Friday, September 24, 2010

The rising judicial chorus goes to Washington: Senate Finance Committee to consider disability insurers’ conduct under ERISA [UPDATED]

Next week, the Senate Finance Committee is going to consider the manner in which ERISA affects the behavior of disability insurance companies. Since at least a few Senators will be paying at least some attention to the issue, this is a good time to make some noise. You can learn how to submit your comments for the record in the Senate hearings here.

A few witnesses have already submitted written testimony ahead of time. One of them is United States District Court Senior Judge William M. Acker, Jr., of the Northern District of Alabama. Judge Acker’s testimony focuses on the “discretion” scam, in which insurers confer upon themselves “discretion” in their insurance policies and then use that as a shield to keep judges from reversing their improper claim denials. A few highlights from Judge Acker:

I am not saying that the courts, including the Supreme Court, have not tried to make sense of ERISA, and to make it workable, but in truth, the situation is worse in 2010 than it was in 1998, and getting worse every day.

The language [Congress] chose in 1974, if it had not, over time, been altered or obliterated by the courts, would provide for de novo consideration by a court of all denials of ERISA benefits. ERISA’s Section 502(a)(1)(B) straightforwardly provides that any beneficiary of a plan governed by ERISA can bring a “civil action ... to recover benefits due him under the terms of his plan”. Rule 2 of the Federal Rules of Procedure provides: “There is one form of action – the civil action”. This language recognizes nothing less than an independent consideration by the court, a “trial on the merits”. The procedure concocted by the courts in the years since 1974, now called “judicial review”, based on an examination of the administrative record, while giving deference to the conflicted decision-maker who has already denied the claim, simply does not fit the scheme that Congress contemplated.

ERISA jurisprudence will stay as messed up as it is, unless Congress reworks it. The courts have not rescued ERISA, and cannot be expected to do so. The most important legislative change that I implore you to make is to make it clear that when Congress says “civil action”, as it did in 1974, it means what it said, “civil action” and not “judicial review”.

Here’s Judge Acker’s testimony in its entirety; it is definitely worth a read:

Testimony by Judge William Acker to Senate Finance Committee re ERISA

You'll be able to access the testimony of other witnesses here.

It is never a bad time to do so, but now is a particularly good time to make some noise to your Congressional representatives.

UPDATE (9/28/2010): You can watch the hearing in its entirety here.

Tuesday, September 14, 2010

Reader’s Corner: A review by an ERISA drone of an ABA book about the legal rights of the mentally disabled

The American Bar Association, aside from looking out for the interests of lawyers, conducting professional educational get-togethers, and weighing in on the occasional Supreme Court appointee, also publishes a lot of professional literature. They’ve been kind enough to provide me a copy of one such work, entitled Civil Mental Disability Law, Evidence and Testimony, edited by John Parry, J.D., so I can give it a look and review it here for both of you who read this blog. The ABA provided it free of charge, but with no strings about what I might have to say about it, so I consider this to be a pretty impartial overview.

Civil Mental Disability Law to begin with, is a thick book, and it weighs enough that it maxed out my little postage scale here in the office. That’s not because there’s lots of pretty pictures or oversized type. It is comprehensive, and provides an overview at least of a great many areas which can and do impact on the legal rights of the disabled. The topics covered include such things as abuse and neglect; discrimination in employment, housing and public accommodations; social security disability; and of course our favorite law, ERISA, insofar as it impacts things like ERISA-governed disability insurance. A complete table of contents is here.

While the coverage is comprehensive, the other side of that coin is that the discussion of particular topics (if the ERISA section is indicative anyway) is less detailed than it could be if a work were devoted to that topic alone (and they are all deserving of such treatment). The ERISA discussion certainly provides a good basic overview, but for a practitioner it would be a starting point for research; it wouldn’t constitute comprehensive research in itself. Its treatment of what is, in my opinion, the most important “feature” of ERISA – the fact that insurers are immune from any meaningful liability no matter how badly they act – is really a single sentence: “One threshold problem has been the negative impact of federal preemption on state insurance laws that might otherwise protect persons with mental disabilities from discrimination.” That’s certainly true, but it either soft-peddles or fails to mention the overriding problem of the bulletproof insurer: the ERISA problem isn’t limited to discrimination; it permeates the insurer-insured relationship and renders entire insurance policies effectively illusory.

All that said, I don’t consider it a criticism so much as an observation, because the book does not pretend to be anything other than what it is: a comprehensive overview of a variety of topics impacting the legal rights of the mentally disabled. And an overview is quite useful to someone, like me, who starts out being unfamiliar with the subject matter. Civil Mental Disability Law covers the issues which might arise and provides a good succinct introduction to each, and for that, as a lawyer, I’m quite grateful.

Wednesday, September 1, 2010

The Problem, redux

Around the first day of each month I'll be posting a reprise of the first post on this blog, which contains an overview of the Problem. It'll be updated and edited as we go along. But I'd like to have a summary of the Problem available frequently, hence the monthly repeat and update. So off we go...

ERISA is the Employee Retirement Income Security Act, and it is codified in Title 29 of the United States Code, starting with section 1001. It's federal law, enacted in 1974, and it was supposed to protect employees' rights in connection with their pension plans and benefit plans (health, disability, life insurance, that sort of thing). But it doesn't. Quite the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those benefit plans (ERISA is actually not a bad law with respect to pension plans). Pension plans is what they had in mind when they enacted it -- benefit plans were an afterthought.

And it shows. If your insurance company wrongfully denies your claim, you might figure you can always take them to court. You can do that (usually), but when you get there you'll find things don't make any sense. We'll go into the particulars soon, but for now:

If you get your insurance coverage through your employment, then in virtually every case ERISA preempts state law (meaning it cancels it out, eradicates it, takes its place). But, having gutted state law relating to insurance disputes, it fails to provide any reasonable substitute. The remedies it provides (i.e. what you get if you win a lawsuit) are very, very stingy. And ERISA severely compromises your ability to secure even the scant remedies it does provide.

1. Remedies. ERISA limits the recovery you might get to the benefits which should have been provided in the first place, and an award on account of attorney fees in the court’s discretion. Example: you have your disability benefits wrongfully denied. As a result, you have no income, your credit rating is trashed, you lose your home and you are driven into bankruptcy. You file your ERISA suit and against the odds, you win. What do you get? The benefits they should have been paying you back when it might have done you some good. That's all (you might -- might -- get something on account of your attorney fees too).

The trashed credit, the lost home, the bankruptcy, the ruined life? Bupkis. ERISA does not allow for any recovery on account of these sorts of consequential damages -- none. And this applies even if the insurance company committed outright fraud when it denied your claim. Incidentally, I find it quite difficult to understand why the insurance industry, uniquely among all industries in America, needs to have immunity from liability for fraud if it is to offer its services at a reasonable price. Anyway, this concern goes beyond making people whole; it also directly impacts the behavior of insurance companies.

As of now we have a situation where the law tells insurers they face no meaningful consequences if they deny care improperly or even commit outright fraud. As one federal judge has commented, "if an HMO wrongly denies a participant's claim even in bad faith, the greatest cost it could face is being compelled to cover the procedure, the very cost it would have faced had it acted in good faith. Any rational HMO will recognize that if it acts in good faith, it will pay for far more procedures than if it acts otherwise, and punitive damages, which might otherwise guard against such profiteering, are no obstacle at all." Insurance companies, of course, are not charities, but corporations; their boards are subject to a fiduciary duty to maximize shareholder value. If it is possible to accomplish this by mistreating insureds, then it follows insurers will do precisely that (and believe me, they do).

2. Procedure. In ERISA litigation, courts have determined among other things that there is no right to a jury; that discovery (the pre-trial process where you obtain the other side's documents, take depositions and such) is to be significantly abridged; that the evidence which may be introduced at trial is limited to that which the insurer deigned to assemble during its claims evaluation process; and that, when the policy contains language vesting "discretion" in the insurer, if you prove the insurance company was wrong -- you lose. In order to win, you must prove the denial was "arbitrary and capricious" -- that is to say, ridiculous, absurd, unintelligible, crazy. And lo and behold, the insurance companies grant themselves "discretion" when they write their policies. In this way we treat insurance companies as if they were federal judges. But Learned Hand they are not.

These days we're all debating health care reform and what to do about the uninsured. ERISA matters a lot here, because if you get your insurance through your employment, then consider yourself to be in that group. If by "insurance" you mean something like an enforceable promise by an insurance company that it will pay for what it says it will, what you have doesn't qualify. What you have is a piece of paper saying some company will pay your claim if it feels like it. You don't have insurance at all -- you only think you do.