ERISA Plans: The Grand High Arbiters of Morality and Social Utility

I loathe insurance companies. You shop for coverage, find what you think is a good deal and pay your premiums for years only to find out, after incurring what any reasonable human being would consider a covered loss, that coverage conferred on Page 2 of the policy form is taken away by some obscurely worded exclusion on Page 25.

Unsavory though insurers’ internal practices are, most of my derision nowadays is reserved for the legislators and judges who gleefully facilitate the industry’s shenanigans.

That brings us to the cheerily titled Employee Retirement Income Security Act of 1974 (“ERISA”). Private employers aren’t required to provide employees with benefit plans. If an employer does provide benefits, though, ERISA almost certainly governs. Despite its title, ERISA also covers employer-provided insurance coverage (life, health, disability, accidental death and dismemberment, you name it).

Many large employers self-fund their employee benefit plans. However, most employers who provide benefits do so by purchasing coverage from private insurance companies. In those cases, the precious gifts conferred by ERISA inure directly to the benefit of the insurance industry.

And what precious gifts they are! ERISA is stuffed to the gun’les with abominations unto the Lord. Let’s start with the damages recoverable for wrongful denial of coverage. ERISA’s civil enforcement provision — 29 U.S.C. 1132 — goes on and on and on. All that verbiage MUST confer a veritable cornucopia of rights upon claimaints, mustn’t it?

Well, no. ERISA doesn’t allow make-whole relief. Suppose your leg hurts and you go to the doctor to find out what’s going on. The doctor orders a $2,000 diagnostic test. That’s much more than you can afford, but you’ve got health insurance coverage through your employer. Trouble is, the insurer won’t pay unless they approve the test in advance. The insurer wrongfully denies approval. You and your doctor spend months squabbling with the insurance company, your leg feeling worse all the time.

The pain finally becomes unendurable. You beg, borrow and steal from friends and relatives until you have the money for the test, which discloses a blood clot that’s so far advanced and has done so much damage that amputation is the only treatment. If the clot would have been found back when you first started hurting, it could have been treated successfully with drugs and your leg would have been A-OK.

The insurer’s misconduct cost you a leg. You’ve got medical, surgical and rehabilitation expenses galore. You can no longer do the work you’ve been doing for the last twenty years. You’ll have phantom pain for the rest of your life. And you’re missing a leg! Surely that claim is worth a lot of money. BUT NO! Under ERISA, your recovery is generally limited to the benefits wrongfully withheld. You get $2,000.

But what about state law? Your state’s supreme court recognizes a tort cause of action for bad faith breach of insurance contract. Proving your case entitles you to recover the full panoply of economic and noneconomic damages. If the insurer’s misconduct was sufficiently egregious, you can even get punitive damages.

So fuck ERISA. Present state law claims to a state court and you’ll be just fine, right?

Not so fast, junior. Unhand your Johnson, open your eyes, terminate the fantasy and prepare for reality to urinate on your shoes yet again. Federal courts, SCOTUS included, have ruled time and time again that ERISA’s remedy provisions preempt state law. If ERISA applies, you’re stuck with the woefully inadequate relief that ERISA affords.

(When you hear members of Congress talking about a “Patients’ Bill of Rights”, what they’re actually talking about is amending ERISA’s horrifically underpowered remedy provisions.)

As you’ve probably surmised by now, it gets worse. Let’s go back past recovery and look at the threshold issue of coverage.

What happens if the insurance company inserts a provision in the employee benefits plan stating that the insurance company itself has “sole and absolute discretion” to interpret the terms of the plan and decide whether or not a claim is covered? A state court judge applying state law would read such a provision, guffaw herself into a state of gibbering incontinence, and upon recovering put together a lengthy string cite of cases holding that ambiguities in an insurance contract are construed strictly against the insurer and strictly in favor of the insured.

Things are radically different in ERISAland. There’s some pretty substantial hoops to negotiate before you can get into court in the first place. Employee benefit plans almost invariably mandate at least one level of in-house insurance company “appeals”. You present your claim initially, the insurer denies it and you lodge an “appeal” with the same insurance company. If that sounds like a ghastly waste of time and effort, that’s because it IS a ghastly waste of time and effort. But these in-house review requirements are perfectly enforceable under ERISA and its accompanying Department of Labor regulations. If you file suit right after the initial denial, the court will dismiss the case for failure to exhaust your “administrative remedies.”

Upon reaching court, your odds still suck. Thanks to Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the court will actually honor that “sole and absolute discretion” provision mentioned above. If the plan includes such a provision — and they all do nowadays — it’s enforceable. You still get judicial review, but only the “abuse of discretion” or “arbitrary and capricious” variety. You could easily write a whole treatise on what those terms mean in the ERISA context, but the bottom line is, in the vast majority of cases where that standard of review applies, the court simply rubber-stamps the insurer’s decision to deny benefits.

That brings us at long last to the current object of my anger, yesterday’s U.S. Court of Appeals for the Sixth Circuit decision in Lennon v. Metropolitan Life Ins. Co. (pdf, 16 pages). Lennon is prime example of how irredeemably fucked up ERISA insurance coverage litigation has gotten.

Michigan resident David Lennon got stinking, stupid, shitfaced drunk. At 2:30 in the morning he drove his SUV into a brick wall, resulting in injuries that proved fatal two days later. Toxicology tests conducted at the hospital revealed a blood alcohol content of 0.321%, more than triple what Michigan law considered per se driving under the influence.

Lennon’s employer provided Personal Accident Insurance coverage under a policy purchased from MetLife. The basic coverage agreement provided that if the insured suffers “accidental bodily injuries” resulting in death within one year “independently of all other causes”, the specified coverage amount gets paid to the insured’s designated beneficiary. The policy didn’t define “accidental.”

In this case, the beneficiary was Lennon’s mother. Mom filed a claim with MetLife for the PAI benefit. MetLife denied the claim for two reasons. First, Lennon’s extreme intoxication rendered the death-producing injuries “reasonably foreseeable” and therefore “not accidental” within the meaning of the policy. Second, the “mental and physical impairments” resulting from Lennon’s voluntary intoxication “constitute intentional self-inflicted injuries”. On that basis, MetLife contended that there was no coverage under a policy exclusion applicable to “any loss which is contributed to or caused, wholly or partly . . . , by . . . self-inflicted injury . . . .”

Mom filed the requisite internal MetLife appeal. Shockingly, the insurance company concluded that it was ABSOLUTELY CORRECT in denying the claim in the first instance.

Mom then filed suit in federal district court. MetLife’s plan included the magic language, so the “arbitrary and capricious” standard of review controlled. Even so, the trial judge ruled that mom was entitled to coverage:

The district court . . . noted that a person “is far more likely to be arrested for driving while intoxicated than to die or be injured in an alcohol related automobile crash, and far more likely to arrive home than to be either arrested, injured, or killed,” and concluded that MetLife acted in an arbitrary and capricious manner by relying solely on Lennon’s blood-alcohol level to determine that his death was not an accident.

The court of appeals reversed by a vote of 2-1. The author of the lead opinion, relying on tort law precepts, noted that drunk driving is regularly characterized as “recklessness” and “gross negligence.” Absolutely true, but does that render drunk driving injuries non-accidental as a matter of law for purposes of determining coverage under an ERISA plan?

We don’t know, say the two judges who sided with MetLife, nor do we particularly give a flying fuck. The issue isn’t whether MetLife got it right; the issue is whether its decision to deny coverage based on the allegedly non-accidental nature of the death-producing injuries was “arbitrary and capricious.” There’s ERISA-based case law out there suggesting that death from drunk driving is “reasonably foreseeable” and, for that reason, isn’t accidental. MetLife cited some of those cases in its standard form denial letter, so it didn’t do anything arbitrarily and capriciously.

The judge who wrote the lead opinion offers clues regarding his real motivations on Page 6 of the above pdf:

In particular, we do not reach the question of whether a fiduciary can reasonably deny “accidental” benefits for injury that results from any negligent or any illegal behavior, or from driving while only somewhat impaired. Nor does today’s holding extend to risky activities that may have social value greater than driving drunk, such as skiing, or driving over the speed limit to get a woman in labor to the hospital. Instead, the conclusion is only that because Lennon’s conduct constituted reckless and entirely unwarranted risk to himself, it was not arbitrary and capricious for MetLife to treat the injury as nonaccidental under the terms of its policy. (Emphasis added, citations omitted.)

The dissenting judge’s opinion is downright masterful. Moving seamlessly between precise legal analysis and sputtering exasperation, Judge Eric Clay describes the tortured and twisted path by which the federal common law of ERISA plan interpretation managed to shitcan entirely the ordinary meaning of “accident” and arrive at its current laughable state. He does a fine job of pointing out what MetLife actually did in this case and why its actions aren’t entitled to the usual degree of judicial deference:

In effect, under the guise of interpretation, Defendant took it upon itself to rewrite the PAI Policy by adding terms where none previously existed. Defendant interpreted what should be an inclusive term to exclusionary effect, excluding coverage for accidental injury following from acts which “render[] the infliction of serious injury or death reasonably foreseeable.” As applied to Plaintiff’s claim, Defendant purports to interpret “accidental” in this manner, but in reality add a new exclusion for accidental injury sustained by legally intoxicated motorists. This sort of post-hoc requirement falls well outside the bounds of Defendant’s discretion as a plan administrator interpreting an ERISA plan, which notably “does not include the authority to add eligibility requirements to the plan.” What is more, it renders meaningless several express exclusionary provisions, including exclusions for flight in an aircraft while a student pilot, injuries caused in whole or part by war or war-like action, or the use of drugs other than as prescribed by a physician. (Emphasis original, citations omitted.)

The dissent also points out how the insurer, with the majority’s able assistance, is using notions of morality and social utility to serve its own money grubbing ends:

In the final analysis, the “reasonably foreseeable” formulation is little more than a tool enabling plan administrators and courts to transform moral judgments about the insured’s conduct into arbitrary denials of coverage under vaguely worded ERISA plans. . . . I do not condone the pernicious effects of drunk driving, nor those who perpetrate it. But neither would I permit moralistic judgments to lull me to acquiesce in Defendant’s purported “interpretation” of the PAI Policy.

The majority’s social utility calculus only amplifies and enables the sort of moralistic judgments we should be loathe to employ, much less to encourage. It directly links recovery under an “accidental injury” provision to notions of desert. Under this calculus, the plan administrator dare not deny coverage to either motorist in the above examples if they were en route to donate a
kidney to their dying mother and had only limited time to reach their destination. However, less beneficial conduct, like delivering a brick of cocaine to a mass drug dealer, would militate in favor of denial of PAI benefits. Applying the social utility calculus, beneficiaries of the motorist rushing
to his dying mother’s bedside may recover PAI benefits, while the plan administrator may deny the PAI claim received from beneficiaries of the motorist/drug runner. The problem, of course, is that the behavior leading to the injury – and ultimately, the loss of life – is identical for both motorists,
yet the coverage decision will vary with the value society ascribes to the purpose of the conduct. Thus, under the social utility calculus, moral judgments drive the distinction between covered acts and those excluded from coverage.

In the final analysis, Lennon does nothing more than confirm what we already knew: federal law is insurer-favoring to an extent that’s nothing short of spectacular. Even so, the length to which courts will go to place their imprimatur on most any coverage denial, no matter how ridiculous, never fails to amaze.

So you have employer-provided insurance coverage? That great. It beats the alternative, but not by the margin we generally suppose. Here’s hoping you don’t have to use that coverage any time soon.

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  • Amy  On October 17, 2007 at 4:02 pm

    Thank you, Thank you, Thank you!!!! ERISA what a joke. Basically it’s short for we (insurance companies) thumb our noses at the law, at the insured and at common sense and decency. I was canceled unjustly, my daughter who was on my insurance was pregnant and I had just had surgery – she had post partum complications. They paid the bills and then made everyone pay them back. I knew Erisa governed plans had a lot of loop holes, but when I just got the letter from the state insurance commissioner saying they probably won’t be able to help me cause my plan was under ERISA my faith in our system just flew out the window. How the governing powers that be and the judicial system can continue to allow this abomination is obscene. God bless you for your efforts to bring this information to the public.

  • genghishitler  On October 18, 2007 at 7:41 am

    Thanks for stopping by, Amy. What happened in your case is all too common, sad to say.


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