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When Can You Get Punitive Damages After an Insurance Claim Denial?

California law authorizes punitive damages in cases where the plaintiff can prove by “clear and convincing evidence” that the defendant acted in a way that showed “oppression, fraud, or malice.” When insurance companies unreasonably delay or deny insurance claims, or when they cancel policies or allow them to lapse for improper motives, these bad faith actions nearly always open up the insurer to punitive damages in a lawsuit brought by the insured. However, when it comes to insurance claim denials, not all cases are equal.

In this article, we explain how some insurance plans are treated differently because they fall under federal regulation, and one of those differences includes a limitation on punitive damages. For a free evaluation of your case and a considered opinion regarding the viability of your claim and the damages you could recover, contact Gianelli & Morris to speak with a knowledgeable and experienced California insurance law attorney.

Employer-Sponsored Health Plans and ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that imposes rules and standards for pension plans and other types of benefits provided to employees by their employers. Although ostensibly intended to protect individuals receiving health care and other benefits through private-sector employment, ERISA has become better known for the restrictions it puts on workers, including limitations on the damages people can seek when they’ve been wronged by the bad-faith practices of their insurance company.

If your health insurance is provided through your employer as a fringe benefit, it is likely controlled by ERISA. ERISA governs many aspects of how insurance plans are administered,

including how claim denials are handled. Policyholders with ERISA plans must first go through their insurer’s complaint procedures before they can get to court, and if they do file a lawsuit, it must be filed in federal court instead of state court, where non-ERISA claims are usually filed.

In state court, a jury hears your case and decides what kinds of damages to award, including compensation for your economic loss, pain and suffering, and, if appropriate, punitive damages. In contrast, ERISA cases in federal court do not involve a jury. Instead, both parties submit motions to the court, which reviews the “administrative record” (documents and information considered when making the benefit determination) to assess whether the denial of benefits was reasonable. If the plaintiff (the policyholder) is successful, compensation is typically limited to the benefits that are due under the policy. Pain and suffering and punitive damages are not included, regardless of whether the insurer acted in bad faith or not.

Some Employer Health Plans Fall Outside ERISA

Earlier we said that ERISA covers employer-sponsored health plans. However, even if you are an employee who gets health insurance through your employer, there are some important instances where ERISA does not apply. These include:

  • State and Local Government Employees: ERISA does not apply to health insurance plans provided by state or local governments. If you’re a public sector employee, your health benefits will not fall under ERISA’s purview. For example, police officers and firefighters, DWP workers, county hospital workers, airport workers, and others all typically get health insurance through employment, but ERISA does not apply to them.
  • Church Plans: ERISA also does not apply to health insurance plans offered by churches or other religious organizations. If you’re employed by such an entity, your health benefits might not be subject to ERISA.

Even individuals with plans that fall under ERISA might still have a right to bring a state action for bad faith because it may be excluded or exempted from ERISA. When your insurance claim has been wrongfully denied by the insurance company, it is always worthwhile to consult with an experienced insurance law attorney willing to look at your case and discuss your options with you.

Seeking Assistance with Non-ERISA Claims in California

Understanding the intricacies of ERISA and state insurance laws can be overwhelming. At Gianelli & Morris, we are committed to helping you navigate these complexities and fight for your rights as a policyholder. Contact us today if your health, life, or disability insurance claim was wrongfully denied. We’ll let you know what we think about your case and how we can help you. Call 213-489-1600 for a free consultation.

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