When policyholders file a disability insurance claim, they often assume that state law consumer protections—like bad faith, punitive damages, and fair claims handling—will apply. But many are blindsided to learn that those rights may be stripped away by a little-known federal law called ERISA.
What Is ERISA, and Why Does It Matter to You?
The Employee Retirement Income Security Act of 1974 (ERISA) is one of the most misunderstood – and often harmful – federal laws for disabled individuals.
If your disability policy is provided through your job (which is very common), there’s a strong chance it’s governed by ERISA. When that’s the case, ERISA “preempts” or overrides many state law protections that would otherwise help you fight back against an insurance company’s wrongful disability claim denial.
What Does ERISA Preemption Mean for You?
Preemption means that ERISA takes precedence over state laws that might otherwise apply to your claim. As a result, you lose critical rights, including:
- The right to sue for insurance bad faith
- The ability to recover punitive damages
- The right to a jury trial
- Access to broad discovery into how and why your claim was denied
Instead, ERISA disability claims are typically decided in federal court by a judge, often based solely on the insurance company’s claim file. Courts give the insurer significant deference, even when the denial seems unfair.
In short, ERISA makes it much harder for policyholders to win their cases – and for insurance companies to be held accountable.
When Does ERISA Apply and When Doesn’t It?
ERISA generally applies to any group disability plan provided through an employer, unless the plan qualifies for a limited exemption.
One key exemption is known as the “voluntary plan safe harbor.” See 29 C.F.R. § 2510.3-1(j). If your employer offers the policy but doesn’t contribute to it, doesn’t endorse it, and limits its involvement to administrative functions like payroll deductions (made on an after-tax basis), the plan may be considered “voluntary” and not governed by ERISA.
But here’s the catch: insurers often assert the claim is governed by ERISA when it is not. Misrepresentations like this can create significant extra-contractual liability if the lawsuit is ultimately subject to insurance bad faith law (per instructive authority of the California Insurance Commissioner).
Why Does This Matter Now?
In recent years, insurance companies have increasingly relied on ERISA’s favorable legal framework to deny claims they would likely pay under state law. They know ERISA shields them from liability, and they use that shield to their advantage – often at the expense of people with real, life-changing disabilities.
If you’re struggling to get your disability benefits approved, one of the first questions we ask is: Is this an ERISA case? Because how your policy is classified will determine what rights you have, what remedies are available, and how we approach your case. And, the insurer’s representations are often inaccurate.
What Can You Do as a Policyholder?
- Know how your policy was obtained. If your employer offered the plan, ERISA probably applies. If you bought it directly from an insurance broker, ERISA likely does not.
- Keep your plan documents. They often provide clues about whether ERISA applies, but even then, it’s not always clear. Legal review is critical.
- Get legal advice early. The rules around ERISA are complex and unforgiving. Delays, appeals, and the way you communicate with your insurer can all impact your case.
Ask your employer questions. If you’re signing up for a new disability policy at work, ask whether the plan is employer-sponsored and whether they contribute to premiums or promote the plan. That may affect whether your rights are governed by ERISA or protected under state law.
How Bourhis Law Group Can Help
At Bourhis Law Group, we’ve spent decades standing up for policyholders. We understand how insurers exploit this legal loophole – and we know how to fight back.
If your disability claim has been denied, or if you’re unsure whether ERISA applies to your situation, contact us for a consultation. We’ll help you understand your rights and make sure you’re not fighting your insurance company with one hand tied behind your back.
Matthew Bourhis is a nationally renowned disability insurance attorney and President of Bourhis Law Group. For more information, visit bourhislaw.com or call for a confidential case review.
