-term disability lawyers. If your policy is employer-sponsored and you’ve already received an initial claim denial, you need to act quickly to ensure you file a timely, comprehensive administrative appeal in advance of the relevant deadline.

DarrasLaw is Americas' most honored and decorated disability litigation firm in the country. Mr. Darras has seen more, evaluated more, litigated more, and resolved more individual and group long term disability and long-term care cases than any other lawyer in the United States.

Request a Free, Confidential Case Review.
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