The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law.  To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at mslawllp.com and complete a free consultation form.

Determining what law governs your health, life, or disability insurance claim is the first step in the process of defending a wrongfully denied claim.  Generally speaking, if you have a denied life, disability or health insurance claim, especially if you live in California, you are better off if the Employment Retirement Income Security Act of 1974, otherwise known as “ERISA,” does not apply.  That is because California and other states have laws governing these types of claims that are very favorable to insurance claimants that allow them to sue an insurer for breach of contract, insurance bad faith and punitive damages.  These claims are not available in ERISA. Emotional distress damages and other damages caused by insurance company’s bad faith may be recoverable in a state law governed claim but are not recoverable in ERISA cases.  How do you determine whether ERISA applies to your claim?  As discussed in earlier blogs, ERISA does not apply to specific types of employer benefits plans such as “church plans” or “government plans.” In this blog, we delve into detail as to why and when ERISA’s excludes such government plans, including some variations on that exclusion based on how the plan was funded.

• Why does ERISA exclude government plans?

To determine why Congress excluded government plans from ERISA, we first need to explore the history of ERISA.  When Congress crafted ERISA, it sought to reduce abuses in the system for private employee pensions.  At first, Congress imagined an ERISA that included government plans.  However, Congress ultimately decided that regulation of such government plans was better left in the hands of state and local governments.  For example, in Gualandi v. Adams, 385 F.3d 236 (2d Cir. 2004), Ms. Gualandi taught at a New York public school and the “Plan” at issue was a fund for the benefit of public school teachers like Ms. Gualandi.  In determining whether ERISA or state law governed the Plan, the Court explored the reasons why Congress chose to differentiate between private and government plans.  As the Gualandi Court noted, Congress reasoned that state and local governments should be allowed to make their own determination as to the best way to protect the rights of state and local employees.

• When does ERISA exclude government plans?

As noted above, Title I of ERISA specifically removes from its coverage any employee benefit plan that qualifies as a government plan.  29 U.S.C. § 1003(b).  Under ERISA, a government plan means any plan established or maintained by the federal government, a state government or political subdivision, or by any agency or instrumentality of any of the foregoing.  29 U.S.C. § 1002(32).  This brings us to the next question: is the plan “established or maintained” by a government entity?  Over time, the courts have broadly construed the “established or maintained” provision of ERISA.  To be established, the plan does not need to be created by a specific law or local ordinance.  The courts have defined established to include plans created pursuant to a collective bargaining agreement between a government unit and a union.  See Feinstein v. Lewis, 477 F. Supp 1256 (D.C.N.Y. 1979).  However, the question becomes more complicated when addressing how the plan is funded.

• How is the plan funded?

Exclusive government funding is enough to constitute a plan established by the government for the purposes of ERISA.  To return to the earlier example used in the Gualandi, the Plan in that case was funded by a school district’s contributions pursuant to a collective bargaining agreement and related settlement.  In Gualandi, the Court found that the plan was a government plan excluded from ERISA.  However, the answer to whether the plan is funded by the government is less clear when the plan is funded by payroll deductions (money from each employee’s individual paycheck).  For example, in Graham v. Hartford Life & Acc. Ins. Co., 589 F.3d 1345 (10th Cir. 2009), the Tenth Circuit held that a plan funded by payroll deductions did not amount to a government plan exempt from ERISA.  However, in Montoya v. ING Life Ins. and Annuity Co., 653 F.Supp.2d 344 (S.D.N.Y. 2009), the court found a plan is funded by a government entity even if it is the result of payroll deductions.  Further, the question becomes even more complicated when the funding is mixed private and public funding or when a government agency or instrumentality joins with a public entity to form a public-private partnership.

Determining whether a matter is governed by ERISA can be a complex undertaking and the above are just a few considerations to keep in mind when a plan may be established or maintained by the government and therefore not subject to ERISA.

Having an experienced disability, health and life insurance attorney matters.  If your claim for health, life, short-term disability or long-term disability insurance 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 ERISA and Non-ERISA insurance claims.