Misclassifying an Individual Disability Insurance Policy as Being Subject to ERISA: A Case Study
Employer-sponsored disability policies governed by ERISA (Employee Retirement Income Security Act of 1974) are subject to different rules that affect the administration and litigation of disability insurance claims. These policies tend to be less favorable to the insured and disability claims governed by ERISA are typically more difficult to get approved.
Some of the disadvantages to ERISA-governed policies include the requirement that any denial first be challenged through an internal appeals process (versus the ability to file a lawsuit) and the inability of a jury trial or the possibility of punitive damages if a lawsuit is filed. Further, if the case does go to trial, the insurer will, in many instances, have a favorable standard of review that requires a showing that the administrator acted “arbitrarily and capriciously” in order for the policyholder to prevail.
Because ERISA tends to favor insurance companies, some disability insurers may improperly seek to classify a policy as being subject to ERISA—even when it is actually an individual policy. Such is the case of Sobanski v. Provident.[1] Here, Dr. Sobanski, an emergency room physician, filed a claim with Provident (Unum) after she had to leave her job due to several psychiatric conditions that left her unable to work.
Unum ultimately denied Dr. Sobanski’s claim, in part because it claimed it had never received medical records from her treating provider. Dr. Sobanski sued Unum over the denial and moved the court to allow her to claim exemplary damages based on “Provident’s allegedly willful and wanton actions,” including by misclassifying her policy as an ERISA policy, failing to train its employees on ERISA claims, failing to investigate her claim, and failing to properly administrate the appeals process.
In Dr. Sobanski’s case, she pointed to the fact that Unum’s internal policies state that a disability benefit specialist (DBS) must determine if a claim is governed by ERISA. It came to light here that the DBS who handled Dr. Sobanski’s claim was “neither trained by Provident nor aware of the difference between plans that fell under ERISA and those that did not.” Dr. Sobanski’s claim continued to be flagged as an ERISA claim by the intake specialist and subsequent analysts, with no “higher-level” review.
Unum attempted to argue that it did not systematically misclassify policies as ERISA-controlled and argued that ERISA applicability “involves an intricate legal and factual analysis that often cannot occur until litigation.” Unum also argued Dr. Sobanski benefited from the internal appeals process. However, ultimately, the Court sided with Dr. Sobanski and found she had shown supporting evidence where a jury could find that “Provident, in reckless disregard of her rights under the Policy” misclassified her claim as being governed by ERISA.
As of the writing of this post, the case remains pending as to whether Dr. Sobanski will be successful on her claim for punitive damages and whether she is entitled to benefits under her policy. This case shows the importance of understanding how your policy works (including whether it is an individual policy or an employer-sponsored policy subject to ERISA). If you feel your insurance company is incorrectly administering your claim, an experienced disability attorney can help you evaluate the situation and identify what options are available to you.
Every claim is unique and the discussion above is only a limited summary of the court’s ruling in this case. If you are concerned that your insurer is not evaluating your claim under the proper standard, an experienced disability insurance attorney can help you assess the situation and determine what options, if any, are available.
[1] Sobanski v. Provident Life and Accident Ins. Co., 1:24-cv-02485-PAB-SBP (D. Colo. July 7, 2026).
