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!
What Is ERISA and Why Does It Apply to My Disability Claim?
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.
Why Insurance Companies Can Deny Claims with Little Consequence
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.
Why High-Value Claims Are Most at Risk
While no claim is truly safe under this structure, claims that are potentially high value (because of the benefit amount and/or the amount of time left on the claim) seem to be a target for some of the most outrageous and unsupported denials. It often seems like the insurance company is just taking their shot to see if they can get out of paying the claim. And why not? Aside from possible attorney fees, the losing insurance company just pays the benefits they owe (and would have paid anyway), 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 an insurance company 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. Either way, if your claim is large enough, the financial incentive to close the claim is often going to be larger (sometimes much larger) than any risk associated with having the decision eventually overturned at the end of a long litigation fight.
What This Means for Your Disability Appeal
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, in every case 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.
Whether you have a denial letter or are trying to be as prepared as possible to make a Short Term Disability or Long Term Disability claim, Insurance Appeal Consultants can help. Visit our Services page to learn more about our free and paid options for disability claim and appeal planning, coaching and management.
