Many people find themselves needing to bring suit against an insurance company. But not all lawsuits against insurers are governed by the same laws.
If you obtained benefits through your employer and experience a wrongful denial of those benefits, you can bring suit to obtain the money owed to you. But for most employees, their suits to obtain life, health, or disability insurance benefits, or pension benefits, are governed by federal law. That law is the Employee Retirement Income Security Act of 1974, commonly known as ERISA. It governs benefits provided to most employees. (But not all! It does not apply to state or federal employees, ironically. And it does not apply to many church employees, or to employees who obtain their insurance advertised through their employer but pay for it out of pocket.)
The intention of ERISA is to make it more streamlined for employees to obtain needed benefits. Unfortunately, to achieve this Congress stripped many of the benefits of litigation from the process. Under ERISA, plaintiffs are limited in what they obtain in discovery and in what they can provide to the court as additional evidence. Plaintiffs are often limited to the documents they submitted to the insurer when pursuing their insurance claim. Depositions are rarely part of an ERISA life, health or disability litigation. ERISA also does not permit plaintiffs to obtain emotional distress or punitive damages. These litigations often resolve much faster, but the most a plaintiff can hope to obtain under ERISA are back benefits and potentially attorney fees. Litigation governed by ERISA can only be filed in federal court, as ERISA is a federal statute.
If you obtained your life, health or disability insurance privately, or if you are bringing suit against your homeowner's insurance company, then your lawsuit is governed solely by the insurance contract, and the contract and tort laws in your state. Typically, these insureds bring causes of action for breach of contract, and breach of the covenant of good faith and fair dealing, also known as bad faith.
Depending on the facts of the case, plaintiffs may also bring causes of action for negligence, fraud, misrepresentation, unfair business practices, or - in California - elder or disabled financial abuse. These state law causes of action permit discovery into the insurance company’s rules and practices, and enable insureds to seek emotional distress and punitive damages. You can also potentially obtain future benefits for disability claims if the insurer’s conduct was sufficiently egregious. These suits are normally filed in state court unless the amount in controversy is sufficiently high and the insurance company is in a different state than the plaintiff. In that situation, the suit can be filed in federal court, or the insurance company can move it to federal court on its own.
Both of these paths can result in the payments an insured is rightfully owed. It is important to be aware of the differences so potential plaintiffs can set their expectations accordingly.