Appeals Court Says That Federal Law Does Not Require Minimum Benefits
By: Benjamin W. Glass, III, Fairfax, Virginia
(May 28, 2004) The Fourth Circuit Court of Appeals confirmed today what we have been saying all along: that long-term disability policies provided under the Employee Retirement Security Act (ERISA) by employers can legally be written to provide little or no financial protection for disabled employees. The court said that under federal law it would approve a long-term disability policy that stated “pain could never support a finding of disability.”
The case, Smith v. Continental Casualty Company, sends a clear warning to America’s workers that they need to review and understand their employer’s long-term disability policy before they need it to see if it will truly protect them and their families in the case of a disability which prevents them from working.
Neal Smith was a vice-president of sales for J.J. Haines & Co, a wholesale floor-covering distributor. He applied for disability benefits under his company’s policy after a long history of back problems and an acute back injury that occurred in January 2001.
Smith also filed for, and was awarded, Social Security benefits for his injury. Continental (“CNA”), however, denied that he was unable to work and refused to pay.
The J.J. Haines & Co. long-term disability policy contained several provisions that worked to greatly restrict benefits. Had Smith known how weak this policy was before he became injured, he probably would have thought twice about putting his family’s financial future in the hands of his employer’s disability plan.
First, the policy gave CNA the “discretion” to determine benefits. This means that, if the insurance company denies benefits, a court cannot overturn that decision, even if it believes the insurance company was wrong, unless the court also finds that the insurance company “abused its discretion.” In other words, in court, the insurance company’s decision is presumed to be correct even if it is wrong. Had J.J. Haines & Company insisted that a “discretionary clause” not be included in this CNA policy, or had Smith bought his own private insurance, the insurance company’s initial decision would not have been entitled to a presumption of correctness.
Next, the policy did not cover disability that lasted more than two years if the disability was one that was primarily diagnosed by fatigue, pain, headaches, stiffness, soreness, tinnitus, dizziness, numbness or loss of energy. Most group policies do not have this restriction. This means that benefits last for only two years for people who cannot work because of fibromyalgia, chronic fatigue, chronic pain, and excruciating migraine headaches, even if these people have already been approved for Social Security benefits.
ERISA is the federal law that governs virtually all employee benefits. ERISA was enacted to protect employees. The court explained, however, that ERISA does not compel an employer to offer any particular level of benefits. Thus, the court explained, an employer could legally provide a disability insurance policy that contained the ridiculous clause that “pain could never support a finding of disability.”
The J.J. Haines & Company long-term disability policy provided little in the way of actual “protection.” Unfortunately, this is allowable under federal law. Many group policies provide excellent protection for employees, but just as many do not. This case sends a clear warning to America’s employees that they need to investigate their company’s insurance policies now, before they need the protection.
Employers who truly desire to provide real financial protection need to learn how to read “beyond the glossy sales brochures” and understand the insurance policies they are buying.
Benjamin W. Glass & Associates represents employees in long-term disability claim disputes. We recommend that you have your employer’s long-term disability policy reviewed by an ERISA experienced long-term disability attorney. Benjamin Glass is the author of Robbery Without a Gun.