ERISA Disability Appeals and the Conflict of Interest Problem: What You Need to Know
If you’ve become disabled and have applied for long-term disability benefits through your employer’s disability plan, chances are you’ve encountered the frustrating process of denial and appeal. Employer-provided disability plans often fall under the Employee Retirement Income Security Act of 1974. This act is commonly referred to as ERISA. It sets out the legal framework for handling employee benefit plans, including disability claims.
Unfortunately, the process for obtaining benefits can feel like an uphill battle. Many insurance companies deny claims—sometimes repeatedly—before a case is resolved.
One of the most frustrating aspects for claimants is the administrative appeal process. This is a mandatory prerequisite before you can file a lawsuit in federal court. During this appeal, the same insurance company that initially denied your claim is often the one reviewing its own decision.
This situation creates an inherent conflict of interest. The same entity that pays the benefits also has the power to decide whether you are entitled to them. The courts have acknowledged this conflict but still remains a significant hurdle for claimants.
This post dives into the conflict of interest problem in ERISA disability appeals. We will explain how it impacts the outcome of cases. And, lastly, we will provide guidance on what you can do to improve your chances of success.
Understanding ERISA and Disability Appeals
ERISA is a federal law that governs employee benefit plans, including health insurance, retirement plans, and disability insurance. ERISA’s primary goals is to ensure that employees receive the benefits they are entitled to under their plans.
However, when it comes to disability insurance, ERISA also provides insurance companies and plan administrators with significant leeway in handling claims and appeals.
When an employee becomes disabled and applies for long-term disability benefits under an ERISA plan, the plan administrator reviews the claim to decide whether the employee qualifies for benefits. If the claim is denied, the employee must appeal the decision through the administrative process before taking the case to federal court.
The insurance company can correct its own mistake through this mandatory appeal process. But it often feels like a formality with little chance of success.
Once in federal court, the judge will review the case under the “abuse of discretion” standard. That means that the court will not overturn the insurance company’s decision unless it was arbitrary and capricious. The courts essentially defer to the insurance company’s decision. This highly deferential standard makes it difficult for claimants to win.
The Conflict of Interest Problem
One of the biggest problems in ERISA disability appeals is the conflict of interest that arises when the insurance company plays two roles: (1) as the administrator who decides whether to approve or deny a claim and (2) as the entity that pays the benefits.
This dual role creates a clear financial incentive for the insurance company to deny claims. Indeed, it saves a lot of money by doing so.
The United States Supreme Court addressed the conflict of interest issue in the 2008 case Metro. Life Ins. Co. v. Glenn. There, the court held that the courts should consider the conflict of interest as a factor when reviewing whether the insurance company abused its discretion. The court ruled that the existence of a conflict does not automatically invalidate the denial of benefits. Rather, the courts should weighed it along with other factors when determining whether the insurance company acted reasonably.
In practice, this means that if there is evidence that the conflict of interest significantly influenced the denial of a claim, the courts may give less deference to the insurance company’s decision.
On the other hand, if the insurance company can show that it took steps to mitigate the conflict—such as separating its financial interests from the claims review process—the conflict may carry less weight in the court’s analysis.
How the Conflict of Interest Impacts Claims
The conflict of interest issue is more than just a legal technicality. It can have a real impact on the outcome of disability claims. Insurance companies are for-profit entities, and they have a clear financial interest in denying claims to protect their bottom line. This conflict is especially problematic when the same company that stands to benefit financially from denying a claim is responsible for reviewing and deciding the claim in the first place.
Claimants may face several challenges as a result of this conflict, including:
Bias in Claims Review: Insurance companies may be biased in how they review claims, often interpreting plan language in a way that favors denial. For example, they might apply an overly restrictive definition of “disability” or selectively interpret medical evidence to justify a denial.
Failure to Consider Medical Evidence: Insurance companies may ignore or downplay medical opinions from treating physicians that support the claimant’s disability. Instead, they might rely on their own hired doctors or independent medical reviewers who have a financial incentive to recommend denial.
- Inconsistent Review Process: Insurance companies may fail to follow their own internal guidelines or engage in inconsistent decision-making, denying claims without providing clear or consistent explanations.
These types of practices are unfair to claimants. But they are also indicative of a broader conflict of interest at play. Courts are increasingly scrutinizing these behaviors. Even more so when there is evidence that the insurance company has a history of biased claims administration.
The Court’s Role in Weighing the Conflict of Interest
In Metro. Life Ins. Co. v. Glenn, the Supreme Court provided guidance on how courts should weigh the conflict of interest when reviewing a claim denial. According to the court, the conflict of interest is just one of many factors that should be considered when determining whether the insurance company abused its discretion. The weight given to the conflict of interest depends on the facts of each case.
For instance:
- If the insurance company has a history of biased claims administration or has demonstrated clear financial incentives to deny claims, the conflict may be given significant weight.
- On the other hand, if the insurance company can show that it has taken steps to mitigate the conflict—such as by separating the claims administration process from the company’s financial interests—the conflict may carry less weight.
The court also noted that if there is evidence that the conflict actually influenced the denial of the claim, the court may be more inclined to find that the insurance company abused its discretion. This can be especially important in cases where the insurance company has ignored or discounted key medical evidence or has failed to adequately explain why it denied the claim.
How to Identify and Prove a Conflict of Interest
Identifying and proving a conflict of interest in an ERISA disability case can be challenging. Nonetheless, it’s an essential part of building a strong appeal. Here are a few ways to identify and address conflicts of interest:
Review the Insurance Company’s Track Record. If the insurance company has a history of denying claims under questionable circumstances or has faced lawsuits for biased claims handling, this could be evidence of a conflict of interest.
Examine the Claims Process. You can request the entire claim file from the insurance company. Look for signs that the insurance company may have cherry-picked evidence, relied on biased medical reviews, or ignored important medical information. If the insurance company’s decision-making process seems inconsistent or unfair, this could be a sign of bias.
Use Independent Medical Reviews. To counter the insurance company’s biased medical reviews, consider obtaining independent medical opinions from doctors who have no financial incentive to favor the insurance company.
Document Everything. Keep detailed records of all interactions with the insurance company, including letters, emails, and phone calls. This documentation can be critical in demonstrating that the insurance company acted in bad faith or that the conflict of interest influenced the denial.
What Can Insurance Companies Do to Mitigate the Conflict?
Although the conflict of interest is inherent in many ERISA disability plans, insurance companies can take steps to mitigate its impact. Courts have recognized that certain measures can help neutralize the conflict and ensure fair decision-making. These include:
Walling Off Claims Administrators: Insurance companies can separate the individuals responsible for reviewing claims from those responsible for managing the company’s financial performance. By insulating claims administrators from financial pressures, insurance companies can reduce the likelihood that the conflict of interest will influence the claims process.
Using Independent Reviewers: Some insurance companies use independent peer reviewers or third-party medical professionals to assess claims. These reviewers are not influenced by the insurance company’s financial interests, which can help ensure a fair and unbiased review process.
Internal Quality Checks: Insurance companies can implement internal quality control measures to identify and address biased claims handling practices. By penalizing decision-makers who engage in biased or unfair claims administration, companies can promote accurate and impartial decision-making.
Why You Need an Experienced ERISA Disability Attorney
ERISA disability claims and appeals are complex. The presence of a conflict of interest makes the process even more challenging for claimants. If your disability claim has been denied, it’s essential to work with an attorney who understands the intricacies of ERISA law and can effectively navigate the appeals process.
An experienced ERISA disability attorney can help you build a strong case. He or she can start by gathering evidence, identifying conflicts of interest, and challenging the insurance company’s decision-making process. They can also advocate on your behalf in federal court, where the standard of review can be difficult to overcome without the right legal strategy.
Conclusion: Fighting Back Against Biased Denials
If your long-term disability benefits have been denied, it’s easy to feel discouraged. Even more so when facing a conflict of interest that seems to stack the deck against you. But you don’t have to go through the process alone. By working with a skilled ERISA attorney, you can fight back against biased denials. An attorney will ensure that your case is given the fair consideration it deserves.
At Osterbind Law, we have the experience and expertise to help you navigate the complex world of ERISA disability claims. Contact us today to tell us your story, and let us help you get the benefits you deserve.
