ERISA

The Employee Retirement Income Security Act (ERISA) is a huge law composed of hundreds of pages of detailed legalese. Somehow, the Supreme Court ruled that ERISA blocked state laws that allow consumers to recover compensatory and punitive damages from insurance companies who act in bad faith and do not pay up.

There is nothing in the ERISA law that says the federal government nullifies or pre-empts state laws in this area. The Supreme Court, which is supposedly dominated by conservatives, simply inferred it from the ambiance around the statute.

Well, here is what this inference from the majority Justices on the Court means to members of group health plans who are treated in bad faith by health insurance companies. They can only recover the benefits improperly denied them under their plans, assuming, that is, they can find and pay for a lawyer whose fee will come out of the benefits.

A Mr. Spain was diagnosed as suffering from metastatic testicular cancer. After unsuccessful chemotherapy, he was sent to UCLA Medical Center in Los Angeles for a bone marrow transplant procedure. UCLA obtained three written pre‑authorizations from Aetna to perform the procedure. During the second stage of the procedure, Aetna refused to pay for any of the expenses previously incurred.

For three months, Mr. Spain was denied completion of his treatment. During this period he suffered a relapse of his cancer. After filing suit, Spain got Aetna to agree to pay for his costs of treatment. But Aetna got away with refusing to pay for loss of life expectancy and other damages, due to the Supreme Court’s interpretation of ERISA.

Devon Ferguson is a four year old boy suffering from spinal muscular degeneration causing paralysis. He is partially dependent on a respirator and requires 24 hour home nursing care. The cost of caring for this bright little boy is about $250,000 per year under a group medical plan from Allstate.

On January 1, 1990, Allstate terminated all of its small group medical insurance plans, following a one year extension of benefits. Devon’s benefits will end in December and he is uninsurable under other plans due to his pre-existing condition. Without round-the-clock: nursing care and the money to pay for it, Devon’s future looks bleak.

Mr. Sica was an agent of Equitable Insurance for many years and covered under the agents group disability program. Following payments for a severe and disabling back injury, the company arbitrarily terminated the policy. In the ensuing lawsuit, it was established that Equitable has told a team of employees to decrease losses and close as many claims as possible. Equitable’s medical director admitted he had denied the claim in the absence of proof that Mr. Sica was able to work (by this time a heart attack had rendered him permanently disabled) “in order to shock Sica into going back to work.”

Under the Supreme Court’s ruling, Mr. Sica cannot sue for either compensatory or punitive damages for bad faith. All he can recover is what was due him under his policy.

Congress needs to come to the rescue. An amendment is needed that simply says ERISA never meant to preclude such insurance policyholders’ rights to sue for bad faith. Otherwise, watch for an explosion of bad faith practices by insurance companies because they can get away with it.