Employees in Chicago covered by an employer-sponsored long term disability insurance plan governed by ERISA often would ask me whether they can recover additional losses when the insurer wrongly denied their claim for benefits. These additional losses can include penalties and interest incurred for drawing retirement assets early, losses on assets sold to cover living expenses, or damaged credit due to lack of income. For many years the state of the law under ERISA § 502(a) was that a participant could only recover the benefits due for a wrongly denied claim, and perhaps nominal prejudgment interest, but not any consequential damages such as those described above. While the law is not settled that a participant now can recover such losses, it appears courts are heading in that direction.
A California federal district court recently allowed a claim for equitable surcharge against a long term disability insurer—Cigna—to proceed under ERISA § 502(a)(3) along with the participant’s claim for benefits under § 502(a)(1)(B). Zisk v. Gannett Co. Income Protection Plan, No. 14-cv-391-YGR, 2009 U.S. Dist. LEXIS 157323 (N.D. Cal. Nov. 6, 2014). In that case, Mr. Zisk alleged that Cigna terminated paying him disability benefits due to his metastatic cancer after paying him for 10 years because it asserted it did not have updated medical records, though it did, and that after he resent the evidence, Cigna ignored it and upheld its termination of benefits. Mr. Zisk alleged that Cigna breached its fiduciary duty in handling his claim, causing him harm and losses in the form of incurred attorney’s fees during administrative review, penalties and interest incurred on early 401(k) plan withdrawals, and losses on the sale of assets necessary to cover expenses.
Cigna argued Mr. Zisk could not be entitled to such relief where he raised a claim for his benefits due, and that circuit court authority foreclosed the relief. However, like some other district courts appearing to set a new trend, the court was receptive to Mr. Zisk’s arguments and allowed the claims to proceed. This may demonstrate a shifting tide in favor of making insurers and other fiduciaries subject to additional liability for the harm caused to participants for wrongly denying benefit claims.
If you have been denied long term disability insurance benefits and would like to discuss what remedies are available to you, contact an experienced ERISA attorney.
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