Disabled Employees Should Understand the Purpose Behind ERISA When Making a Claim for Long-Term Disability Coverage

ERISA is the federal statute that governs long-term disability claims brought by employees against employer-sponsored disability policies. ERISA stands for “Employee Retirement Income Security Act of 1974.” It is a comprehensive statute that covers far more than employee disability claims. When Congress passed ERISA, it did so with various goals or objectives in mind. The purpose of ERISA, therefore, is critically important when an employee decides to bring a long-term disability claim. 

If, as insurers often due, the disability insurer denies the claim and appeal, the disabled employee should consider filing a lawsuit and suing the insurer in federal court. However, in order to make their best case, an employee should understand the purpose or stated goals behind the statute. Doing so improves the employee’s chances of ultimately prevailing on their claim.

In a recent decision before the United States Court of Appeals for the Ninth Circuit, a federal appeals court reversed a trial court judge’s decision that found an employee was not entitled to benefits under her disability plan. The appellate court reversed the decision in part because the trial judge considered new arguments by the insurer that were not made when the insurer initially denied the claim. In its decision, the court provides an excellent explanation regarding the purpose and intent behind ERISA.

The court explained that Congress passed ERISA to promote the interest of employees under employee benefit plans, including long-term disability plans. ERISA was also enacted to protect “contractually defined benefits,” meaning those benefits offered under a disability plan. Equally important, ERISA aims to regulate the way insurers process disability claims. The statute does this by setting minimum procedural requirements that must be adhered to when an insurer or claim administrator denies an employee’s request for coverage under a disability plan.

One critical requirement under ERISA is that every insurer falls under the statute must provide adequate written notice to an employee/participant explaining the reason for its denial. Such statements must be written in a way that allows the employee to understand the basis for the denial. The claim denial must include (a) the specific reasons for denial; (b) reference to the specific plan provisions which the insurer relied upon; (c) a description of any additional information the employee must provide to “perfect the claim”; and (d) a description of the disability policy’s review procedures and time limits that apply to those procedures. This includes a statement explaining the employee’s rights to bring a civil action.

When a disability insurer denies a claim,  it must also provide an explanation of the basis for the insurer or claim administrator disagreeing with the conclusions of the employee’s health care providers or vocational professionals who evaluated the claim. The insurer must also provide the employee with a “full and fair” review of the denial of benefits as part of the appeals process.  If the insurer denies the employee’s appeal, ERISA allows the employee to then file a lawsuit in federal court where a judge can review the administrative record and determine if the claim denial was appropriate.

Courts interpreting ERISA have found that the statute is “remedial legislation that should be construed liberally to protect employees who are insureds under employer-sponsored disability plans. 

Understanding the purpose behind ERISA cannot be overstated.  When an employee makes a claim for disability benefits and the insurer denies the claim, employees want to make sure that the insurer followed ERISA’s procedural and substantive requirements. If the insurer fails to do so, the employee may be able to use the insurer’s failure to follow the statute as a basis for having the insurer’s denial overturned. 

The decision is Collier v. Lincoln Life Assurance Company of Boston, 53 F.4th 1180 (9th Cir. 2022).