Pillsbury & Levinson Warns of Federal Law Restricting Recovery of Insurance Benefits

December 17, 2003

Pillsbury & Levinson, LLP, a Northern California law firm representing policyholders in claims against insurance companies, is warning consumers that health, life and disability insurance policies purchased through an employer are subject to a federal law known as ERISA that severely restricts an insured’s right to recover benefits once a claim is denied.

As the Jan. 1, 2004 open enrollment period for employer-sponsored benefit plans approaches, partners at Pillsbury & Levinson are urging consumers to consider purchasing individual insurance policies, which may carry higher premiums but are not subject to laws that prevent consumers from suing for damages if their claim is denied.

ERISA, or the Employee Retirement Income Security Act, was originally passed by Congress in 1974 to protect individuals’ retirement and pension benefits, which were often threatened when companies went bankrupt or out of business. ERISA was created to ensure proper management of pension and retirement funds, but was later interpreted by the Supreme Court to cover all plans issued as a benefit of one’s employment, including disability, health and life insurance

“ERISA is one of the worst and most poorly understood laws ever passed by Congress,” said Arnold Levinson, partner of Pillsbury & Levinson. “ERISA gives insurance companies almost complete immunity against lawsuits – no matter how outrageously they act or how malicious the denial of benefits.”

Employer-sponsored health insurance covers nearly 160 million people now in the work force and their families, as well as 16 million retirees. While many workers reportedly think they are getting a better deal by purchasing insurance through their employers, most are unaware of the restrictions these policies carry.

Specifically, ERISA reportedly eliminates an insured’s right to sue for breach of contract, right to a jury trial, and right to pursue damages for pain and suffering. In effect, the law serves to immunize insurance companies from the consequences of abusive behavior.

According to the law firm, ERISA has essentially deregulated the employee benefits industry by preempting state laws that protect the rights of policyholders to sue insurance companies that unreasonably deny benefits. Recent Supreme Court rulings have served to reinforce the scope and power of the preemption clause, placing the interest of large corporations above the interests of working people.

“Congress is failing to protect the rights of working Americans by refusing to adequately address and reform the inherent flaws of ERISA,” said Terry Coleman, partner at Pillsbury & Levinson. “One way consumers can protect themselves against the misconduct of powerful insurance companies is to consider purchasing an individual insurance policy, which is not subject to ERISA.”

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