When disabled clients first call the O’Ryan Law Firm, one of the first questions they ask is whether they can obtain punitive damages for the wrongful denial of their disability claim. No doubt, many of our clients have suffered incredible financial and emotional damages as a result of the insurance company either denying their claim outright or terminating the claim before the client can actually return to work. We have had clients suffer terrible financial losses, such as the loss of a vehicle, loss of their credit rating or even the loss of their home through foreclosure, due to the insurance company wrongfully denying their disability claim. Unfortunately, if the client’s disability claim falls under the Employee Retirement Income Security Act, commonly known as ERISA, the courts have found that punitive damages are not awardable when the disability claim is subject to ERISA.
ERISA is a federal statute that was passed in 1974 by Congress in order to protect participants of employee benefit plans. Most individuals receive medical coverage, life insurance coverage and disability coverage through their employer. Most employer sponsored benefit plans are governed by ERISA. There are two exceptions: governmental entities and church plans. If your employer is a governmental entity, such as a public university or school corporation, or a church plan, then you would not be covered by ERISA; instead, your claim is subject to state law. Under state law, you may be able to recover damages in excess of what the disability policy provides in the way of monthly disability benefits.
However, most disability claims are governed by ERISA. Unfortunately, the courts have found that ERISA preempts any state laws that allow for compensatory or punitive damages in excess of the policy benefits. For example, in the case of Midwest Security Life Ins. Co. v. Stroup, 730 N.E.2d 163 (Ind. 2000) the Indiana Supreme Court denied the Stroups’ request for punitive damages finding that their health insurance claims were preempted by ERISA. In this case, Patrick and Theresa Stroup received a group health insurance policy from Midwest Security Life Insurance Company as a result of Patrick’s employment and the policy was governed by ERISA because it was an employer sponsored health insurance plan. In January, 1993, Theresa sought predetermination of benefits for surgery to correct congenital problems with her jaw and Midwest approved the surgery. About four months after Theresa’s surgeries, in August 1994, Midwest amended its plan to exclude coverage for orthognathic surgery. In October 1995, she awoke in considerable pain to discover that her jaw had broken. One week later, Theresa underwent bone graft surgery to repair her jaw. In January 1996, Theresa was forced to undergo another surgery because of continued pain and muscle spasms in her jaw.
The Stroups filed suit against Midwest after the later surgery claims were denied and alleged that Midwest Security had breached Indiana’s covenant of good faith and fair dealing entitling them to compensatory and punitive damages. Midwest argued that the Stroups’ claims were preempted by ERISA which does not allow punitive damages. The trial court held that the Stroups’ state law claims were not preempted by ERISA, their request for punitive damages was not preempted by ERISA, and the claims were triable to a jury. On interlocutory appeal, the Court of Appeals reversed holding that the Stroups’ state law claims were preempted by ERISA. The Indiana Supreme Court agreed. The Supreme Court found that ERISA provides for broad preemption of state law claims in 29 U.S.C. § 1144(a) which reads: “[e]xcept as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan….” The Indiana Supreme Court concluded that “[t]he United States Supreme Court has examined the legislative history surrounding § 1144(a) to determine that “the words ‘relate to’ in 4(a) [were used by Congress] in their broad sense.”Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (quoting Representative Dent that “the crowning achievement of this legislation [is] the reservation to Federal authority [of] the sole power to regulate the field of employee benefit plans”). Based on this broad reading of ERISA, the Court found that the Stroups’ claims were preempted by ERISA which does not allow for compensatory or punitive damages.
Consequently, if you have a health insurance, life insurance or disability insurance claim that is governed by ERISA, the law unfortunately does not allow you to seek compensatory or punitive damages in excess of the policy. However, ERISA does allow for the recovery of your attorneys fees. If you are employed by a governmental entity or church then your claims are exempt from ERISA thus allowing you to seek damages for the emotional and financial distress caused by the wrongful denial of your health, life or disability claim.