ERISA is a federal law that governs most disability plans offered through employers and was enacted in part to make it more affordable for employers to offer long-term disability coverage and health insurance for employees. Unfortunately, ERISA tends to be an unfair law for disability insurance claimants.
The limitations and obstacles inherent to an ERISA regulated disability policy do not present themselves oftentimes until a claimant is faced with the unfortunate occasion of becoming disabled and unable to work. One such limitation is that an ERISA governed policy requires a claimant to exhaust administrative remedies before filing a lawsuit. This oftentimes only serves to prolong the time a disabled claimant must wait to receive benefits to which he or she is entitled. In the event that a claimant does file a lawsuit, under ERISA, a claimant is not entitled to a jury trial. The decision is therefore up to the judge who is usually limited to a review of the "claim file" under a standard requiring the judge to determine simply if the administrator acted unreasonably even if the judge thinks the claimant is in fact disabled.
Not surprisingly, disability insurers fight to have ERISA be the governing law over disability policy disputes.
In the case of Healy v. Minnesota Life Insurance Company the claimant sought long-term disability ("LTD") benefits from his insurer and filed suit in Missouri. The Defendant insurance company argued that ERISA governed the policy.
While most plans offered through employers are governed by ERISA, such plans may be exempt from ERISA if the disability plan meets all four requirements set forth in the federal Safe Harbor Regulations.
If a court finds that an employer has "contributed" to the plan then it cannot be exempt under Safe Harbor Regulations.
Minnesota Mutual argues a 10% discount of claimants’ premiums was a "contribution" and that the policy is subject to ERISA
Naturally, Minnesota Mutual argued in an effort to convince the court ERISA governed the policy. Ultimately, the court ruled that the plan was not subject to ERISA after finding the policy had not been "established or maintained by an employer"—a requirement under ERISA. However, the court also explained that the policy was not exempt from ERISA based on the federal Safe Harbor Regulations.
This case is important because the Missouri Federal court joined several other courts in finding that a discount of the claimant’s premiums was a "contribution" and therefore the Safe Harbor exclusionary provision does not apply. In other words, the disability policy, although held by the court to fall outside the purview of ERISA regulation, came dangerously close to falling within ERISA simply because the insurance company offered a 10% discount for purchasing the policy through the claimant’s employer.
When an insurance company offers a discount for obtaining a long-term disability policy through your employer it is important to consider the possible effects the discount may have on the policy. A contribution by an employer could put a policy under ERISA regulation thereby subjecting a claimant to various obstacles and limitations.
About the author: Gregory Michael Dell is an attorney and managing partner of the disability income division of Attorneys Dell & Schaefer. Mr. Dell and his team of lawyers have assisted thousands of long-term disability claimants with their claims against every major disability insurance company. To request a free legal consultation call 800-411-9085.