If it seems like the deck is stacked against you and insurance company has a huge advantage here, it’s because they do. It’s not even that they’re being clever – the system is designed that way! Congress and the Department of Labor decided that in order to keep the cost of employee benefits relatively low, they would design a system that protects benefit plans (and the insurance companies they hire) from most additional costs above and beyond simply deciding and administering claims. Congress passed the Employee Retirement and Income Security Act (ERISA) in 1974. As the name implies, it was written primarily to apply to pension plans providing retirement income, but ERISA also applies to other employee benefits, like health insurance, disability insurance and life insurance. Then the Department of Labor wrote regulations for how plan sponsors (usually employers), and the insurance companies they hire to administer benefits, must manage claims. The regulations are updated and revised periodically.
In theory, none of this is a particularly bad idea. ERISA does allow many more people access to disability and life insurance than might otherwise be able to qualify for and afford it on their own. In practice, though, insurance companies often seem to take advantage of the system in order to deny certain claims without much justification at all.
Here’s part of the reason why: because of the way the system is designed, insurance companies are allowed to make mistakes without any consequences. The only “consequence” for getting an initial decision wrong is that the insurance company must review an appeal, if one is submitted. (How many people do you think give up without ever filing an appeal?) If the insurance company makes a mistake in denying the appeal, even if a judge decides that their decision to deny benefits was wrong and their conduct was a breach of their duty to you, all they will have to do is pay what they should have paid you in the first place. There are never any additional penalties for damages, pain and suffering, etc. The judge may order the losing insurance company to pay your attorney fees, but even that is usually dependent on some strict criteria that not all cases can meet.
Aside from possible attorney fees, the losing insurance company just pays the benefits they owe, and even those are only up to the date of the judge’s decision. For disability claims, regardless of how strong your claim is or how badly supported the insurance company’s denial was, the judge can’t order them to pay any future benefits. Once you are back on claim, there’s nothing to stop the insurance company from coming up with a new excuse to close your claim again. They can keep this up over and over until they get a denial that a judge will support or possibly until you give up and settle your claim at a large discount just to be done with the whole process.
When the deck is so clearly stacked in their favor, and with so little to lose, it seems like some denials (particularly for potentially high-value claims) come because the insurance company figured, why not give it a shot and try to get out of paying this claim? Unfortunately, the more this sounds like it applies to your claim, the greater the likelihood that your appeal will also be denied and will ultimately end in a lawsuit. But to get to that stage, you must first submit an appeal that responds to the denial letter with all the evidence you’ll ultimately want a judge to consider. For all claims, it helps to understand just what you’re up against as you prepare your appeal.
