Do you have a long-term disability claim with the County of Los Angeles, City of Los Angeles or another Los Angeles government organization? If so, you might be wondering: do the limited remedies available under a federal law called the Employee Retirement Income Security Act of 1974 (“ERISA”) apply to your claim? It is crucial that you determine whether the specific Los Angeles or County of Los Angeles employee welfare benefit plan at issue is governed by California’s insurance bad faith laws, ERISA, or the Los Angeles County Code. The answer will dramatically affect your recoverable damages.

ERISA applies to most employer-sponsored disability, life, health, retirement and many other employee benefit plans. ERISA exempts only two types of employer plans (meaning that ERISA does not apply to them):

• Government plans (see 29 U.S.C. § 1003); and
• Church plans, unless the church employer elects under 26 U.S.C. section 410(d) to be subject to ERISA.

While the general rule of thumb is that a government plan is exempt from ERISA and therefore, by default, subject to California’s bad faith laws, that is not always the case. Be careful. This is a complex issue and likely requires retaining an experienced ERISA disability lawyer.

ERISA defines a government plan as, “a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing.” 29 U.S.C. § 1002(32). ERISA does not define “political subdivision,” “agency,” or “instrumentality.” Federal courts have adopted complex tests to interpret these statutory terms. Some employers that look like government entities may not meet the tests and, therefore, are subject to ERISA (not exempt from it). Moreover, plans that involve both public and private employers may result in ERISA application to the entire plan, even as applied to the plan participant’s government employees. See, e.g., South Cent. Indiana Sch. Trust v. Poyner, 2007 WL 3102149, at *5 (S.D. Ind. Oct. 19, 2007).

Which law applies to the plan dictates the types of damages you can recover for an incorrectly denied claim. And there is a big difference, so, this is a critically important issue you do not want to overlook. If the plan is governed by California bad faith law (which is generally the case for government plans), the potential damages for a long-term disability claim denied in bad faith are by far the most expansive. They include: (1) the employee’s past-due disability benefits; (2) prejudgment interest on those benefits at the California rate of 10% per annum; (3) future disability benefits that will become due under the plan; (4) attorneys’ fees incurred to recover the employee’s disability benefits; (5) compensation for the emotional distress caused to the employee by the unreasonable denial or delay in paying the benefits; (6) all other damages proximately caused by the bad faith conduct; and (7) punitive damages in the case of oppressive, malicious or fraudulent misconduct.

Under an ERISA plan, the damages for an incorrectly denied claim are far more limited: (1) the employee’s past-due disability benefits through the date of the ERISA trial; (2) prejudgment interest on those benefits, generally limited to the federal rate (a very low rate); and (3) attorneys’ fees incurred in the ERISA action (but not pre-litigation attorneys’ fees incurred for the employee’s administrative appeal). The employee cannot recover future disability benefits, emotional distress, any other type of “tort” damage, nor punitive damages.

Los Angeles County and City Disability Plans
We have represented claimants employed by the County of Los Angeles and the City of Los Angeles (such as LAPD officers) to recover their wrongfully denied long-term disability benefits. We obtained extremely successful results for both County and City employees. See https://mslawllp.com/success-stories/. These County and City employees were not covered by the same disability plan, not even the same type of disability plan. The plans were not subject to the same laws. The City’s plan in our client’s case was exempt from ERISA (and governed by California’s bad faith laws) as a government plan. The insurer argued it was not because its group policy funding the LAPD officers’ benefits was issued to “The RSL Group and Blanket Insurance Trust” rather than the City of Los Angeles. But the insurer paid a handsome settlement including bad faith damages.

Neither ERISA nor California’s bad faith laws applied to the County’s plan in our client’s case. Indeed, some LA County government disability plans are their own distinct animal. The County of Los Angeles’ Long-Term Disability and Survivor Benefit Plan is governed by Chapter 5.38 of the Los Angeles County Code, not ERISA and not bad faith laws. The available damages when the County or its claims administrator, Sedgwick Claims Management Services, incorrectly denies an employee’s long-term disability benefits claim include: the employee’s past-due disability benefits. That’s it! The employee cannot recover prejudgment interest, attorneys’ fees (with one possible exception mentioned below), emotional distress, or any other type of bad faith or punitive damages.

There are other issues peculiar to Los Angeles County’s Long-Term Disability and Survivor Benefit Plan, codified at County Code, Chapter 5.38.

• The Plan has an “own position” disability standard for the first 24 months of benefit payments and, thereafter, converts to the standard used by the Social Security Administration to decide if an applicant is disabled.
• The employee must exhaust administrative remedies before filing a lawsuit by submitting a written appeal to the claim administrator within 60 days of the benefits denial (unlike ERISA’s 180-day appeal requirement).
• If the appeal is denied, the employee must request an evidentiary hearing within 60 days (which is not required for ERISA plans). It takes place before a hearing officer appointed by the County. It is similar to a Social Security disability benefits hearing before an administrative law judge, where witness testimony can be presented. The hearing officer’s decision exhausts administrative remedies.
• If the County/Sedgwick’s benefits decision is upheld at the administrative hearing, the employee’s remedy is to file a petition for writ of mandamus in the California Superior Court under California Code of Civil Procedure section 1094.5 asking the trial court to reverse the administrative decision, not a bad faith action.
• The trial court on a petition for writ of mandamus reviews the administrative hearing officer’s decision to see if he abused his discretion. The standard to reverse the hearing officer is very difficult per the California Supreme Court, Fukuda v. City of Angels, 20 Cal. 4th 805, 817 (1999) (“In exercising its independent judgment, a trial court must afford a strong presumption of correctness concerning the administrative findings, and the party challenging the administrative decision bears the burden of convincing the court that the administrative findings are contrary to the weight of the evidence.”)
• If an employee prevails in the mandamus action and proves that the findings in the administrative proceedings were “the result of arbitrary or capricious action or conduct by a public entity,” he can recover at most $7,500 in attorneys’ fees computed at $100 per hour (far less than in ERISA or bad faith actions where recoverable fees can amount to hundreds of thousands of dollars). See Cal. Government Code § 800.
• However, it is unclear whether this section applies to LA County’s self-funded long-term disability Plan since, under section 800(c), the refusal by a public entity “to admit liability pursuant to a contract of insurance shall not be considered arbitrary or capricious action within the meaning of this section.”

Key Take Away
If your claim for disability benefits has been denied by what appears to be a government entity, you should hire an experienced ERISA lawyer to assess your claim and potential damages. Some employers that look like government entities may not be for purposes of ERISA. Whether your employer has a “government plan” in place will dictate the type of damages you can recover for an incorrect benefits decision. Generally, breach of a government disability benefits plan will allow you to recover substantially more damages than a private employer plan, including bad faith and punitive damages in the right case. Your remedies, however, will be limited by ERISA for private-sector employer plans and even further in the case of some LA County plans.

If your claim for short-term disability, long-term disability, life, retirement or health benefits has been denied, you can call (949) 387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling both ERISA insurance claims and non-ERISA California insurance bad faith claims.