Another “insured” person cheated out of “insurance” by ERISA; UPDATE: Guardian caves in response to public pressure

Ian Pearl, since birth, has suffered from muscular dystrophy. He is now 37 years old, and is confined to a wheelchair and hooked to a breathing tube.

Fortunately for Ian, he had “insurance” through the ERISA plan offered by his father’s company. So while his health was terrible, he at least would have access to adequate care and his family could avoid going bankrupt from medical bills.

Not so fast. His insurance carrier, Guardian Life Insurance Company, decided it was just too expensive to live up to its contractual obligations to cover the care required by Ian and others like him.

So Guardian just pulled the plug. According to the Washington Times:

Legally barred from discriminating against individuals who submit large claims, the New York-based insurer simply canceled lines of coverage altogether in entire states to avoid paying high-cost claims like Mr. Pearl's.

At least Guardian was compassionate about condemning Ian to a life of inadequate medical care for his debilitating condition. You can just hear them choking back their tears:

In an e-mail to four other Guardian executives entered into evidence in the Pearls' suit, company Vice President Tim Birely discussed how the company could "eliminate this entire block to get rid of the few dogs."

Now how on earth is this legal? Simple:

The judge found that the company had not violated the Employee Retirement Income Security Act (ERISA), because it canceled entire policy lines.

Sorry, Ian. To Guardian, you’re just one of the “few dogs” they need to dispense with.

UPDATE:

Daylight,as they say, is the best disinfectant. In response to public pressure and lots of media coverage and widespread outrage, Guardian has caved and reinstated Mr. Pearl's coverage.

Now about all those people who didn't make the headlines...

ERISA to Insurance Companies: It’s OK to kill someone’s daughter, just don’t flip them off

Cigna Corporation, an ERISA health insurer, killed Nataline Sarkisyan in December 2007, denying a liver transplant on the pretext it was “experimental” (which is insurance company code for “expensive”; after all paying for the transplant would reduce its profits).

Nataline’s parents sued Cigna for killing their daughter. Nataline’s mom, Hilda, also appeared at Cigna’s Phildelphia headquarters in 2008, and said “You guys killed my daughter. I want an apology.”

What she got instead is described in an article in today’s Los Angeles Times:

Cigna employees, looking down into the atrium lobby from a balcony above, began heckling her, she said, with one of them giving her “the finger.” Sarkisyan walked out, stunned and hurt.

“They showed me their true colors,” she said. “Shame on them.”

Meanwhile, thanks to ERISA, a Los Angeles judge had to dismiss their wrongful death case against Cigna, because ERISA provides the Cignas of the world immunity from liability for killing people.

Cigna, of course, took this as some sort of endorsement of its decision to let Nataline die:

Cigna said the dismissal of the wrongful-death case in April showed that the court “agreed with our position that the Sarkisyans’ claims regarding Cigna’s decision making were without merit.”

But as the Times correctly observed

In fact, the court did not consider the merits of the family’s wrongful-death claims. Instead, it decided those claims could not be heard.

The insurance companies’ flack, one Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, defended the outcome, saying that to hold insurance companies accountable for killing people will “bankrupt these plans, and employers would no longer be able to offer coverage.”

That makes perfect sense. How can you be expected to offer your services at a reasonable price if the courts are going to nitpick about you killing people?

The Sarkisyans did get one bit of good news, though. They get to sue Cigna over its employees flipping off Ms. Sarkisyan: the court “said the Sarkisyans could pursue damages for any emotional distress caused by the Philadelphia incident.”

So they have that going for them.

Memo to insurance companies in ERISAworld: go ahead and kill people. Just keep your middle finger to yourself.

UPDATE: Film at 11:

Insurance Companies and Federal Judges Getting Together to Party and Scheme: What Could Go Wrong?

As we have seen there are judges who are becoming fed up with ERISA and its malignant effects on the behavior of insurance companies and the ability of insureds to enforce the promises made in insurance policies.

These judges, of course, do not make up the entirety of the federal judiciary. There are other judges who actually sit down and party and break bread with insurance companies.

Take, for example, the upcoming ERISA Litigation Conference to be presented by the American Conference Institute. This shindig will be raging at the ritzy Helmsley Park Lane Hotel in NYC on October 19 and 20.

What could possibly be wrong with that? Well, consider for one thing that when you have a claim denied and you ask for reconsideration from an insurance company, they are (supposedly) required by law to undertake a “full and fair” review of the claim, and conduct it impartially in accordance with their so-called fiduciary duties. Among these fiduciary duties are that they are required to discharge their duties “solely in the interest of the participants and beneficiaries.”

So what are these insurance companies (and plan sponsors and service providers) and federal judges going to be talking about over their caviar and bubbly? How about this: “Using the claims review process to set up, control and strengthen the defense”? (page 1 of the ACI brochure linked above) Or “Anticipating claims when making the decision and preparing to defend it before the decision is made”? (Page 3 of the linked brochure).

See, guys, when you are undertaking a review of a denied claim, and you are supposed to do that "solely in the interests of the participants and beneficiaries,” you are not supposed to be thinking about scrubbing the claim file so as to “set up, control and strengthen the defense.” You are not supposed to be “anticipating claims” or “preparing to defend it before the decision is made” since, of course, you approach your job with an open and fair mind and you don’t even know you’re going to deny the claim until you have assembled all the facts and applied your impartial, professional expertise to the decision.

Right?

Right?

And of course while the insurers are discussing how to use the claims review process to prepare for the defense of a future lawsuit instead of applying it to the "sole interest of participants and beneficiaries,” they’ll be doing so while rubbing elbows with “21 federal judges from district courts located in 8 circuits.” (Page 1 of the linked brochure). This, of course, is like Al Capone and Baby Face Nelson setting up a party at the Waldorf Astoria to discuss “Tommy Gun serial number removal techniques” and “get-away cars: the fastest and most inconspicuous models,” while inviting federal judges to come and enjoy the fete.

It smells, sure. Just remember, next time you ask your insurance company to reconsider its denial of your health insurance claim, all you will really get is a reconsideration by the insurance company as to whether it should continue to pay benefits, and thus reduce its profits. And all the while they’ll be thinking about “using the claims review process to set up, control and strengthen the defense.”

Funny, by the way, that ACI’s own web site has sequestered information about this conference. Guess we’re not supposed to know about it. My bad; looks like I was mistaken about that. I can't get the page to come up on my computer but I am told others can.

Pre-existing condition? We don’t need no stinkin’ pre-existing condition...

One of the major points advanced in favor of health insurance reform is that insurance companies abuse the privilege of refusing to cover you if they decide you have a pre-existing condition, or pulling the plug on coverage you already have if they decide you had one you didn’t tell them about when you applied for coverage. That’s a sad state of affairs, without question. As in other areas, of course, ERISA manages to make a bad situation worse. Much worse.

If you get your insurance through your employment, ERISA wipes out any state law protection you might have in this area, and health plans can simply change your “coverage” to exclude a condition you might develop, never mind whether it was pre-existing or not. Consider the sad case of John McGann, who discovered in December 1987 that he was afflicted with AIDS. At least, he thought, he was fortunate to have good insurance from his employer, H&H Music Company, which provided coverage for AIDS treatment up to a $1,000,000 lifetime limit.

John McGann, unfortunately for him, failed to consider what ERISA was about to do to him.

Now, Mr. McGann had an insurance policy through his employment with H&H, already issued, already underwritten, premiums fully paid. There was absolutely no indication his AIDS was a pre-existing condition, and no one ever claimed it was.

But in 1988, when the insurance company, General American Life Insurance Company, got wind of his illness, all of a sudden things changed at H&H:

In July 1988, H&H Music informed its employees that, effective August 1, 1988, changes would be made in their insurance coverage. These changes included, but were not limited to, limitation of benefits payable for AIDS-related claims to a lifetime maximum of $5,000. No limitation was placed on any other catastrophic illness.

Now hold on a minute. John McGann had an insurance policy which said treatment for AIDS was covered up to $1,000,000. An insurance policy, which most people think of as a binding contract that the insurer will cover what it says it will. But H&H just canceled the policy and pulled it out from under Mr. McGann, replacing it with a self-insured plan with the aforementioned stingy AIDS benefit.

By the way, in court, H&H and General American proudly admitted:

the reduction was prompted by the knowledge of McGann’s illness, and that McGann was the only beneficiary then known to have AIDS.

The United States Fifth Circuit Court of Appeals reviewed ERISA, and concluded:

[ERISA] does not prohibit an employer from electing not to cover or continue to cover AIDS, while covering or continuing to cover other catastrophic illnesses, even though the employer’s decision in this respect may stem from some “prejudice” against AIDS or its victims generally.

It wasn’t even that hard, either. ERISA is pretty clear that your employer, if, say, the insurance company threatens to raise premiums in response to an employee coming down with a covered illness, can just cancel that part of the coverage and leave the sick employee, who didn't think they were in the ranks of the uninsured, high and dry. Indeed, never mind higher premiums, ERISA allows coverage to be precipitously canceled because of, say “some ‘prejudice’ against AIDS or its victims.”

That’s ERISA for you. If we don’t fix ERISA, now, then any “reform” we might achieve will be empty indeed.

The case is McGann v. H&H Music Co., and the citation is 946 F.2d 401 (5th Cir. 1991).

By the way, John McGann died in June 1991.

The Rising Judicial Chorus: Judge Young

William G. Young is a judge for the United States District Court for the District of Massachusetts; he was a 1986 Reagan appointee and served as chief judge from 1999 to 2005.

In 1997 Judge Young issued an opinion in a case called Andrews-Clarke v. Travelers Insurance Company. In a nutshell, Richard Clarke drank too much, and sought treatment for his alcoholism, which was a covered benefit under his ERISA-governed Travelers insurance policy. Travelers and its utilization review contractor, Greenspring, refused to authorize the in-patient stay requested by his doctors, and Mr. Clarke was released ahead of schedule. He tried to commit suicide, was readmitted to a detoxification facility, and was again released ahead of schedule due to Travelers’ and Greenspring’s refusal to authorize the requested length of stay.

Here’s what happened next, as described by Judge Young:

By now, it was tragically apparent to everyone but Travelers and its agent, Greenspring, that Clarke was a danger to himself and perhaps others. After conducting a commitment hearing, the Haverhill District Court so found, and ordered Clarke committed to a thirty-day detoxification and rehabilitation program. The court referred the issue of Clarke's placement to the Court Clinic, which in turn sought Greenspring's approval for an insured admission to a private hospital. When Greenspring - despite the fact that enrollment in a thirty-day inpatient detoxification program is a defined benefit of the Travelers insurance policy - incredibly refused to authorize such a private admission, the court ordered Clarke committed to the Southeastern Correctional Center at Bridgewater for his detoxification and rehabilitation.

Clarke's life now spiralled inexorably down and out of control. While a patient at Bridgewater, he was forcibly raped and sodomized by another inmate in his unit. He received little in the way of therapy or treatment. After his release from Bridgewater on October 25, 1994, he made his way back to Haverhill where his wife and four minor children still lived. Diane Andrews-Clarke told Clarke that he could return to the marital home only if he remained sober. Unable to do so without hospitalization, Clarke began a three-week drinking binge.

Richard Clarke, age 41, committed suicide on November 12, 1994. His wife, Ms. Andrews-Clarke, sued Travelers for wrongful death, and the case ended up before Judge Young. We’ll let him take it from there (I have omitted footnotes, but you can find them in the original case report; the citation is below):

Travelers and Greenspring promptly removed her case to this Court and then, just as promptly, asked this Court to throw her out without hearing the merits of her claim.

This, of course, is ridiculous. The tragic events set forth in Diane Andrews-Clarke's Complaint cry out for relief. Clarke was the named beneficiary of a health insurance policy offered through an employee benefit plan. That policy expressly provided coverage for certain medical and psychiatric treatments, including enrollment in a thirty-day inpatient alcohol detoxification and rehabilitation program. Doctors at several hospitals, and even the courts of the Commonwealth of Massachusetts, determined that Clarke was in need of such treatment, but the insurer and its agent, the utilization review provider, repeatedly and arbitrarily refused to authorize it. As a consequence of their failure to pre-approve - whether willful, or the result of negligent medical decisions made during the course of utilization review - Clarke never received the treatment he so desperately required, suffered horribly, and ultimately died needlessly at age forty-one.

Under traditional notions of justice, the harms alleged - if true - should entitle Diane Andrews-Clarke to some legal remedy on behalf of herself and her children against Travelers and Greenspring. Consider just one of her claims-breach of contract. This cause of action - that contractual promises can be enforced in the courts - pre-dates Magna Carta. It is the very bedrock of our notion of individual autonomy and property rights. It was among the first precepts of the common law to be recognized in the courts of the Commonwealth and has been zealously guarded by the state judiciary from that day to this. Our entire capitalist structure depends on it.

Nevertheless, this Court had no choice but to pluck Diane Andrews-Clarke's case out of the state court in which she sought redress (and where relief to other litigants is available) and then, at the behest of Travelers and Greenspring, to slam the courthouse doors in her face and leave her without any remedy.

This case, thus, becomes yet another illustration of the glaring need for Congress to amend ERISA to account for the changing realities of the modern health care system. Enacted to safeguard the interests of employees and their beneficiaries, ERISA has evolved into a shield of immunity that protects health insurers, utilization review providers, and other managed care entities from potential liability for the consequences of their wrongful denial of health benefits.

***

Does anyone care?

Do you?

The case again is Andrews-Clarke v. Travelers Insurance Company, and the citation is 984 F.Supp. 49 (D.Mass. 1997).

ERISA Wants Your Claim to be Denied – Part III

This week we’ve been considering the theory of “efficient breach,” which holds that it’s a fine thing to do to breach a contract so long as everyone comes out even or ahead. A critical aspect of this theory is that the breaching party has to make the other party whole, and if it can incur that expense and still come out ahead then giddyup.

So a party thinking about breaching a contract has to figure out what that expense is likely to be – how much is it likely to cost to make the other party whole? Only then will the breaching party have a number to compare to the gain he expects to realize from breaching.

Now consider Deny-Em-All Insurance Company (“DIC”) doing this calculus under the influence of ERISA. Let’s see, says DIC, since we have granted ourselves “discretion” in the policy and therefore can only be liable if it can be shown we were “arbitrary and capricious,” there’s a good chance that we won’t be liable at all and the cost of "making the other party whole" will be ... zero!

Then there’s this: in the unlikely event we have to pay something to the other party, thanks to ERISA in no event will we have to actually make them whole, as we would if justice and fairness were involved here.

So ERISA says to the DICs of the world, go ahead and breach! The cost of making the other party whole (i.e. the artificially low remedy ERISA allows, discounted further because there is likely to be no liability at all thanks to the “discretion” scam) almost has to be less than the cost of, you know, living up to your contractual obligations.

Therefore, under an “efficient breach” approach, not only do the DICs breach contracts with no fear of any meaningful consequence, they do so with the affirmative blessing of the law.

Meanwhile, real people go without. But providing them (as the insurance contract promises) with medical care, or disability benefits, isn’t “efficient,” according to ERISA.

ERISA Wants Your Claim to be Denied – Part II

The other day we considered the legal theory of “efficient breach” – the idea that breaching a contract is actually a good thing to do provided doing so is “economically efficient.” It is a bit of an oversimplification, but “economically efficient” essentially means that everyone involved comes out at least as well as they would have if the contract had not been breached, and the breach causes assets to be devoted to their most valuable use.

So, if a party can breach a contract, make the other party to the contract whole by paying them damages, and still come out ahead, then “efficient breach” theory wants that party to breach the contract. By recovering damages for the breach, the other party will end up in the same position as if the contract had been performed, and if the breaching party can pay those damages and still come out ahead because of, say, a better deal which comes along, then theoretically at least the asset in question is being devoted to a more valuable use.

Let’s take a closer look at the calculation to be undertaken by the party thinking about breaching a contract. There are two numbers that party has to compare to each other: the amount of damages it is likely to have to pay the other party, against the gain it stands to realize, by virtue of the breach. According to “efficient breach” theory, if the former is smaller than the latter then the party should breach the contract.

It follows, therefore, that if you make the former number (the cost of breaching) smaller, or the latter number (the benefit derived from breaching) larger, then you are going to see more breaches of contracts.

Tomorrow we’ll close the loop by examining how ERISA affects this calculation. Here’s a hint: it makes that first number – the cost of breaching – artificially low, and therefore it causes more contracts to be breached (i.e. more valid insurance claims to be denied). And this from a law that was supposed to “protect ... the interests of participants in employee benefit plans.”

ERISA Wants Your Claim to be Denied – Part I

Breaching a contract seems to most people like a bad thing to do – after all, when you get right down to it a contract involves mutual promises: you pay me this much money, and I’ll do something for you in return. Breaching the contract, then, means breaking a promise. So breaching a contract is wrong, isn’t it?

Well as far as the law is concerned, the answer to that is “it depends.” There’s a theory, known among other things as the theory of “efficient breach,” which holds that not only is it not always wrong to breach a contract but that sometimes it’s the right thing to do; the law ought to encourage breaches of contracts where it is appropriate to do so; and on analysis it does.

The theory goes something like this. One: the law will not (and ought not) “punish” you for breaching a contract, it will only make sure that you fully compensate the other party if you do. Two: if it turns out that it would be more profitable for you to breach the contract and make the other party whole, then it is more economically efficient, and therefore a good thing, for you to go ahead and breach the contract.

A leading proponent of this theory is Judge Richard A. Posner of the Seventh Circuit Court of Appeals. In his book “Economic Analysis of Law,” Judge Posner gives the following example:

I sign a contract to deliver 100,000 custom-ground widgets at $.10 apiece to A, for use in his boiler factory. After I have delivered 10,000, B comes to me, explains that he desperately needs 25,000 custom-ground widgets at once since otherwise he will be forced to close his pianola factory at great cost, and offers me $.15 apiece for 25,000 widgets. I sell him the widgets and as a result do not complete timely delivery to A, who sustains $1000 in damages from my breach. Having obtained an additional profit of $1250 on the sale to B, I am better off even after reimbursing A for his loss. Society is also better off. Since B was willing to pay me $.15 per widget, it must mean that each widget was worth at least $.15 to him. But it was worth only $.14 to A – $.10, what he paid, plus $.04 ($1000 divided by 25,000), his expected profit. Thus the breach resulted in a transfer of the 25,000 widgets from a lower valued to a higher valued use.

OK, so here Judge Poser breached his contract with A, and everyone involved came out at least as well as if Judge Posner had performed. A still realized his expected $1000 profit, because Judge Posner had to compensate him in that amount as damages for his breach of contract. B is better off because he ended up with the widgets, and based on the price he was willing to pay for them he needed them more than A did –they were more valuable to him than they were to A. And Judge Posner came out $250 ahead (his $1250 profit on the deal with B less the $1000 he had to pay to A) because of B’s willingness to pay a higher price. And finally, according to economic theory, society is better off whenever an asset is dedicated to a more valuable use, which is the case here as measured by B’s willingness to pay more than A was.

Later this week we will explore how these concepts are turned on their head when it comes to a breach of an insurance contract by an ERISA insurer. For now remember the essence of an “efficient breach”: the breaching party makes a rational decision to breach a contract because even accounting for the liability it will incur by virtue of the breach, including the obligation to make the other party whole, the breaching party still comes out ahead.

Timothy P. Carney in the Washington DC Examiner: health insurance reform omits ERISA reform

The Washington DC Examiner's Lobbying Editor, Timothy P. Carney, points out that current proposals for health insurance reform not only fail to reform ERISA, but explicitly preserve its perverse effect.

And you might think Democrats would tend to be on the side of the angels here and Republicans would tend to be in the insurance companies' thrall. Not necessarily. As Mr. Carney notes, Republican representative John Shadegg of Arizona has spoken up about this problem in the context of the pending reform efforts, so far to deaf ears adorning the heads of both parties.

Here's Representative Shadegg in action:


So: call, write, sound off, and support Representative Shadegg's efforts here!

No surrender!

If you’ve spent any time on this blawg, and you’ve experienced a denied insurance claim subject to ERISA, you may have developed a sense of hopelessness, not to mention frustration and outrage. All, in my opinion, very appropriate reactions. There’s no use soft-peddling the malignant effects of ERISA – it is very arguably the most unjust law on the books.

But the understandable reactions described above ought not lead to paralysis or inaction. To become passive and to simply yield to insurance company abuse only makes a bad situation worse, for yourself and for others in your unfortunate position.

The calculus ERISA presents to an insurance company goes something like this: we deny 100 claims which probably ought to be approved. Perhaps 20 of those people will even realize we have done something wrong, because we can write bogus denial letters that make it sound like the denial is proper even though we know it probably isn’t. Out of the 20 people who realize they’ve been screwed, perhaps 10 will contact a lawyer, and perhaps five will end up actually taking us to court. And once in court, since we get the benefit of the most absurd stacking of the legal deck known to the law, we can probably count on winning three of those cases, even assuming the claimant is right and we are wrong. So by denying 100 claims wrongfully, thanks to ERISA, we can probably reap the financial benefit of not having to pay 98 of them, and the two we might lose in court, even if we are ordered to pay attorney fees for the other side, won’t come close to canceling out that benefit (remember in no case can consequential or punitive damages be awarded, so we never have to worry about one big loss wiping out the benefit we derive from ripping off those original 100 people).

The only way to upset that calculus even a little bit is for people to stand up for their rights, take the insurers to court in appropriate cases, and make them explain themselves to a judge. The law provides meager rights indeed, but there are lawyers (I am one of them) who can and do go to court and enforce those rights at least. Given the state of the law, it is very, very unlikely we can make you whole, but we can often recover something, and in the process make the insurance companies explain their bad behavior. Gradually, gradually, their fraud and abuse is thereby exposed to the light of day.

So: if you think you’ve been ripped off by your ERISA insurance company, there is every likelihood that you have. Find a lawyer specializing in ERISA claims (this is pretty important because ERISA is arcane and a law unto itself; a generalist is swimming upstream in trying to deal with all the absurd and counterintuitive rules), and see if the lawyer can find a way to enforce what rights the law provides. Take a stand and make them explain themselves!

The Rising Judicial Chorus: Judge Becker

It’s not just lawyers like myself, and ripped-off claimants, who are frustrated with ERISA’s patent unfairness. Many of the federal judges who are called upon to apply this unjust law have expressed their own frustration. Indeed, this outcry has been referred to more than once as the “rising judicial chorus” against ERISA and its malignant consequences.

Today we hear from the Honorable Edward Roy Becker of the Third Circuit Court of Appeals, who passed away in 2006. In 2003, Judge Becker issued a heartfelt concurrence in an ERISA case in which he made the following comments.

“Congress enacted ERISA in 1974 ‘to promote the interest of employees and their beneficiaries in employee benefit plans.’ ... However, with the rise of managed care and the Supreme Court's series of decisions holding preempted any action for damages against HMOs, ERISA has evolved into a shield that insulates HMOs from liability for even the most egregious acts of dereliction committed against plan beneficiaries, a state of affairs that I view as directly contrary to the intent of Congress. Indeed, existing ERISA jurisprudence creates a monetary incentive for HMOs to mistreat those beneficiaries, who are often in the throes of medical crises and entirely unable to assert what meager rights they possess.

“ERISA generally, and § 514(a) particularly, have become virtually impenetrable shields that insulate plan sponsors from any meaningful liability for negligent or malfeasant acts committed against plan beneficiaries in all too many cases. This has unfolded in a line of Supreme Court cases that have created a ‘regulatory vacuum’ in which virtually all state law remedies are preempted but very few federal substitutes are provided.

“...at the same time as ERISA makes it inordinately difficult to bring an injunction to enforce a participant's rights, it creates strong incentives for HMOs to deny claims in bad faith or otherwise ‘stiff’ participants. ERISA preempts the state tort of bad-faith claim denial, ... so that 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. Not only is there an incentive for an HMO to deny any particular claim, but to the extent that this practice becomes widespread, it creates a ‘race to the bottom’ in which, all else being equal, the most profitable HMOs will be those that deny claims most frequently.”

The case is DiFelice v. Aetna U.S. Healthcare, et al., and the citation is 346 F.3d 442 (3rd Cir. 2003).

There’s No Remedy if your Insurance Company Kills You

In December 1990, Rhonda Bast was diagnosed with cancer. At least she was not among the uninsured: she had health insurance, provided by her employer. When her doctor requested approval for a procedure which might save her life, Prudential Insurance Company said no. After Ms. Bast got lawyered up, Prudential changed its mind a few weeks later, but by then it was too late – Rhonda Bast died in January 1993.

So her family sued Prudential, claiming that if Prudential had not improperly delayed its approval for her therapy she would still be alive. The Northwest Women’s Law Center submitted a brief in the case, explaining “if insurance companies are not forced to disgorge the unjust enrichment that they gain by such bad faith denials, they will have no incentive to honor legitimate requests from their beneficiaries,” and that instead, insurance companies would “deny expensive treatments hoping that the beneficiary would not sue, or if she or her estate did, they would be left without a remedy.”

Thanks to ERISA, the Basts were indeed left without a remedy: the Ninth Circuit Court of Appeals said “Although moved by the tragic circumstances of this case and the seemingly needless loss of life that resulted, we conclude the law gives us no choice”; the “Basts’ state law claims are preempted by ERISA, and ERISA provides no remedy. Unfortunately, without action by Congress, there is nothing we can do to help the Basts and others who may find themselves in this same unfortunate situation.”

That was in 1998. We are still waiting for action by Congress.

The case is Bast v. Prudential Insurance Company of America, and the citation is 150 F.3d 1003 (9th Cir. 1998). You can look it up.

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?