Insurance companies underwrite policies as a way to generate revenue. These companies make money by collecting premiums and lose profits when they have to pay large claims. The majority of insurance providers are for-profit organizations, which means that their best interests directly oppose the interests of their clients. Numerous laws regulate the insurance industry. Despite laws requiring that companies operate in good faith, inappropriate claim denials and low settlements are common issues.
Therefore, lawmakers imposed special restrictions on insurance used by people in particularly vulnerable positions. Sometimes, those in need of disability benefits may realize that an insurance company has violated its duty to a policyholder under the law.
Disability insurance rules are stricter
The Employee Retirement Income Security Act of 1974 (ERISA) governs more than just worker retirement benefits. It also applies to long-term and short-term disability insurance paid for by employers as part of a worker’s compensation.
ERISA creates an enhanced degree of responsibility for certain insurance companies. When an insurance provider underwrites long-term or short-term disability policies included in benefits packages by employers, ERISA applies to company operations. The insurance provider technically has a fiduciary duty to act in the best interests of the policyholder. A fiduciary duty means putting another party’s best interests first. The company should uphold its policies and act to protect policyholders, as the best interests of the policyholder supersede the financial interests of the organization under ERISA.
In a scenario where it seems like an insurance provider has failed to fulfill that duty, policyholders may be able to take legal action. Understanding what may constitute a violation of ERISA, and seeking legal guidance accordingly, could benefit those with a disability insurance policy provided by an employer.