Think your Company-Sponsored Life Insurance has your back? Think again

April 26th, 2011. By Kristine B

In the realm of people being ripped off, there are a few stories that are often the most heart breaking. Seniors losing their life savings to Ponzi schemes, seniors suffering financial elder abuse at the hands of their own families and people being denied necessary medical treatment because of bad faith insurance practices.

But there’s another story that’s been emerging that is also heart wrenching—stories of how insurance companies have denied and/or delayed legitimate accidental death claims by alleging the death was not an accident at all. These situations leave the surviving family members to deal with mountains of paperwork and facing the death of their loved ones over and over again while ERISA laws reportedly help insurance companies get away it. 

The situation was first reported by David Evans at Bloomberg (02/28/11). A man died in a car accident after a long battle with cancer. A medical examiner and a sheriff determined that the car crash was an accident—meaning the victim’s death was accidental. But the insurance company refused to pay, saying that the victim committed suicide. 

In other words, the insurance company knew more than the medical examiner and the sheriff. Now, consider that for a moment. By claiming the man committed suicide, the insurance company allegedly aimed to get out of paying out the accidental death policy. But there’s more to it than that. Because the insurance company claimed to know the mind of the victim better than his own family and better than the investigators who looked into the accident. 

The good news is that the victim’s wife sued and received the full life insurance policy. The bad news is that the insurer still denied wrongdoing—apparently, it’s not wrong to allege someone committed suicide—and didn’t pay any interest or penalties for holding the money. 

Why? Because ERISA (Employee Retirement Income Security Act) protects insurers. It says they can keep the survivors’ money while a claim is in court and invest that money, too, keeping the profits. Furthermore, under ERISA, insurance companies don’t have to pay compensatory or punitive damages. In other words, they can hold the money for an extra year or two, make a profit off investing that money and still only have to give the survivor the amount of the policy at the end. They profit while the survivor loses. 

So, once again, insurers are only too happy to receive premiums and benefit if they delay paying out claims. 

And why is ERISA involved in this at all? Because many companies provide life insurance, and company sponsored benefits—such as life insurance—are covered under ERISA. Making matters even worse, because ERISA is a federal law, state insurance departments don’t have the authority to step in on survivors’ behalf. It’s up to survivors to hire lawyers to help them fight any wrongfully denied accidental death claims. 

The end result is that if you have a company-sponsored life insurance policy claim that you feel has been wrongfully denied, don’t rely on the insurance company to tell you what “normal procedure” is. Your best bet is probably to contact an attorney and find out if you can fight the denial. After all, insurance companies apparently have little to lose by denying legitimate claims.

Tags: Bad Faith Insurance, Denied Insurance, ERISA, Insurance, life insurance

This was posted on Tuesday, April 26th, 2011 at 9:01 am and is filed under Insurance, Pleading Ignorance . Feel free to respond, or trackback. Read our comments policy.