Supreme Court Will Decide Availability of Attorney’s Fees in Disability Cases

Posted by marykeating on April 17, 2010 under Employment benefit issues | Be the First to Comment

The Supreme Court will decide a case centering on the award of attorney’s fees in a long-term disability appeal.  The Fourth Circuit, which hears appeals from federal courts in Maryland, decided that the successful claimant could not obtain attorneys’ fees from the insurance company.  While the case will focus on a narrow provision of one law, ERISA, it has widespread ramifications.  The case is called Hardt v. Reliance Standard Life Ins. , and discussed here.

ERISA is the acronym for the Employee Retirement and Income Security Act.  This law governs employee benefit plans, including not only pensions but health insurance, life insurance, and long-term disability insurance.  Among its provisions is a requirement that the benefit plan offer an internal administrative appeal procedure when claims are denied.

Long-term disability plans are frequently offered as fringe benefits.  As many people have found, however, the administrators of these plans can be very suspicious of claims, and may deny benefits to claimants on dubious grounds.  The administrators are often the same insurance companies who will pay the claim if they decide the claim is valid.  A disabled person can go to court only after “exhausting” the administrative remedies (the word used by the courts is especially appropriate here).  Then the court will review the decision of the administrator by comparing the definitions of the plan, the medical evidence, and the administrator’s reasoning.  Ordinarily the disabled employee cannot add more information in court, so developing a good administrative record is key.  

Bridget Hardt’s experience followed a path I’ve seen many times.  Her injuries and subsequent health issues prevented her from working, according to her and her doctors. The Social Security Administration agreed that she was unable to work and granted her benefits, but the long-term disability plan administrator did not agree.  She filed suit under ERISA, and the federal court instructed the administrator to reconsider the evidence.  It relented at that point, and gave her benefits through retirement age.

Under ERISA, a court may order a party to pay the other person’s attorney’s fees if the case was successful.  These fee-shifting statutes are designed, in part, to encourage attorneys to take cases for people who might not be able to afford representation.  The federal court in Ms. Hardt’s case awarded attorney’s fees to her; but the appeals court disagreed, holding that the administrator’s reconsideration did not result in a judgment in favor of the claimant, so Ms. Hardt did not qualify as a prevailing party.  In other words, her success on the claim was not the result of a court order telling the administrator to pay the claim.

Because other federal courts have taken the opposite view, and because ERISA cases frequently arise in federal court, the Supreme Court has decided to resolve the question.  It would be unfortunate if the Supreme Court takes the narrow view adopted by the Fourth Circuit.  It is difficult for someone to battle an insurance company, and sometimes the nature of the employee’s disability makes it even harder to jump through the company’s hoops.  A lawyer can be helpful to formulate the arguments and amass the evidence that might lead the insurance company to agree with the person’s doctor that she’s disabled.  When the administrator agrees during that administrative process, attorney’s fees are not recoverable. But if they make a federal case out of it, it seems fair to make the insurance company pay for the successful person’s fees, even if the success does not stem from a judgment.

The decision should be issued by the end of June.