ERISA Preemption: What You Need to Know
ERISA, or the Employee Retirement Security Act of 1974, is a complex federal law that regulates employee health care benefit and pension plans. ERISA is meant to protect private pension and health plans from fraud and mismanagement, but because the Act’s regulations "preempt" all similar (or conflicting) state or local laws, they sometimes deprive individuals of the much-needed protections provided by their home state, including insurance "bad faith" laws that protect the consumer from unfair claim denials. Read on to learn more about ERISA preemption and how it affects you.
What is ERISA Preemption?
In the context of ERISA law, to preempt (pronounced "pre-empt") something is to take its place because of priority. ERISA has a higher priority than similar (or directly conflicting) state laws, so it takes the place of those laws, even if they were written after ERISA. We know that ERISA preempts all related state laws because 1) when Congress drafted ERISA they inserted a clause that says it will preempt state laws, and 2) since ERISA came into effect, courts have agreed that it preempts state laws. This is problematic because traditionally, the insurance industry has been regulated by the states, so the strongest protections against the unfair behavior of insurance companies are found in state laws.
Are there Situations when ERISA doesn’t Preempt State Protections?
Yes. ERISA doesn’t apply to the following:
- Worker's compensation benefits.
- Pension, health, disability, and unemployment benefits that weren’t purchased as part of a plan.
- Health and Pension plans run by a church or religious organization.
- Health and Pension plans run by a government, government agency, or government contractor.
If you’re unsure if your benefits will receive the protection of your home state bad faith laws, you need to investigate whether ERISA applies to you or not or contact an attorney specializing in plaintiff's insurance or ERISA. Insurance companies and plan administrators sometimes tell beneficiaries that their benefits are ERISA preempted and will be handled only in federal court, even when this turns out not to be true. Seventy-two percent of Americans with private health coverage are subject to ERISA.
What are Your Legal Remedies under ERISA?
Your remedies under ERISA are more restricted than they would be if you are able to file a complaint in the courts of your state. ERISA allows you to:
- File a civil action to enforce or clarify your rights under your health/pension plan (i.e. in an attempt to recover your benefits).
- File an action for injunctive or other equitable relief (i.e. an emergency action when your rights are being violated and a regular civil action won’t solve your problem).
- Complain that you have been fired or disciplined because you filed an action under ERISA (i.e. your employer retaliated against you).
Which Remedies Does ERISA Preempt?
ERISA denies you the following remedies and awards you would otherwise have access to in state court:
- Punitive or extracontractual damages (which are awarded in a private tort case).
- Jury trial (ERISA cases only receive a bench trial, meaning a judge decides your case).
- Award for attorney's fees (with some exceptions).
- Award for costs (with some exceptions).
- Prejudgment interest (with exceptions).
- Full judicial review (in ERISA cases, you prevail only if the judge decides your plan administrator "abused their discretion").
What to do if You Think Your Benefits Might be Preempted by ERISA
If your benefits have been denied and you believe the decision was made in error, do not delay before seeking legal assistance - whether "ERISA" appeared in any of your claim materials or letters or not. The intersection between ERISA and state bad faith laws is highly complex, and you don’t want to allow your opportunity to file a lawsuit pass because the applicable statute of limitations has expired. Contact an attorney who specializes in ERISA or bad faith insurance claims immediately, to find out how much time you have.