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ERISA: Congress’ Well-Intentioned Law

ERISA, the dirty little acronym for the Employee Retirement Income Security Act, is found almost everywhere these days—on insurance documents, insurance cards and even on the forms you and your clients may sign at the doctor’s office.

Originally passed by the 93 rd Congress in 1974 with the intention of helping employees, ERISA now is used as a legal loophole to protect insurance companies instead of policyholders. Even if policyholders are wrongfully denied insurance benefits, under ERISA, their rights and legal remedies are severely limited.

Big insurance touted ERISA as a saving grace: no more lawyers or lawsuits; no more punitive damages or emotional distress; no more crossing state lines to take advantage of stronger consumer laws because under ERISA, working Americans would have a fair and uniform set of laws to protect them.

Great premise, superb selling strategy; but over the course of 35 years, the ERISA highway has been littered with countless casualties. From CEOs to secretaries and every job in between, ERISA has been swallowing up legitimate claims across America. In fact, ERISA applies only to someone who works for the government, a school or a church, and does not receive insurance benefits from a union.

Here’s how it Works:

  • Long-term disability insurance under a company-sponsored plan usually covers 60 percent of the monthly salary the insured would earn for working 24 months in their own occupation, which is determined by weighing that against how that occupation is generally performed in the national economy.
  • At 24 months and one day, the definition of disability shifts to any occupation for which the insured is educated, trained or suited.
  • To collect payment after the “own-occupation” period, clients must generally be deemed Social-Security disabled.
  • A mere 35 percent of disabled applicants are awarded Social Security benefits.
  • “Social-Security disabled” means a person is unable to do any work for which she is trained, educated or suited; but age is a significant factor—after 55 years old.
  • If someone is not Social-Security disabled, his group insurance company will say he can work as a video surveillance monitor or become a quilt stuffer, even if he doesn’t have any experience in these fields.

Remind your clients that people aged 35 years or older have a 50 percent chance of becoming disabled for more than 90 days before they turn 65. Whether your client is a professional athlete, a factory worker or an entrepreneur, a minor injury or illness can lead to temporary disability that can seriously derail their plans and finances.

If your client is an employee with company-sponsored insurance, you may want to consider advising him about supplemental insurance as a way to protect himself and his family. Why? ERISA.

The Real Danger with ERISA

ERISA applies to company-sponsored health insurance, disability coverage as well as any life insurance; regardless of whether someone pays or contributes to the premium.

A few examples can help illustrate just how horrific an ERISA disability denial can be for the average worker.

For instance, if your client is a disabled employee and the group insurance carrier denies her legitimate claim and her home is foreclosed on subsequently, her equity is extinguished and her credit will be destroyed. Those damages are not collectible under ERISA. Furthermore, when disabled employees are wrongfully denied their disability benefits, ERISA eliminates their Seventh Amendment right—the right to a trial by jury. So if the group insurance company wrongfully denies a client’s righteous disability claim and he suffers severe emotional distress, there is no right to collect on those damages.

Even if the group insurer denies the insured’s’ claim with evil, vile or loathsome intent, under ERISA, the employee has no right to receive punitive or punishment damages.

Did I mention that there is no discovery under ERISA? This means your client won’t be deposed, his doctor won’t testify, and his friends and loved ones who would like to tell the judge how impaired he is due to his disability won’t be allowed to testify, either. Under ERISA, there are no interrogatories, no document requests, no subpoenas and no real trial on the claim’s merits.

Finally, under most ERISA group disability policies, the disabled insured must prove beyond a reasonable doubt that the insurance company was wrong in denying her claim. But how can she do that when there is no discovery process?

Most people mistakenly believe that when they are initially denied their benefits, all they have to do is write a one-liner to the group insurance carrier. When wrongfully denied their benefits, how are those downtrodden and disadvantaged individuals going to battle and beat the criminal standard of beyond a reasonable doubt to win their ERISA case? How are good, honest, legitimately disabled folks going to properly and effectively conduct an administrative appeal when they don’t know the harsh and unforgiving rules of ERISA?

How to Protect Your Client’s Biggest Asset: His Income

Whether your client is a large or small income producer, protecting his earning ability will give him peace of mind and should be well worth the investment. The two major factors to consider are 1) protecting his lifestyle, and 2) protecting his equity.

Lifestyles need not be extravagant or expensive to be protected. Consider the value of your client’s income in everyday life and the things she holds dear, like a roof over her family’s head, food on the table, clothes on the children and gas in the family car. Losing an income source can be expensive and turn anyone’s life upside-down.

The average Social Security Disability Insurance benefit is about $722 a month. Very few folks can survive on $722 per month, which makes owning an individual disability policy an excellent safety net. Keep that in mind—and help your clients understand—that it is best to purchase individual disability coverage when one is young.

Regardless of age, show your client hoe to shop carefully and help him buy an individual disability policy that is not covered under ERISA. Make sure it is an “own occupation” policy that protects him in what he does as his chosen occupation until age 65. Watch out for the “limited condition clauses,” especially those for mental nervous claims or self-reported claims such as headaches, chronic fatigue syndrome or fibromyalgia. Encourage him to buy as much individual protection as he can afford as early in life as he can afford it from a trusted agent or broker.

ERISA Needs an Overhaul

As the health care bill is being pushed to the forefront, everyone needs to rethink ERISA.

It’s time to reshape a law that was designed to help all of us working Americans, but instead, group insurance companies have enjoyed a 35-year windfall. We were all told our premiums would go down, and that working Americans would get real relief, without burdening and clogging the legal system.

Blaming those who have profited when Congress enacted ERISA is not the course to resolution: We have all been tricked, the American worker has been cheated, and it’s time to rethink what has been.

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.

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