Most attorneys who regularly represent individuals with denied ERISA benefits believe that insurers are much more likely to abuse their ERISA claimants than when those same insurers handle non-ERISA claims and are subject to the possibility of consequential or punitive damages as a result of bad faith denials of claims. But supposition aside, is there any concrete evidence that insurers treat ERISA claimants differently than they treat non-ERISA claimants?
One of the best pieces of information is an internal memorandum generated within Provident Insurance back in 1995. At the time Provident was one of the largest disability insurers in the country. Since then Provident merged with UNUM. But the memorandum, which has circulated for quite awhile among disability lawyers, makes it pretty clear that the presence of ERISA makes a big difference in how insurers deal with their insureds.
For example, the internal memorandum references the need for Provident to "initiate active measures to get new and existing policies covered by ERISA." It then goes on to list the "enormous" advantages to Provident of having litigation governed by ERISA: no jury trials, no compensatory or punitive damages, remedies being limited to the benefits in question, and courts deferring to the insurance company's decision. The author calculates that for 12 cases Provident was dealing with at the time, the savings in handling the cases if ERISA had applied would have been over $7,000,000.
It's pretty simple. In a competitive marketplace, if you take away the negative consequences for bad behavior, you're going to get more bad behavior.