(Bloomberg News) Jane Pierce spent nine years struggling alongside her husband, Todd, as he fought cancer in his sinus cavity. The treatments were working. Then, in July 2009, Todd died in a fiery car crash. He was 46. That was the beginning of a whole new battle for Jane Pierce, this time with Todd's life insurance company, MetLife Inc.
A state medical examiner and a sheriff in Rosebud County, Montana, concluded that Pierce's death was an accident, caused when he lost control of his silver GMC pickup after passing a car on a two-lane road.
Their findings meant Jane was eligible to collect $224,000 on the accidental death insurance policy that Todd had through his employer, power producer PPL Corp. MetLife, however, refused to pay. The nation's largest life insurer told Pierce on Dec. 8, 2009, that her husband had killed himself. The policy didn't cover suicide, the insurer said, Bloomberg Markets magazine reports in its April issue.
"How dare they suggest such a thing," says Pierce, 44, a physician's assistant in Colstrip, a Montana mining and power production city of 2,346 people.
She says she's insulted that the man who courageously battled his disease for a decade was accused by an insurance company of abandoning his wife and two sons-one a U.S. Marine, the other a National Guardsman-and giving up on his fight to live.
Pierce argued with MetLife for months. She supplied the insurer with the autopsy report, medical records and a letter from the medical examiner saying the death was accidental. MetLife still said no. Finally, in May 2010, she sued.
In July, a year after Todd's death, MetLife settled and paid Pierce the full $224,000 due on the policy. The New York- based insurer, as part of the agreement, denied wrongdoing and paid Pierce no interest or penalties for the year during which it held her money.
Life insurers have found myriad ways to delay and deny paying death benefits to families, civil court cases across the U.S. show. Since 2008, federal judges have concluded that some insurers cheated survivors by twisting facts, fabricating excuses and ignoring autopsy findings in withholding death benefits.
Insurers can make erroneous arguments with near impunity when it comes to the 112.8 million life and accidental death policies provided by companies and associations to their employees and members. That's because of loopholes in a federal law intended to protect worker benefits.
Under that law-the Employee Retirement Income Security Act, or ERISA-insurers can win even when they lose in court because they can keep and invest survivors' money while cases are pending.
Congress enacted ERISA in 1974, after bankruptcies and union scandals caused thousands of employees to lose benefits. The law requires employers to disclose insurance and pension plan finances, and it holds company and union officials personally accountable for sufficient funding.
In order to achieve ERISA's goals, federal courts have ruled that employees must surrender their rights to jury trials and compensatory and punitive damages if they sue an insurer for wrongfully denying coverage. Judges have reasoned that companies and insurers should have these protections to encourage them to continue providing benefits.
ERISA puts these issues under federal jurisdiction, so state regulators sometimes say they can't help consumers.
"The most important federal insurance regulation of the past generation is ERISA," says Tom Baker, deputy dean of the University of Pennsylvania Law School in Philadelphia. "If ever a law backfired for the public, ERISA is the perfect example."
Life insurers do pay most claims in full-more than 99% of the time, according to data from the American Council of Life Insurers, a Washington-based trade group. Nobody keeps track of how often companies delay making those payments or how often they use spurious reasons.
As of 2009, the latest year for which figures are available, insurers in the U.S. were disputing an accumulated total of $1.3 billion in claims, the ACLI reports. Included in that amount was $396 million in death benefits turned down in 2009. In the same year, insurers paid out $59 billion, the ACLI reports.
What those numbers don't measure is the trauma survivors like Jane Pierce face when wrongfully denied, says Aaron Doyle, a professor of sociology and criminology at Carleton University in Ottawa.
Most survivors don't have the stamina and knowledge to file a lawsuit, says Doyle, who has spent a decade interviewing life insurance customers, employees and regulators in the U.S. and Canada. Often, survivors are dissuaded by their insurers from taking their grievances to state regulators or to court, Doyle says.
"The company tells the customer, 'Oh no, that's not an unusual practice, so you don't really have a complaint,'" he says.
Insurers have an obligation to policyholders and shareholders to challenge death claims they consider fraudulent, says John Langbein, a professor at Yale Law School who co-authored Pension and Employee Benefit Law (Foundation Press, 2010). Insurers maintain a reserve of money to cover benefits.
"It's their job to protect the insurance pool by blocking undeserved payouts," Langbein says. That doesn't give them the right to wrongly deny claims, he adds. "There's a profound structural conflict of interest," he says. "The insurer benefits if it rejects the claim. Insurers like to take in premiums. They don't like to pay out claims."
MetLife and Newark, N.J.-based Prudential Financial Inc. declined to answer all questions on cases cited in this story, as well as all queries about ERISA and accidental death policies.
"We pride ourselves on delivering on our promises, paying claims in accordance with the terms of the policy and applicable law," says Joseph Madden, a MetLife spokesman.
"Our insurance businesses' primary focus is on paying claims," says Simon Locke, a Prudential spokesman. "Contested claims represent a small fraction of the overall number of claims that are paid. Prudential's claims professionals are trained to conduct an appropriate review and follow applicable laws, regulations and the terms of the policy."
Prudential used the ERISA shield when it denied payment to Mimi Loan in Lexington, Ky. The company invoked drunk-driving laws when Ernest Loan had died not in a car, but in his home. U.S. District Court Judge Joseph Hood ruled that Prudential had wrongly denied a $300,000 accidental death benefit to the family of Ernest Loan. The Sixth Circuit Court of Appeals said drunk-driving law doesn't outlaw conducting chores around the house.
"A legal definition specifically intended to apply to someone who is driving a motor vehicle is not rational as applied to someone who is in his home and is not operating machinery," the court wrote.
On November 30, 2010, Hood ordered Prudential to pay the family $300,000.
In Colstrip, Mont., Jane Pierce says the odds are stacked against families when insurers wrongfully deny benefits.
"I think it's just a racket," she says.
Sitting at her kitchen table, she recalls how her husband's health had been improving just before his death and how she and Todd were looking forward to skiing in the winter. Two years after Todd died, his voice is still on their home answering machine.
Jane says she got the strength to fight a life insurance company from Todd, who would never give up.
"He'd amaze me," she says.