How the Wrong Decision Can Win

Another pitfall of ERISA is how one-sided the law can be. The ERISA record limitations discussed above are bad enough, but insurers’ decisions are also typically granted deference under the arbitrary and capricious review standard. Thus, the court could rule in the insurer’s favor even if they find the insurer made the wrong decision. In other words, the judge could conclude you are disabled and still rule that you lose your case.

A judge could be required to allow the insurance company’s wrong decision to win if there is any reasonable basis the insurer can manufacture or point to. When it comes to defining what constitutes a “reasonable basis,” courts are all over the map, with some appearing to suggest that any basis is good enough. That would mean the insurance company’s in-house physician could be wrong about everything in his/her opinion, but the insurance company still wins if the claims adjuster who denied the claim “reasonably” relied upon that in-house physician’s opinion to deny your claim.

All these barriers embolden insurers to deny claims in a way they never would if state law applied, but insurance company’s act particularly badly due to ERISA’s limitation on damages. Past due benefits are all that can be sought. There are no future benefits or punitive damages or any other real skin in the game for the insurer here. It will just have to pay the claim it refused to pay and potential interest. Insurance companies have no economic incentive to pay an ERISA claim. In other words, you can go all the way through litigation, and the court will likely only order the insurer to pay you what it should have paid to begin with. Insurers understand that many people will give up without filing suit and many others cannot wait years to receive their benefits. This means insurers can get away without paying anything or can at least settle good claims for much less than what is owed. When someone actually decides to stick it out and gets a successful ruling, then the insurer will just have to pay a claim it was required to pay anyway.