If you are thinking about making a claim for disability insurance benefits, you will want to know whether your policy is subject to a federal law known as the Employment Retirement Income Security Act or ERISA. ERISA was originally enacted to protect employees, but in practice, often favors insurance companies. Understand the difference between ERISA Long Term Disability Insurance and Individual Disability Insurance.
If you have an employer-provided group long term disability policy, it is covered by ERISA, unless your employer is a governmental or religious entity. If you have an individual disability insurance policy, then state insurance laws generally govern it.
The two types of policies have very different claims procedures. Individual disability plan claims are like other types of insurance claims. ERISA long term disability insurance claims procedures, however, are unique. If you have an ERISA plan, it’s especially important to make sure you have a lawyer who understands the differences and has prior ERISA experience.
The ERISA Appeals Process
If you have an ERISA policy and your claim is denied, your next step is to file an appeal with the insurance company that denied your claim. ERISA requires all disability insurers to provide a reasonable claims procedure that includes at least one level of internal review. You must complete this internal appeal before you can sue the insurer. You must adhere to all deadlines because missing a deadline could be considered failure to exhaust your administrative remedies, which then can prevent you being able to sue.
Suit in Federal Court
Once you have exhausted your administrative appeals, you may sue your insurer in federal court. You will not be entitled to a jury and you probably won’t have a chance to appear in person to testify. The judge will not hear new evidence, but will decide the case based on a review of the evidence you submitted to the insurance company. Thus, you must ensure that the material you send to the insurance company in support of your application and appeal is as thorough and complete as possible. This is why you should get an ERISA disability insurance attorney involved as soon as your claim is denied or even before you file your claim. If you wait until your administrative appeal has been denied, it may be too late.
Most employer group policies contain language allowing the insurance company discretion to interpret the policy. When a policy includes this language, the judge reviews the insurance company’s decision to deny benefits for “abuse of discretion,” a standard that is very favorable for the insurance company. The judge cannot overturn the insurer’s decision unless the insurer’s denial of benefits is unsupported by the evidence or is clearly incorrect even if the judge thinks the insurer was wrong. Thus, if the insurer had any rational reason to deny benefits, the court may uphold the insurer’s decision. Some states, including New Jersey, have attempted to change this rule, but the courts don’t always follow the state’s law.
The court can award you the back benefits you should have received, plus interest, but no additional compensation for your emotional distress or the insurance company’s bad faith, if any, in wrongly denying your claim.
The Individual Plan Appeals Process
For individual plans, as a general rule, if the insurance company initially denies your claim, you may sue in state court. You don’t have to go through an additional level of internal review. Some plans may require you to submit to arbitration, however. You may seek damages for breach of contract, negligence, bad faith or other causes of action. You can request a jury trial and appear in court and testify. You are not restricted to the evidence you submitted to the insurance company and you may introduce new evidence at the trial.
The state court will review evidence submitted to the court “de novo,” or anew, and determine whether the insurer fulfilled its promises to you under your disability insurance contract. This standard is more favorable to the policyholder than the “abuse of discretion” standard.
You may recover compensatory damages and, if the insurer acted in bad faith, punitive damages. The insurer may also be forced to pay your attorney fees.
Other Differences Between ERISA Long Term Disability Insurance and Individual Plans
Cost, Coverage, and Benefits
Generally, group disability insurance plans (ERISA plans) provided by your employer are less expensive than individual disability plans. However, the group policies provide more basic coverage whereas individual policies can be tailored to your specific needs and generally offer higher quality of coverage for a higher premium.
One potential difference between group and individual plans is the disability insurance policy’s definition of “disability.” Many group policies provide benefits initially if you can prove you are unable to perform your own occupation. Then after a period (typically two years), they require you to prove you are unable to perform any occupation for which you are qualified by education, training or experience.
With an individual plan, you may be able to purchase a policy that provides disability benefits for as long as you cannot perform you own occupation, even if you can do other work.
Group plans usually provide benefits equal to 50% to 75% of your pre-disability salary, capping your monthly total at $5,000 to $10,000. For a higher premium, you may be able to purchase an individual plan that pays a greater percentage of your salary with a higher monthly maximum.
Mental and Nervous Disorders
Virtually all group and individual plans limit disability benefits for mental disorders, nervous disorders and substance abuse. Typically, benefit payments are limited to 12 to 24 months. An individual plan may be available at a higher premium to cover for these conditions (e.g. depression, anxiety, fibromyalgia, chronic fatigue syndrome, etc.).
One of the best features of individual plans is their portability as long as you continue to pay for coverage. Thus, your disability coverage can “travel” with you from one job to the next or even survive periods of unemployment.
In contrast, group disability insurance coverage terminates when your employment relationship with your current private employer ends. Even though ERISA contains provisions (COBRA) that allow your health insurance to continue for a short period of time after your employment is terminated, this privilege does not extend to disability insurance. Thus, if you quit your job, you cannot then apply for disability benefits under your employer-provided disability insurance plan.
For group plans, employers usually pay the premium with before-tax dollars. As the recipient of the disability benefits, your benefits will be taxed as ordinary income. Since you pay the premiums for individual plans with after-tax dollars, your benefits are tax-free.
Consult a New Jersey Disability Insurance Attorney
Whether you are filing for disability benefits under your ERISA group plan or your non-ERISA individual plan, our experienced New Jersey disability insurance lawyers can help by:
- Reviewing your policy.
- Obtaining your medical and employment records.
- Compiling relevant evidence supporting your disability claim.
- Packaging your claim for benefits into a persuasive file.
- Ensuring your application or appeal is thorough and complete.
- Meeting all deadlines to ensure your rights are not waived.
If you are applying for disability benefits or appealing a denial of disability benefits, contact a seasoned New Jersey disability insurance attorney with Uscher, Quiat, Uscher & Russo, P.C. at 1-800-797-5575.