Do I Have to Submit an Appeal to the Insurer that Denied my Claim?

You did everything right: you promptly submitted your claim to the insurance company, dutifully documented the facts surrounding your claim, obtained supporting evidence, completed all the insurance company's forms, and were always responsive to the insurer's claim handlers.  Yet you just received a letter from the insurer notifying you that your claim is denied.  That letter probably contains a notice that you "may" appeal the denial by submitting an appeal to the insurer.  But why should you go to the effort of preparing an appeal to a company that's already indicated a bias toward your claim?  It seems counterintuitive.  Besides, the insurance company says you "may" appeal, doesn't that mean it's not mandatory?

If you receive an insurance benefit through your employer, it's highly likely a federal law called the Employee Retirement Income Security Act of 1974--"ERISA" for short--controls your claim.  And surprisingly, if you want to contest the insurer's claim denial in court it is generally mandatory to first file an appeal with the insurance company.  Even though the text of ERISA does not mention it, courts have long held that the legal doctrine of "exhaustion" applies to insurance claims governed by ERISA.  See Amato v. Bernard, 618 F.2d 559, 567 (9th Cir. 1980).  As a result, ERISA claimants "must exhaust their administrative remedies prior to instituting an action in federal court."  Harrison v. California Care, No. C-93-4028, 1994 WL 69469, at *4 (N.D. Cal. Feb. 14, 1994). 

Under ERISA, an appeal to the insurance company is considered an "administrative remedy."  If an insurer requires you to file an appeal and you don't file it, you lose the right to later file a lawsuit against the insurer.  The written documents forming the basis of your insurance benefit--known as "the plan" documents by ERISA practitioners--must be examined to determine whether the benefit plan requires an appeal.  Some plans require more than one appeal.  But as a general rule of thumb, if you receive your insurance benefit through your employer, you must file an appeal to preserve your right to litigate. 

While a general rule is useful, the reality is that insurance claims tend to be fact-specific, and thus must be examined on a case-by-case basis.  For example, there are exceptions to the exhaustion rule.  And if your claim is not controlled by ERISA there's a good chance you don't even have to appeal (although you may want to anyway, which is a separate issue altogether).

Navigating these different appeal requirements can be complicated.  If you have questions, you should consult with an experienced insurance bad-faith attorney to assist you with your claim. 

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