The Second Circuit Court of Appeals has clarified the issue of when an ERISA claimant is entitled to attorney fees from a plan administrator:
When you win, you are entitled to recover fees.
This ruling came in an opinion in which the Court reversed a lower court which had denied legal fees and costs to a claimant because the judge couldn’t find that the insurance company had acted in “bad faith”.
After 9 years of legal strife, John Donachie finally recovered ERISA disability benefits to which he was entitled because of the serious side effects of a heart valve replacement, Donachie v. Liberty Life Assurance Company of Boston, et al., 2014 W L 928971, CA 2 (N.Y.).
The matter was decided on a summary judgment motion made by Liberty which was converted by the District Court into a judgment for the claimant because the court found the denial of benefits by Liberty to be arbitrary and capricious. Thus the benefits issue was finally resolved.
But, the District Court denied claimant’s motion for legal fees and costs because the Court found that defendant had not acted in “bad faith”. Thus the claimant would receive nothing toward his considerable legal fees and costs despite the wrongful refusal of Liberty to pay him benefits all those years.
The Court of Appeals held that the District Court ruling on fees in this case was contrary to the intent of ERISA, 29 U.S.C. 1132(g)(1), which gives the District Court the discretion to award reasonable attorney fees and costs. Although this discretion is not unlimited, fees and costs are to be awarded when the beneficiary has obtained some degree of success on the merits. Certainly in Mr. Donachie’s case where he was awarded benefits by the Court on the insurance company’s motion for judgment, he had obtained “some degree of success on the merits”.
The Court cited a line of cases which stand for the proposition that ERISA’s attorney fee provisions must be liberally construed to protect the statutory purpose of ERISA.
The Court was clear saying that some degree of success on the merits is the sole factor a court must consider in exercising its discretion on awarding fees to claimants.