How to Make a Disability Insurance Appeal: The Why, Where, and Who to Sue

The practical steps of filing a lawsuit to hear a disputed long term disability insurance benefit claim depend on whether you have a policy governed by ERISA rules or your plan falls outside of ERISA.

Basically if you are not on an ERISA plan, you may not be required to exhaust your administrative remedies before you sue. If your plan falls under ERISA law, you will need to pursue all the appeal procedures offered by your disability insurance provider before filing suit. If you do not pursue, you cannot file suit.

Where to file suit

Individual long term policies (not subject to ERISA)

If you are insured under an individual long term disability policy and have been denied benefits, you may file suit in state court. Even if you do, as a strategic move, the insurance company may try to have the case removed to federal court. Many insurance companies feel they receive more impartial treatment in federal court. Your attorney will know whether it is worth fighting to stay in state court.

In order to remove the case to federal court, the insurance company must show that it is incorporated in a different state than the state in which you reside and they must show that the amount in dispute is more than $100,000. The amount in controversy requirement is met if the actual amount of your benefit in dispute is more than $100,000 or if you have asked for an unspecified amount of extra-contractual damages (such as, compensatory or punitive damages), the amount of which will be determined at trial. It is assumed that this award has the potential to be greater than $100,000.

ERISA-governed group insurance plans

If your plan falls under ERISA, both federal and state courts can hear your appeal. However, state courts are required to follow federal law in ERISA claim denial law suits. Therefore, in practice, almost all ERISA cases, regardless of the location of the insurance company or the amount in dispute, are litigated in federal courts. Here again, if you filed an ERISA lawsuit in state court, the insurance company would more than likely remove it to federal court.

Whom to sue

(a) Individual long term disability insurance policies (not subject to ERISA)

In a traditional non-ERISA lawsuit you file against the insurance company and any other individuals or entities who may have contributed to your harm. For example, if your agent misrepresented to you how the policy works or was negligent in assisting you in handling the claim to your detriment, you may wish to include the agent as a defendant.

(b) ERISA-governed group insurance plans

In some jurisdictions (the 9th Federal Circuit, for example, which includes Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon and Washington), the federal court has held that an ERISA lawsuit for insurance benefits may only properly be brought against the group plan. This is a problem because in most cases the claim was processed and benefits denied by the insurance company and not by the ERISA benefit plan itself. Your solution to this dilemma is simply to file your suit against both the plan and the insurance company and then let the defendants decide among themselves who will defend the case and respond to any judgment that is rendered. Ultimately, that is usually the insurance company.

Court procedures

a) Assignment of judges

In state court, the assignment of judges depends on the local rules of the different state courts. You may have different judges for different stages of the proceedings. In federal court, a judge is assigned at the commencement of the action and will be the judge for all purposes (with the possible exception of discovery disputes and settlement conferences).

b) Filing of the complaint (the law suit) and service of process

Your complaint must be timely filed upon all defendants. In most state courts, you have 60 days to serve the complaint from the date it is filed with the court. In federal court, you have 120 days. In an ERISA action, you may have difficulty serving the complaint on the plan. Under ERISA, proper service on the plan is made to the Plan Administrator, who must be identified in plan documents (usually the Summary Plan description). This is another reason to request all plan documents during the appeal process. It is also another reason why you should consider hiring an ERISA attorney at the beginning of the appeal process.