Your New Car

Earlier I described some of the effects ERISA has on your ability to take your insurance company to court if it wrongfully denies your claim. That may not seem like such a big deal; after all, no one plans on going (or wants to go) to court at all, and it seems way, way down the road when you’re looking at your shiny new health insurance policy from your employer. But it matters, a lot.

Imagine you’re buying a car. You’ve picked out a make and model, and you’re happy with the price. It’s time to close the deal.

DEALER: OK, here’s the sales contract; there a just a few stipulations and the car is yours.

YOU: OK.

DEALER: First we have to talk about what happens if you ever take us to court. Of course we know you’ll never have to, because you can trust us to do the right thing. But just in case...

First, we require that you agree you’ll have no right to a jury.

And you’ll have to give up all that silly pre-trial discovery, so we won’t be wasting our time with you asking a bunch of questions about what happened if, say, your brakes fail. But don’t worry, we’ll assemble some information on our own and give it to you, and the court can look at that.

And we’d like you to agree that we still win in court if, say, you prove our brakes were defective and it was our fault. But we are willing to say you can win if you prove the brakes were not only defective but that we screwed up really really badly, like we had the technicians drunk or asleep on the job or something like that. Of course, you'd have to find that evidence in the information we assemble ourselves, like we just talked about, 'cause we aren't going to do any pre-trial discovery, remember?

YOU: But if I can prove the brakes you made were defective it seems to me that ought to be enough to...

DEALER: Hang on. Not done yet. Now, the other thing is that if you do take us to court and win, our liability would be limited to the cost of replacing the brakes.

YOU: But what if your defective brakes kill or maim somebody? What about wrongful death, or medical bills, or lost earning capacity...

DEALER: That would be unfortunate. But if you can beat us in court we are willing to pay for replacement brakes. That’s not bad! We might even throw a little something your way to help you pay your lawyer (but only if the judge makes us).

YOU: I’m not sure about this. I mean replacement brakes wouldn’t mean much if someone has been killed or maimed or ...

DEALER: One more thing. We can only do this deal if you agree that you can’t sue us for, you know, fraud.

You still want to buy that car?

That nice insurance policy your employer bought for you almost certainly has the same exciting features. Now don’t you feel all safe and snuggly?

And here’s a thought experiment: if the car dealer knows its sales contracts have these sorts of terms, how careful do think he’ll be when he manufactures his brakes (or is tempted to commit fraud)? And how motivated is your health insurance company to do the right thing when it knows these types of rules apply?