How Public Employee Insurance Denials Are Different

When a health insurance company denies a claim, policyholders often assume they have the right to challenge the denial in court and seek compensation for any harm caused. However, the legal options available to policyholders depend largely on whether their insurance plan is governed by the Employee Retirement Income Security Act (ERISA). Most private-sector employees receive health insurance through their employer, and these plans are governed by ERISA, a federal law that imposes strict limitations on how disputes are handled. Public employees, however, are exempt from ERISA, giving them more legal options when challenging a wrongful denial.

If you are a public employee dealing with a wrongful insurance claim denial, contact Gianelli & Morris to review your case with a skilled and experienced California insurance bad faith lawyer.

Understanding ERISA and Its Impact on Denied Health Insurance Claims

ERISA applies to most employer-sponsored health plans in the private sector. It was designed to protect employees by establishing standards for benefit plans, but in practice, it often benefits insurance companies more than policyholders when claims are denied. If a health insurance claim is denied under an ERISA-governed plan, the policyholder faces several key restrictions:

• Exhaustion of Administrative Remedies: Before an ERISA plan participant can file a lawsuit, they must first go through the insurer’s internal appeals process. This means the policyholder must submit one or more appeals directly to the insurance company before seeking relief in court. Only after exhausting these administrative remedies can they take legal action—if their claim is still denied.

• No Bad Faith Claim: Under ERISA, policyholders cannot sue their insurer for acting in bad faith, even if the denial was unreasonable or part of a pattern of unfair claim denials. In contrast, non-ERISA policyholders may be able to hold insurers accountable for wrongful conduct, potentially leading to greater legal leverage.

• Limited Remedies: If an ERISA plan participant ultimately wins their case, the court can only award the amount of benefits that should have been paid under the plan. They cannot recover additional compensation for emotional distress, lost wages, or other damages caused by the wrongful denial. Punitive damages, which are meant to punish insurers for egregious misconduct, are also unavailable in ERISA cases.

Public Employees Are Exempt from ERISA

Although public employees also receive health insurance through their jobs, their plans are not governed by ERISA. This exemption means that public employees have significantly more legal options when a claim is wrongfully denied.

• Ability to Sue for Bad Faith: Public employees can sue their insurer for bad faith if the denial was unreasonable or intentional. A successful bad faith claim can lead to additional compensation beyond the benefits owed, including damages for emotional distress and attorney’s fees.

• Potential for Compensatory and Punitive Damages: Unlike ERISA-governed plans, which limit recovery to the denied benefits, public employees may be awarded compensatory damages for harm caused by the denial. In extreme cases, they may also be able to seek punitive damages to hold the insurance company accountable for misconduct.

• Greater Legal Recourse in State Court: ERISA claims are handled exclusively in federal court, where judges must defer to the insurance company’s decision unless it is found to be arbitrary and capricious. Public employees, however, can take their cases to state court, where they may have a better chance of success under state laws that offer stronger consumer protections.

Why Public Employees Should Take Action Against Wrongful Insurance Denials

Because public employees are not restricted by ERISA’s limitations, they have a greater ability to hold insurance companies accountable for wrongful denials. If you are a public employee and your health insurance claim has been denied, you should not assume that you have no recourse. You may be entitled to compensation beyond the benefits owed, and you may be able to challenge your insurer’s actions in court without the restrictions imposed on private-sector employees.

Gianelli & Morris Can Help

At Gianelli & Morris, we represent California policyholders whose health insurance claims have been wrongfully denied. If you are a public employee facing a denied claim, our experienced attorneys can help you explore your legal options and pursue the compensation you deserve. Contact us today to discuss your case and take the first step toward justice.