Complying with ERISA in Administering Your Company's Group Life Insurance Plan
By Veronica Baxter
October 20 2020 - Your employer wants to offer employees a group life insurance plan, and you are tasked with administering it. Group life insurance provided by employers is typically governed by federal law under the Employer Retirement Income Security Act of 1974 (ERISA). ERISA sets forth noticing requirements, and if a life insurance claim is denied, the procedural requirements for an appeal.
This article will describe ERISA's reach and consequences of failure to comply with ERISA, from the office of a noted ERISA claim denial attorney.
What Does ERISA Control?
A group disability, health, or life insurance policy provided by an employer and covers employees who work for at least 30 hours per week is typically governed by ERISA. Employers that are government entities and religious institutions are exempt from the requirements of ERISA.
ERISA provides requirements regarding the participation, funding, vesting, and enforcement of rights under employee benefit plans, and establishes various uniform standards and procedural safeguards concerning reporting, disclosure, claims to handle, and fiduciary responsibility for such plans. ERISA also provides remedies to enforce these requirements.
The Rights of Employees Enrolled in the Group Life Insurance Plan under ERISA
ERISA provides that all group life insurance plan participants ("the Plan Participants") have the right to:
- Receive written information about the Plan and Plan benefits;
- Examine without charge all documents governing the Plan, including insurance contracts, collective bargaining agreements, and the most recently filed annual report;
- Obtain copies of Plan documents including insurance contracts, any amendments, summary plan descriptions, collective bargaining agreements, and copies of the last-filed annual report, upon written request to the Plan Administrator;
- Receive a summary of the Plan's most recent annual financial report.
If an employee or their beneficiary's claim is denied, they are entitled to receive:
- Written or electronic notice of that denial and the reasons therefor;
- A description of any information or documentation needed to approve the claim;
- A description of the review procedures and applicable time limits;
- Copies of all documents that the claims administrator relied upon in denying the claim;
- Copies of any internal rule, guideline, protocol, or another criterion upon which the Claims Administrator relied.
Important Time Limits and Rules Applicable to ERISA Claims
- Initial decisions must be made within 90 days (45 days for disability claims). The Plan Administrator can request one 90-day extension (two 30-day extensions for disability claims).
- If a claim is denied, the Plan Administrator must give the beneficiary notice of specific reasons for the denial "written in a manner calculated to be understood" by the beneficiary. This means that Plan Administrators must use plain language.
- The Plan must give a beneficiary whose claim has been denied the chance for a "full and fair review by the appropriate named fiduciary." This has been interpreted as giving the beneficiary 180 days to file one appeal.
- The Plan Administrator must decide the appeal in 60 days (45 days for disability claims).
- If a Plan fails to establish or follow the above claims procedures, the beneficiary can sue.
What Remedies are Available to a Plan Participant whose Claim was Wrongly Denied?
ERISA provides an exclusive remedial scheme for claimants who have been denied benefits or received some other adverse decision. This scheme is intended to incentivize plan administrators and claims administrators to comply with the requirements under ERISA.
A Plan Participant may sue to recover benefits under the terms of his Plan. A Plan Participant can also to enforce his rights under the Plan, or to clarify his rights to future benefits under the Plan.
A Plan Participant may also be granted attorney fees and interest, but this is a discretionary award of the court. There is, however, a presumption in favor of a fee award to successful ERISA plaintiffs unless the particular circumstances of that case would render such an award unjust.
What Actions by a Plan or Claims Administrator Have Resulted in a Denial Being Overturned?
- Failing to comply with ERISA's procedural and noticing requirements;
- Keeping the policy details secret from Plan Participants;
- Offering Plan Participants no claims procedure;
- Failing to provide Plan Participants with the relevant plan information in writing;
- Failing to provide Plan Participants whose claims were denied with a description of the documents or information needed to approve the claim;
- Failure to make "full and fair" assessments of claims and communicate to Plan Participants the "specific reasons" for benefit denials in a language they would understand;
- Erroneous factual findings that the court later finds are "clearly erroneous findings of fact" in making benefit determinations or determining appeals;
- Failing to obtain a physician's recommendation or relying on medical reports that are not credible;
- "Tainting" medical file reviewer by giving the reviewer inaccurate negative information regarding the claimant in advance;
- Adding new reasons for denying a claim in a final decision, which precludes the Plan Participant from responding to that at the administrative level;
- Rendering a decision without explanation;
- Emphasizing a report favoring denial of benefits while deemphasizing other reports suggesting approval;
- Failing to provide independent experts with all of the relevant evidence;
- Conducting only a "pure paper" review of a claim, rather than conducting an in-person medical evaluation of the Plan Participant;
- Failing to provide reports created by in-house nurses and physicians and any so-called "independent" physicians with whom the Plan Administrator had consulted at the time of the claim denial.
As you have read, there is only one way to comply with ERISA and many ways to fall afoul of it. Be sure to set up and administer your Plan according to the law, and if you need assistance, there are professionals you can contract to manage your Plan and operate within the law. Their fee will be far less than if a plan participant successfully sues your company under ERISA.
Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with Chad Boonswang, Esq., a life insurance attorney.