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Protect employees from a health insurance loophole.

This story appears in the March 2006 issue of Entrepreneur. Subscribe »

Employees who participate in group health insurance could be left with a hefty tab if the insurer denies a claim. A little-known provision in the Employee Retirement Income Security Act of 1974, or ERISA, holds that, with a few exceptions, people who get health coverage through a group policy at work cannot sue their insurance companies under state law, and their options under federal law are limited, says Arnold Levinson, an attorney and partner at Pillsbury & Levinson LLP in San Francisco.

"Under federal law, the insurance company gets to decide whether your claim is paid or not, and they don't even have to be right," Levinson says. "All they have to do is show that they were not arbitrary and capricious. While you might be able to sue in federal court, you can't win unless you prove the insurance company [was] arbitrary and capricious."

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