Frank N. Darras
Susan B. Grabarsky The individual disability-insurance bad-faith case
If the case isn’t eviscerated by ERISA, the policy language sets up its own challenges
Most professionals – especially those
in the health-care and legal fields – made tremendous personal sacrifices and finan- cial investments towards the establishment of their careers. The number of years a physician must train after graduating from medical school, including residency and fellowships, is the perfect example of this. To have all of that education, train- ing and experience go down the drain after a disabling accident or illness is a tragedy on many levels. Disability policies that promise to
replace lost income may provide some measure of consolation, if worse comes to worst and a person loses the ability to per- form his own occupation. Individual dis- ability-insurance policies are designed to protect the hardworking professional’s most valuable asset: the ability to earn a living. But if the insurance company denies the disability claim, the effect on the disabled individual can be devastating.
Fortunately, under California law,
there are a range of available remedies and consumer protections for insurance policyholders. But plaintiffs who file suit to challenge wrongful denials of individ- ual disability insurance claims are often confronted with boiler-plate defense tac- tics, the most common of which are out- lined here. The key to litigating these cases is to be aware of the potential roadblocks defendants put up so you can overcome them with good facts.
“Eviscerated by ERISA” The worst thing that can happen to a
plaintiff, when litigating an individual dis- ability-insurance bad-faith matter, is to have his case “ERISA-cized.” Remedies in con- nection with ERISA-preempted disability- insurance policies are limited to the bene- fits owed and, at the court’s discretion, rea- sonable attorney’s fees. No matter how egregiously the insurance company treated its disabled claimant, that claimant cannot
recover consequential damages, emotional distress damages or punitive damages if his suit is subject to ERISA. (Massachusetts Mut. Life Ins. Co. v. Russell (1985) 473 U.S. 134, 142-144; Mertens v. Hewitt Assoc. (1993) 508 U.S. 248, 255-259, 262-263.) Federal courts are well aware of the
advantages insurance companies seek by attempting to “ERISA-cize” a bad-faith case. As one federal judge wrote, “Defendants removed the case to this Court, putatively on the basis of federal question jurisdiction. … Although the procedural posture of the case happens to present the applicability of ERISA as a jurisdictional question, the motion is also a proxy for the substantive question of whether ERISA preempts all of [plain- tiff’s] state law claims.” (Finkelstein v. Guardian Life Ins. Co. of America (N.D. Cal. 2007) WL 1345228, at *2-3.) ERISA pre- cludes all state law remedies. (Pilot Life Ins. Co. v. Dedeaux (1987) 481 U.S. 41, 54.) With bad-faith damages out of the
66— The Advocate Magazine JUNE 2011
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