Often times, both potential clients and inexperienced attorneys will contact our office and are surprised to learn that insurance bad faith claims cannot be pursued when a group insurance policy is governed by Employee Retirement Income Security Act of 1971 (visit our ERISA disability and health insurance claims page for a more detailed summary of “ERISA”). A group insurance policy obtained through an employer, such as a long-term disability income replacement policy, looks like an ordinary policy but is not treated as such in the eyes of the law. That is because it is a group policy provided to an individual by his or her employer, and is thus governed by ERISA. The United States Supreme Court has addressed this issue and held that bad faith claims cannot be pursued under ERISA. Pilot Life v. Dedeaux, 481, U.S. 41 (1987). In the Pilot Life case, the Supreme Court ruled that state law claims of bad faith were preempted by the federal ERISA statutory scheme. The court relied on a specific statute found within ERISA which states that it “shall supercede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan…” Although all state laws are preempted, ERISA does contain a saving clause which provides that some state laws are not preempted, such as those laws which regulate “insurance, banking, or securities.” See ERISA § 514(2), 29 U.S.C. § 1144(b)(2)(A). The Pilot Life court determined that Louisiana’s bad faith laws did not specifically regulate insurance.
As a result, the only real recovery available to a claimant aggrieved by an insurance company in the ERISA context is the recovery of the contract benefit itself, interest on past due benefits, and the possibility the reviewing court might award attorney’s fees. This limitation on recovery, and many other nuances of the ERISA laws, have resulted in a dearth of attorney’s practicing in this area, and especially impacts an attorney’s ability to represent an insured on a contingency fee basis. However, at the Law Office of Shawn E. McDermott, LLC we have extensive experience in handling disability insurance claims, both governed by ERISA and non-ERISA, and have the ability to make recommendations on the viability of your claim.