Ten Things Employees Should Know About ERISA Disability Insurance Benefits

1. What is disability insurance?

Exactly as it sounds, disability insurance is for those who become disabled due to injury or sickness (often including mental disorders), where the disability is expected to last more than just a few days or months. It is considered an income substitute because its goal is to replace your lost wages. It typically pays you 60 to 80 percent of what you were making while working on a monthly basis.  Long term disability insurance often starts after you have been unable to work for six months. It can remain paying you monthly benefits until you are no longer disabled, or have reached the age of 65 (or beyond depending on your policy).

2. Do I have an ERISA disability plan and how do I find out more information?

A large majority of employers offer their employees this insurance as one of the standard employee benefits. In fact, most employees that work for medium to large employers have an ERISA disability plan. If you have become disabled due to sickness or injury you should immediately determine if you have a long term disability policy.  Most employees never expect to become disabled, and even forget they have this employee benefit. Unfortunately, the U.S. Census Bureau estimates that one out of five of us, at one point in time, will become disabled (at least temporarily).

You should check your benefits package.  You likely received a large package of materials from human resources containing information about your disability plan when you started.  Undoubtedly you misplaced that packet (as most of us do after a few years).  In that case, you should inquire with your human resources office.  If you are paid by a separate payroll or third party company, check with its employee benefits or human resources contact.  Ask them for a copy of any individual or group disability policies that you may qualify for. 

3. What law covers my long term disability insurance?

If your disability insurance comes from your private employer, it is almost always governed by the Employee Retirement Income Security Act of 1974, better known as "ERISA." ERISA is one of the most convoluted and difficult areas of the law, this federal legislation is designed to protect pensions and other employee benefits of the American workers. Debate is out on whether it succeeds in its mission, but the fact remains you will need to file a federal lawsuit. This is because ERISA allows insurance companies to interpret plan terms and sets forth a difficult burden shifting standard, however, if successful, you are often entitled to make a claim for your attorney's legal fees. (See also Understanding ERISA and Long Term Disability).

4. I submitted my application for disability benefit but I have been denied, what do I do now?

Do not simply sit back and wait to take action.  Timing here is critical, this is because before you can sue you must first file an “administrative appeal” to the plan’s administrator.  This must be done within 180 days from the date of the written denial of benefits.  If you fail to submit an administrative appeal, you will likely lose your right to sue. Sometimes there are two levels of appeals, so be careful when reading the plan documents.

5. What should I submit when appealing a denial of disability benefits to my insurance company?

As much as you can.  This is your chance to tell the administrator exactly why you are disabled. You want to submit all the helpful documentation you have concerning your disability.  You may even want to go out and have specialists review your conditions and write opinion letters on your conditions and state of disability.  How much you need will depend upon your individual circumstances, but if you have helpful information you generally should not hold it back.  Often times it can be helpful to provide an affidavit discussing the pain and limitations you endure because of your disability.  Additionally, you may want to have an IME (independent medical evaluation) or FCE (functionally capacity evaluation).   Ask your insurer to pay for these.  They will usually pay for them because failure to pay for one could come back and haunt them should you sue them. 

6. Why is it so important to supply your insurer with information?

An insurance company will often try and deny a claim for “insufficient information.”  Another favorite denial response is “insufficient objective medical information.”  While sometimes these denials are illusory or just shams, the former can be headed off by being diligent and supplying the information.  The later can (if an objective test exists) be solved by seeing specialists or having an IME performed.  To the extent your physicians are willing to, they should review the policy language of your disability policy when giving their professional opinion on your ability to work.

More importantly, should you need to sue, a court will pay particular attention to what you submitted to the insurance company for their consideration and what is in the “claim file” for the insurance company to review.  While it is possible to supplement the administrative claim file during litigation, a judge, among other things, will be reviewing what the insurance company was able to review when it chooses to deny your claim.  If you submitted nothing to the insurance company, and despite an insurance company’s best efforts to obtain medical information supporting your disability, if none existed, it will deny your claim.    Even if you are visibly disabled, a judge will more than likely deny your claim.  The law is unfavorable to claimants in these circumstances, but the best defense here is a solid offense.

7. I need to file a lawsuit for my disability benefits, what ERISA provisions have people sued under and been successful?

Should you need to file a claim against the insurance company that denied your employee benefits, you want to make a federal claim for violation of ERISA Section 502(a)(1)(B) (a claim for benefits due under the terms of the plan), and often a claim for violation of ERISA Section 502(a)(3) (breach of fiduciary duty).

8. Can I get a jury trial?

No.  Generally, ERISA does not provide for jury trials.  That means a United States Federal Judge (or Magistrate if you allow it) will be deciding your case.  Unlike a jury, which may be emotionally persuaded by your medical conditions, a federal judge will be considering what information the insurance company had to review, not whether you are disabled. This type of review will take place unless certain ERISA violations occurred, which is beyond the scope of this article. 

9. What do I get if I win my lawsuit?

ERISA does not allow for traditional damages you would find in most lawsuits.  That means no recovery for emotional distress, bad faith for insurance denials and punitive damages.  However, the statute does provide for your attorney, in certain cases, to recover part of his or her attorney’s fees.  Thus, in addition to seeking attorneys’ fees, you will be looking for back benefits, possible reinstatement into the plan and declaratory relief.

10. Are my disability benefits taxable?

An astute question, but the answer like much in law is it depends.  Generally, if you pay for your disability benefits with after tax dollars, the benefits you receive will not be taxable.  With that said, if the premium or policy is purchased by your employer at no cost to you, or you pay with pre-tax money, you generally will be taxed on the disability benefits.  These are generalizations of what is the case for most people, but a number of other factors could change the taxability of the benefits, so make sure you consult with a tax professional on your specifics.