What is ERISA?
The Employee Retirement Income Security Act of 1974 (ERISA) is an extensive federal law that governs employee benefits. The law was passed to protect employees’ interests in their benefit plans by placing requirements such as standards of conduct and fiduciary obligations on the providers of employee benefit plans.
Since it is a federal law, ERISA generally preempts state laws. This means that when both the federal law and a state law apply to a set of facts, the federal law governs what happens.
ERISA explicitly exempts state laws from preemption if the state law specifically regulates insurance. The U.S. Supreme Court has said that state law is applied when the law is “specifically directed toward entities engaged in insurance,” and when it “substantially affect[s] the risk pooling arrangement between the insurer and the insured.” Kentucky Association of Health Plans, Inc. v. Miller, 538 U.S. at 342 (2003).
When Does ERISA Apply to Life Insurance Claims?
ERISA applies to almost all employee benefit plans except those provided by governments and churches. Life insurance is considered an aspect of employee welfare benefit plans, which are regulated by ERISA. Therefore, if a life insurance policy was issued by a U.S. employer other than a government entity or a church, and no exceptions to this general rule exist, ERISA applies to the policy and to any life insurance claim denial.
A life insurance policy issued by an employer is not governed by ERISA when the following four conditions exist. Such insurance policies are considered exceptions to ERISA governance.
- The life insurance policy is part of a group insurance plan offered to employees that is completely voluntary.
- The employer does not make any contribution to the insurance premiums
- The insurance company does not provide any financial or other benefit to the employer for offering the insurance option.
- The employer’s sole responsibility related to the insurance program, without endorsing the program, is to allow the insurance to be publicized and offered to employees and to collect premiums through the payroll process and send them to the insurance company.
Why Does it Matter if ERISA Applies to Life Insurance Policies?
If ERISA applies to the employee benefit plan under which the life insurance policy was issued, then any disputes regarding denials are governed by ERISA. Differences with the appeals process for life insurance claims under ERISA include:
- A limit on remedies (for example, no punitive claims and no bad faith claims that might be allowed under state law)
- A distinct set of rules and procedures for the entire appeals process
- Hearings before a federal judge, not a jury
- Different rules of procedure for court cases than would apply in state court
Many life insurance attorneys recommend that clients should try to show that ERISA does not apply to the insurance policy. This is because more avenues for redress and more remedies may be available under state law.
Insurance claim attorney Chad G. Boonswang has helped many life insurance beneficiaries determine whether ERISA applies to their claims and resolve their life insurance claim denials. Contact him today for a free consultation about your life insurance claim.