In this several-part blog series titled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health, accidental death & dismemberment and disability claim, from navigating a claim to handling a claim denial, through the subsequent appeal and litigation.  In Part Seventeen of this series, we discuss when ERISA applies.  ERISA governs a wide variety of employee benefits.  It is safe to say that most employee benefits are controlled by ERISA.  As such, if the employee benefit plan is provided through a private employer, it is likely, but not necessarily certainly, governed by ERISA.  However, at times, instead of ERISA, state law or a governmental organization’s own unique laws and procedures apply.  If a claimant wins their case, ERISA provides for an award of the denied benefits, attorneys’ fees, interest and costs.  State law varies from state to state but may provide for the award of the denied benefits, consequential damages, punitive damages, attorneys’ fees, litigation costs and interest, among other potential remedies.  In other words, if state law applies to an employee benefit claim, greater remedies are available to the claimant. The trial procedures for these two types of claims are very different.  ERISA claims are decided by a judge, typically based on the administrative record consisting mainly of documents submitted to the claims administrator during the administrative appeals process.  Discovery is much more limited.  However, for state law claims, the usual litigation procedures are available.  These include a full panoply of discovery, use of experts and a jury trial.  The procedures for disputing claims for benefits from different governmental agencies vary greatly with each organization often being quite different.  Some claims benefit from being governed by ERISA.  Other claims benefit from being governed by state law.  Given these drastic differences, it is critical to determine which body of law and procedures apply to a claim.

The first broad exception to ERISA’s applicability is that it does not apply to benefits provided by government employers.  See 29 U.S.C. § 1003(b)(1).  This exception applies to benefits provided by municipal, state and federal governments and thus affects the benefits earned by a wide variety of people.  People who work for these different governmental entities may have very different benefits and rights thereto if a claim for benefits is denied.  If a claim is denied, some governmental entities may have a simple appeal process resembling ERISA.  Others may provide for an entire trial and discovery process.  However, this exception may not apply to all government employees.  It depends on how one obtains the benefits.  For example, if the benefits in question were actually obtained through a union, ERISA may control because the benefits were not provided by the government entity, but rather, they were provided by an employee organization: the union.  One has to look at the plan documents and who provides the benefits to determine which area of law applies.

A second major exception to ERISA’s applicability is that it does not govern church plans unless the religious entity specifically elects to be governed by ERISA.  See 29 U.S.C. § 1003(b)(2).  Religious organizations have the right to either be governed by state law or opt into being governed by ERISA.  Religious organizations, such as churches and their affiliated hospitals or schools, provide a wide variety of benefits to their employees.  Given that religious organizations have the right to opt into ERISA, it is often difficult to determine whether ERISA applies.  Once again, checking the relevant plan documents is often the only way to be certain.

A third common exception to ERISA is for plans that are “maintained solely for the purpose of complying with applicable workmen’s compensation laws or unemployment compensation or disability insurance laws[.]”  29 U.S.C. § (b)(3).  This exception is relatively simple.  If the plan merely exists to comply with a state’s worker’s compensation laws, then ERISA does not apply.

There are other exceptions to ERISA, but these are the most common ones.  In light of the differences between ERISA and state law, many people mistakenly assume that one is better than the other.  Even many attorneys make this mistake.  Most attorneys make this error because they are more comfortable with one form of litigation than the other.  Assuming that one form of litigation is superior is simply incorrect.  It depends on the specific details of the claim.  For example, for relatively small claims, ERISA is often much more favorable to the claimant.  Under ERISA, if a claimant establishes that they are entitled to the benefits in question, it is fairly easy to win an award of reasonable attorneys’ fees.  However, under the law of most states, whereas attorneys’ fees and a variety of other damages are available upon successfully establishing bad faith, establishing bad faith may be difficult.  Furthermore, it is often difficult to obtain large amounts of damages beyond the contract benefits if the initial amount in dispute is small.  As a general rule, a claimant seeking a smaller benefit will fare better if their claim is governed by ERISA, with its limited discovery and simplified procedures.

If, however, there is a significant amount of money in dispute, having the matter be governed by state law may be useful.  This is especially true if the party denying the claim behaved in a particularly egregious manner, which may allow an insured to collect punitive damages.  This makes the matter prime for a very large award if the case is won at trial.  These factors will also influence any settlement negotiations and result in a potentially larger settlement.

Given the differences between the various forms of litigation related to employee benefits, it is important to confer with an expert in this area of the law.  Consulting with knowledgeable attorneys, such as those at the McKennon Law Group PC, is critical if you want to receive all of the benefits that you are entitled to under the applicable law.