Understanding ERISA Disability Lawsuit Settlements: Could Your Lawsuit Settle?

A common question that we hear often is whether an ERISA lawsuit can settle? Let’s dive into this scenario.

First, you have applied for long term disability benefits and your denied claim has gone through the whole appeal process. You’ve put all the proper things in your file, making sure everything is there for the claim administrator to review your, your claim and your application and approve it. But your claim administrator still denies your claim.

This is called exhausting your administrative remedies. Now, your only option is to file a lawsuit against the insurance company denying your benefits.

Understanding ERISA Lawsuits

ERISA (Employee Retirement Income Security Act) lawsuits are a complex and nuanced area of law. ERISA governs group long-term disability insurance policies among other things.

If your long-term disability claim is denied, you have to file an administrative appeal. If that is unsuccessful, you need to file a lawsuit. ERISA lawsuits are typically decided by federal judges, who use two methods to decide ERISA claims: de-novo review or arbitrary and capricious standard.

De-novo review allows the judge to independently look at all the details of the claim file. The judge will then decide if the policyholder qualifies for benefits.

The abuse of discretion standard is used when the policy allows the insurance company to interpret it. The judge must find that the insurance company was wrong to deny benefits and that it was “arbitrary and capricious.” Most employers’ long-term disability ERISA policies still have discretionary clauses.

Securing benefits for clients applying for long-term disability is complex.

It’s essential to understand that ERISA regulations do not allow claims for bad faith or punitive damages for an insurance company’s wrongful denial of long-term disability benefits in a group plan ERISA claim.

Additionally, it is challenging to receive an award of attorney fees for the winning party in an ERISA disability case in most federal circuits.

What is an ERISA Disability Lawsuit?

An ERISA disability lawsuit is a legal action taken by an individual against their disability insurance carrier for denying their long-term disability claim. Governed by the Employee Retirement Income Security Act (ERISA), these lawsuits are filed in federal court.

The federal judge will review the claim file, which includes medical records and other relevant documentation, to determine if the insurance carrier’s decision to deny benefits was arbitrary and capricious. This means the judge must find that the insurance company’s denial was unreasonable and lacked a factual basis.

Filing a Lawsuit Against an Insurance Company for a Long Term Disability Claim

So what happens next? After you’ve hired a lawyer, you’ve gone through the appeal process. The only thing that you can do at this point is to file a lawsuit in federal court. Once you filed the lawsuit in federal court, a string of things will happen.

How Does the Judge Make a Decision?

In an ERISA disability lawsuit, the judge’s decision hinges on the evidence presented in the claim file. This includes medical records, the insurance policy, and any other pertinent documentation. The judge may also take into account the opinions of medical experts and witness testimonies. The decision is based on the arbitrary and capricious standard. That means the judge must find that the insurance company’s denial of benefits was unreasonable and lacked a factual basis.

Several deadlines will come and go. The judge will get a copy of the administrative record. The administrative record will then show everything that you put in the file. It will also show everything that the insurance company put in the file.

Both sides will file cross motions for summary judgment. And, a federal judge will decide if your claim should be reversed or should be affirmed.

The Settlement Process

The short answer to the question is, yes, an ERISA lawsuit can settle.

During the settlement process, claimants may receive a lump sum payment as part of long-term disability insurance settlements. This most often happens in scenarios where claims are denied.

It is important to understand what accepting a lump sum entails in terms of giving up future benefits.

The settlement process in a long-term disability claim typically involves negotiations between the claimant and the insurance company.

Often, the insurance company may propose a lump sum settlement. That offer would include a one-time payment in exchange for relinquishing future benefits.

When considering such an offer, it’s crucial to weigh the pros and cons carefully. Factors to consider include the settlement amount, potential tax implications, and the impact on future benefits. We encourage claimants to consult with a long-term disability attorney can help ensure that your rights are protected and that you make an informed decision.

Factors Influencing Settlement

When evaluating a settlement offer, it’s crucial to consider various factors that can influence the outcome. These factors include:

• The strength of your case: If you have a strong case with solid evidence, you may be able to negotiate a better settlement.
• The insurance company’s defense: If the insurance company has a weak defense, they may be more willing to settle.
• The court’s decision: If the court has previously ruled in favor of claimants with similar cases, it may impact the settlement offer.
• Your personal financial situation: If you have an immediate need for cash, you may be more inclined to accept a settlement offer.
• Your long-term goals and plans: If you have a plan to return to work or have found alternative sources of income, it may impact your decision to accept a settlement.
• Monthly payments: Opting for a lump sum settlement instead of continuing to receive monthly payments can have significant implications on your benefits and financial situation.

Understanding these factors can help you make a more informed decision when considering a settlement offer from the insurance company.

Releasing Claims

When a claimant accepts an ERISA lawsuit settlement, they are generally required to release their claims against the insurance company. This means giving up the right to pursue future benefits in court. You will agree not to sue the insurance company for any further claims related to the disability.

The release may also include confidentiality provisions and other legal terms. It’s essential to review the release carefully before signing. A release will have significant implications for your future rights and benefits.

Consulting with a long-term disability lawyer before settling your ERISA lawsuit can provide valuable guidance in understanding these legal nuances.

Evaluating Settlement Offers

Evaluating a settlement offer requires careful consideration of various factors. Here are some key points to consider:

• The settlement amount: Is the offer fair and reasonable based on your case?
• The tax implications: Will the settlement create an unexpected high tax burden?
• The impact on future benefits: Will accepting a settlement impact your ability to claim future disability benefits?
• The insurance company’s motivations: Is the insurance company trying to settle quickly to avoid a lengthy and costly lawsuit?

It’s important to discuss the settlement offer with an ERISA long-term disability lawyer. You need someone who can help you understand the implications and make an informed decision. A lawyer can provide valuable insights into whether the settlement amount is fair, how it might affect your future benefits, and any potential tax implications.

Taxes and Cost of Living Adjustment

The tax implications of a lump sum settlement can be substantial. The settlement amount may be subject to income tax, requiring the claimant to pay taxes on the entire sum. Consulting with a financial advisor or accountant is crucial to understand these tax implications fully.

Additionally, the cost of living adjustment (COLA) may be a factor in the settlement. COLA is an increase in the benefit amount to account for changes in the cost of living due to inflation. The COLA is typically calculated based on a specific formula, such as the Consumer Price Index (CPI). Understanding how the COLA will affect your settlement amount is important for making an informed decision.

Reviewing these aspects with a financial professional can ensure that you fully grasp the financial impact of your ERISA lawsuit settlement. While the insurance company may offer a COLA as part of the settlement, it’s essential to review the terms to ensure they are fair and reasonable.

Lump Sum Settlement Value

Usually during the time where there is this discussion going on, or sometimes, the insurance company’s attorney will reach out and offer to settle your ERISA lawsuit. Now, what is the settlement value of your case?

Understanding the present value of future payments is crucial when calculating the settlement value. A lot of times it’s easy to calculate what the total potential value of your claim could be. We can calculate the start date, the end date, and exactly what your monthly benefit would be. We know what the full amount of your benefit could be under that policy.

Don’t expect to get the full amount of your benefit under the policy. The insurance company will look to mitigate their risk in a long term disability settlement.

You also have to account for the risk that you could lose.

If you lose, because the cards are typically stacked against you in federal district court, then you get zero, you get nothing.

So what is the benefit, what is the value of your settlement? It could be anywhere from 40 to 80% of the total value of your claim. Your valuation just depends on the factors of your particular case. It may be lower than that. You may have some things in that claim file that are very detrimental.

But, it could also be the opposite.

It could be that you have a great chance of winning your case in federal district court. You might have a good opportunity to prevail and then your settlement percentage might be a little bit higher. It’s important to seek the advice of a qualified or ERISA disability, long term disability attorney, to make sure that you know what you are entitled to in your case.

If you have any questions about that, feel free to send us an email, give us a call. We’d love to talk to you about how you can resolve your case in your best interest.

Conclusion

Settling your ERISA lawsuit is complex and nuanced, and it’s essential to understand the factors that influence the outcome. By considering the strength of your case, the insurance company’s defense, the court’s decision, and non-legal factors, you can make an informed decision about whether to accept a settlement offer. It’s crucial to work with a long-term disability lawyer who can help you navigate the process and ensure you receive a fair settlement.