Articles

So You're Stuck With ERISA-

Now What?

 

Mark D. DeBofsky

Daley, DeBofsky & Bryant

One N. LaSalle St., Suite 3800

Chicago, Illinois 60602

(312) 372-5200

 

            So you're stuck with ERISA-now what?  First of all, don't panic.  Turn the ERISA law to your advantage and make lemonade from lemons.  You may not even be faced with an ERISA claim.  That should be your initial question.  If ERISA does apply, how do you maximize your advantage?  What steps are crucial to success in court?  The following discussion, while not intended to be exhaustive due to the limitations of this paper, is intended to offer guidance and a framework toward answering these questions. 

 

Step 1 - Does ERISA Apply? Is it a Plan?

            ERISA only applies to benefits offered by a private-sector employer.  Benefits provided by governmental employers and by religious organizations are excluded.  The ERISA law protects traditional pension and other retirement and savings benefits, as well as health, life and disability insurance benefits which are defined as "welfare" benefits and include any

 

plan, fund, or program which . . . was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care of benefits, or benefits in the event of sickness, accident, disability, death or unemployment or vacations benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services." 29 U.S.C. §1002(1).

 

            ERISA applies both to insured and self-funded plans, a point resolved by the United States Supreme Court  in two companion decisions, Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987)  and Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58 (1987) . Those rulings firmly established the governing law regarding three significant issues: 1) ERISA applies to insured as well as self-insured employee benefit claims; 2) any suit seeking "welfare" benefits is removable to the federal court; and 3) ERISA preemption is exceedingly broad.

 

Reprinted from ATLA's 2002 Insurance Law Section Program Presented at 2002 ATLA Annual Convention, Atlanta, Georgia.  Copyright 2002. Association of Trial Lawyers of America.  Further reproduction of any kind is prohibited.  For more information, please contact the National College of Advocacy, 1050 31st St., N.W., Washington, D.C.  20007, (800) 622-1791 or (202) 965-3500.  For additional speaker papers on this subject, go to ATLA's Exchange Web site or call the Exchange at (800) 344-3023 or ATLA's NCA at (800) 622-1791.

            ERISA may not apply, though, if the employer merely allows employees to sign up on a voluntary basis for a benefit plan that is wholly paid for by the employees, and the employer is not involved at all in administering the benefit program, according to Zavora v. Paul Revere Life Insurance Company, 145 F.3d 1118 (9th Cir. 1998) . ERISA may also not apply if the claim is brought by partners in a partnership or owners of a business.  For example, within the Seventh Circuit, partners of law firms participating in group disability plans are not subject to ERISA-because the law protects employees, law firm partners are deemed "employers;" therefore, partners' benefits are not governed by ERISA.  Madden v. Country Life Ins.Co., 835 F.Supp. 1081 (N.D.Ill. 1993).  Similarly, plans in which no employees participate are not considered employee benefit plans.  29 C.F.R. §2510.3-3(b).   Nor are individuals who are sole owners of businesses or their spouses deemed covered by employee benefit plans.  29 C.F.R. §2510.3-3(c) .  Also see, Fugarino v. Hartford Life and Accident Insur. Co., 969 F.2d 178 (6th Cir. 1992) (sole proprietor not an employee; therefore, ERISA does not apply).  However, in Sipma v. Massachusetts Casualty Insurance Company, 256 F.3d 1006 (10th Cir. 2001),  the Tenth Circuit ruled that a business which purchased and paid premiums for individual disability insurance policies for the organization's two principals established an ERISA "plan," thus transforming a dispute under one of the policies into an ERISA claim. 

 

            Other circuits have issued similarly confusing rulings. For example, in Engelhardt v. Paul Revere Life Insurance Company, 138 F.3d 1346 (11th Cir. 1998) , the court held a corporate shareholder, while not an "employee" and therefore not a "participant" in an employee benefit plan was nonetheless a "beneficiary" of that plan, and ERISA applied.  Likewise, partners in an accounting firm were deemed "beneficiaries" in Prudential Insur. Co. v. Doe, 76 F.3d 206 (8th Cir. 1996), as was the wife of the sole shareholder of a corporation in Madonia v. Blue Cross and Blue Shield of Virginia, 11 F.3d 444 (4th Cir. 1993) .  The Third Circuit also held that law firm partners are "beneficiaries" of a long term disability insurance plan.  Wolk v. UNUM Life Insurance Company of America, 186 F.3d 352 (3d Cir. 1999).  On the other hand, a self-employed physician was exempted from ERISA with respect to his disability insurance policies since he was the only person covered under those policies.  Agrawal v. Paul Revere, 205 F.3d 297 (6th Cir. 2000) . Conflict among the circuits also exists as a result of the en banc decision issued in 1999 by the Fifth Circuit in Vega v. National Life Ins.Servs., 188 F.3d 287 (5th Cir. 1999) , where the court ruled that even sole shareholders and owners of a company were ERISA plan participants or beneficiaries so long as the health insurance plan at issue also covered other employees of the business.  Also see, Gilbert v. Alta             Health             and Life

Insur.Co., 276 F.3d 1292 (11th Cir. 2001). 

 

            A somewhat related issue has to do with whether employer-sponsored group benefits remain ERISA plans when converted to individual coverage.  According to Demars v. CIGNA Corp., 173 F.3d 443 (1st Cir. 1999) and Chami v. Provident Life & Accident Insur.Co., 2002 WL 200128 (N.D.Ind. February 5, 2002), the converted policy is not covered by ERISA.  However, other courts have ruled to the contrary finding that conversion policies which came into being as a result of an ERISA plan are also governed  by ERISA  Painter v. Golden Rule Insurance Co., 121 F.3d 436 (8th Cir. 1997); Varner v. CIGNA, 182 F.3d 930 (9th Cir. 2000)(unpublished) . A middle ground on this issue is that disputes relating to the conversion process are governed by ERISA, while claims under the converted individual insurance policy are governed under state law.

 

 Step 2 - Is the Claim You Want to Bring Preempted?

Following the Supreme Court's rulings in Taylor and Dedeaux, garden variety insurance disputes have been turned into federal employee benefit claims, over which the federal courts have jurisdiction regardless of the amount in controversy.  ERISA allows removal of such claims to federal court to avoid the risk of inconsistent state court rulings.  The reason is because ERISA, for the most part, pursuant to 29 U.S.C. §1144, preempts all efforts and means to regulate employee benefit plans.  The only significant exception involves state laws that directly regulate insurance ("savings clause"), but even those laws may be subject to what is often referred to as "super preemption" if such laws affect either the administration of plans or available remedies. 

 

The Supreme Court has been sending mixed signals as to the limits of preemption.  Until New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insur.Co., 514 U.S. 645 (1995) , virtually any law that had any effect whatsoever on employee benefit plans was preempted; however, Travelers ruled that if a law has only a tangential effect on an employee benefit plan, there would be no preemption.  Following that cue, in Dishman v. UNUM Life Insur.Co. of America, 269 F.3d 974 (9th Cir. 2001), the court ruled that tort claims arising out of invasion of privacy which occurred during a disability insurance claim evaluation would not be preempted even though they occurred out of the course of administering a claim for benefits,

 

            On the side of finding more preemption, in Egelhoff v. Egelhoff, 121 S.Ct. 1322 (2001) , the Court recently ruled that a Washington state law voiding life insurance spousal beneficiary designations upon divorce was preempted by ERISA since that law "related to" administration of employee benefit plans. 

 

            However, in the context of laws "saved" from preemption because they specifically regulate insurance, in UNUM Life Insurance Company of America v. Ward, 119 S.Ct. 1380 (1999) , the Court found no preemption of a California rule of insurance construction known as the "notice-prejudice rule," which precludes a forfeiture of insurance benefits due to late claim filing if the insurer is prejudiced.  By the time of this meeting, the Surpreme Court will also have decided Moran v. Rush Prudential HMO, Inc., 230 F.3d 959 (7th Cir. 2000); cert. granted 2001 WL 726299 (6/29/01) , on the question of whether state laws regulating HMOs survive preemption. 

 

The Court may also visit an issue left open by the Ward ruling as far as whether state insurance regulatory laws that create extra contractual remedies are preempted by ERISA. Pilot Life had ruled that even if a law is "saved" from preemption as a state law regulating insurance, it would nonetheless be preempted if it imposed remedies other than those normally provided by ERISA.  Ward suggested the issue may be subject to further review, although the Indiana Supreme Court in Midwest Security Life Insur.Co. v. Stroup, 730 N.E.2d 163 (Ind.2000) held that extra contractual remedies are inappropriate under ERISA, and the Eleventh Circuit, in Gilbert v. Alta             Health             and Life Insur.Co., 276 F.3d 1292 (11th Cir. 2001), rejected "bad faith" remedies, finding that such remedies are preempted by ERISA . 

 

            Another point to consider in evaluating preemption is that even if a state law regulating insurance is "saved" from preemption, under a statutory provision known as the "deemer" clause, state regulation will not apply to self-funded plans, which are not "deemed" insurance companies.  29 U.S.C. §1144(b).  Thus, there is no question whatsoever that "bad faith" laws do not affect self-funded plans.

 

Step 3-What do you do before Filing Suit to Enhance Success?

            There is nothing you will do that is more important than the actions taken prior to filing suit.              In most situations involving ERISA, if a claim is denied, before resorting to litigation, the ERISA statute affords the claimant the right to a "full and fair review."  29 U.S.C. §1133 .  That provision has been held to virtually mandate a requirement of administrative exhaustion which bars litigation of administrative claims prior to completion of administrative appeals.  Exhaustion of remedies may be excused, though, in certain circumstances. The two principal exceptions to the exhaustion requirement are 1) a lack of meaningful access to the review procedures and 2) where exhaustion would be futile.  Smith v. Blue Cross & Blue Shield United of Wisconsin, 959 F.2d 655, 658-59 (7th Cir. 1992) .  The first exception applies where "claimant attempts to initiate higher levels of review procedure, but a party has denied claimant access to higher levels of review."  Id..  Futility occurs where a plan administrator has allowed an appeal, but informed the claimant that the decision would not be changed; i.e., that the appeal is "doomed to fail."  Diaz v. United Agric. Employee Welfare Benefit Plan & Trust, 50 F.3d 1478, 1485 (9th Cir. 1995) ; also see, Fallick v. Nationwide Mutual Ins. Co,, 162 F.3d 410 (6th Cir. 1998).

 

            A third exception, although rarely used, is when there is a danger of irreparable harm, which usually arises in medical claims where denial of urgent medical care could have immediate life and death consequences. An example is Henderson v. Bodine Aluminum, Inc., 70 F.3d 958 (8th Cir. 1995), where the claimant, who was dyi ng of cancer, was refused potentially lifesaving treatment by his insurer.  The court ruled the emergency situation excused administrative exhaustion.

 

            The appeal is so significant that a failure to exhaust may prevent consideration of the merits of the dispute.  In Smith  v. Blue Cross, supra., a case involving medical insurance, the penalty imposed was summary judgment.  More typical, however, is that the court will remand the claim for reconsideration by the plan administrator.  Makar v. Health Care Corp. of Mid-Atlantic, 872 F.2d 80, 83 (4th Cir. 1989) .   However, as a warning to claimants who fail to submit a timely appeal, in Gallegos v. UNUM, 210 F.3d 803 (7th Cir. 2000) , cert. denied, the court ruled a plan's time limitation for submitting an appeal could operate as a statute of limitations; and if no timely appeal was filed, suit would be barred.

 

            Instead of viewing the administrative exhaustion doctrine as a negative, it can be turned to tremendous advantage in seriously undermining the insurer's position should litigation result.  This is because the administrative review will usually be the last opportunity to create a record before going to court.  As explained in Quesinberry v. Life Insurance Company of North America, 987 F.2d 1017 (4th Cir. 1993), in most benefits claims, the court should only consider the evidence presented to the plan administrator.  Thus, no further evidence will be admitted later in court proceedings except in exceptional circumstances in claims that receive a de novo review by the district court.  The court catalogued those circumstances to include the following:

 

claims that require consideration of  complex medical questions or issues regarding the credibility of medical experts; the availability of very limited administrative review procedures with little or no evidentiary record; the necessity of evidence regarding interpretation of the terms of the plan rather than specific historical facts; instances where the payor and the administrator are the same entity and the court is concerned about impartiality; claims which would have been insurance contract claims prior to ERISA; and circumstances in which there is additional evidence that the claimant could not have presented in the administrative process. 

 

987 F.2d at 1027 (recognized as authority in Casey v. Uddeholm, 32 F.3d 1094 (7th Cir. 1994)) ; also see, Chambers v. Family Health Plan Corporation, 100 F.3d 818 (10th Cir. 1996) (catalogues cases on whether, and under what circumstances, additional evidence may be submitted in court).  Since the administrative record will generally be closed on appeal, if the claimant presents a compelling case, the insurer will usually have no opportunity to cross-examine witnesses or submit rebuttal expert witness reports in court.   As a result, the chances of success are significantly enhanced when the claim record overwhelmingly supports the payment of benefits.

 

            The trigger for administrative appeal is the plan's denial letter which must comply with specific regulatory guidelines. As stated by the Seventh Circuit Court of Appeals, those requirements are succinctly summarized: "In a nutshell, ERISA requires that specific reasons for denial be communicated to the claimant and that the claimant be afforded an opportunity for 'full and fair review' by the administrator."  Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 688 (7th Cir. 1992) .  In order to meet those basic requirements, denial notices must contain:

 

(1) The specific reason or reasons for the denial;

(2) Specific reference to pertinent plan provisions on which the denial is based;

(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary;  and

(4) Appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review.

 

29 C.F.R. §2560.503-1(f) .   Absent substantial compliance with these requirements, the claimant is deemed to have been denied a full and fair review, and the benefit denial is subject to being vacated.  Halpin , supra.; Conley , supra. (proper denial letter is condition precedent to claimant's duty to appeal); White v. Jacobs Engineering Group Long Term Disability Benefits Plan, 896 F.2d 344 (9th Cir. 1990)(absence of proper denial letter excused timely administrative appeal) .  Likewise, in Booton v. Lockheed Medical Benefit Plan, 110 F.3d 1461 (9th Cir. 1997) , the court cited the immortal line from Cool Hand Luke ("What we got here is a failure to communicate") to overturn a dental claim denial because the defendant's denial letter was unintelligible and failed to trigger the dialogue contemplated by ERISA §503.

 

            Upon receipt of the notice of denial, the claimant must be afforded a reasonable period of time of not less than 60 days to appeal the denial.  Then, after the appeal is submitted, the plan administrator is allowed 60 days to determine the appeal; or, if special circumstances exist (such as the need for a face to face hearing), the decision can be deferred for up to 120 days.  29 C.F.R. §2560.503-1(h) .

 

            For the review to meet the statutory requirement of being "full and fair", the procedure must allow the claimant or his representative to "(i) request a review upon written application to the plan; (ii) review pertinent documents; and (iii) submit issues and comments in writing.  29 C.F.R. §2560.503-1(g)(1) . Of those factors, the most important is the ability to secure "pertinent documents" since, according to Halpin,

 

[The persistent core requirements of review intended to be full and fair include knowing what evidence the decision-maker relied upon, having an opportunity to address the accuracy and reliability of that evidence, and having the decision-maker consider the evidence presented by both parties prior to reaching and rendering his decision.

 

            The regulations surrounding administrative appeals have recently been revised by the Department of Labor effective as to claims filed on or after January 1, 2002.  65 Fed.Reg. 70245 (11/21/00) . Among the significant changes made by the revised regulations are the following:

 

·        Time frames for decision-making are clarified

·        In emergency situations, the timeframes are shortened to 72 hours

·        New disclosure requirements mandate sharing of the entire claim file with the claimant in order to meet the requirement of providing "pertinent documents"

·        In addition to providing documents specific to the claim, the plan must also provide internal rules, guidelines, protocols, and  criteria under which the plan operates

·        In certain circumstances claimants must also be given documentation regarding how similar claims were handled

·        The same party who made the initial decision cannot conduct the review

·        Clarification that claimants can have considered on appeal all relevant information regardless of whether it was submitted as part of the initial claim

·        Penalties for failure to conduct a proper administrative review could include loss of deference upon judicial review should a plan not follow the regulatory guidelines

·        Exposure of the plan to fiduciary liability for failure to follow guidelines

 

 

Step 4-Should I Litigate?

 

            A significant threshold issue in deciding whether to litigate is the standard of review that will be applied by the court.  If the court applies a highly deferential standard of review and does not reweigh the evidence, the issue is not whether the claimant meets the requirements to receive benefits but whether the insurer's decision to deny benefits was arbitrary and capricious, a much more difficult burden.  So long as the insurer can point to some rational justification for its decision, even if the overwhelming weight of the evidence favors the claimant, the court will uphold the insurer's decision.

 

            According to the Supreme Court in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948 (1989), the "default" standard of review is de novo.  However, the presumption of plenary review can be overcome by incorporating language in benefit plans reserving discretionary authority to construe the terms of its plan and to determine claims.  In order to ascertain the appropriate standard of review, it is necessary to examine the ERISA plan language.  For example, Perez v. Aetna, 150 F.3d 550 (6th Cir. 1998) , found a plan requirement of submission of "satisfactory" proof sufficient to trigger an arbitrary and capricious standard of review because such language implies deference to determine whether the evidence is indeed satisfactory.  Several recent rulings have shaken up that viewpoint, though.  In Kearney v. Standard Insurance Company, 175 F.3d 1084 (9th Cir. 1999) , Kinstler v. First Reliance Standard Life Insurance Company, 181 F.3d 243 (2d Cir. 1999) , and Herzberger v. Standard Insurance Co., 205 F.3d 327 (7th Cir. 2000) , policy language requiring satisfactory proof was deemed insufficient to confer a deferential standard of review. 

 

            Even if the "arbitrary and capricious" or "abuse of discretion" standards are applied to reviews of employee benefit claims, that standard is not always absolute.  In Firestone  Tire & Rubber Co. v. Bruch, the Court briefly discussed the possibility of a conflict of interest that exists where the plan administrator is also the payor of benefits, holding that such a conflict "must be weighed as a factor in determining whether there is an abuse of discretion."  489 U.S. at 115.  The federal circuits vary dramatically in their consideration as to what constitutes a conflict of interest.  The best discussion on the issue is found in Pinto v. Reliance Standard Life Insurance Company, 214 F.3d 377 (3d Cir. 2000) , where the court expressed concern that an insured plan may have greater financial disincentives to pay benefits than a self-insured plan established as a trust.  Thus, in such cases, courts should apply a "continuum" or "sliding scale" that treats a review as "more penetrating the greater the suspicion of partiality [and] less penetrating the smaller the suspicions."

 

If the deferential standard of review applies, though, a decision is found arbitrary and capricious (or an abuse of discretion) "where the decision is in bad faith, not supported by substantial evidence, or erroneous on a question of law." Williamson  v. UNUM Life Insurance Company of America, 943 F.Supp. 1226 (C.D.Cal. 1996); citing Nevill v. Shell Oil Co., 835 F.2d 209, 212 (9th Cir. 1987) ; also see, Morton v. Smith , 91 F.3d 867 (7th Cir. 1996)(abuse of discretion found when a decision is "not just clearly incorrect but downright unreasonable." (citation omitted)).  Further, an abuse of discretion may be found where an ERISA plan administrator makes a decision that "conflicts with the plain language of the plan."  Saffle v. Sierra Pacific Power Company, 85 F.3d 455, 458 (9th Cir. 1996).  An abuse of discretion may also be found in welfare benefit claims where the plan administrator seeks to place greater weight on reviewing physician opinions than opinions of treating and examining doctors. Donaho v. FMC Corporation,  74 F.3d 894, 901 (8th Cir. 1996) ; Dodson v. Woodmen of the World Life Insurance Society, 109 F.3d 436, 439 (8th Cir. 1997) . 

 

            If a case is litigated, a claim for benefits is brought under §502 of the ERISA statute (codified at 29 U.S.C. §1132 ).  Principally, claims for welfare benefits (health, life, and disability insurance) benefits are brought under 29 U.S.C. §1132(a)(1)(B) , which states:

 

A civil action may be brought (1) by a participant or beneficiary -- to recover benefits due to him under the terms of his plan, to reinforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.

 

            Courts have relied primarily on the language of 29 U.S.C. § 1132(d)(2)  ("Any money judgment under this subchapter against an employee benefit plan shall be enforceable only against the plan as an entity and shall not be enforceable against any other person unless liability against such person is established in his individual capacity under this subchapter.") to hold the only proper party defendant to an ERISA claim is the plan itself.  Thus, according to Gelardi v. Pertec Computer Corp., 761 F.2d 1323, 1324 (9th Cir.1985),  "ERISA permits suits to recover benefits only against the Plan as an entity....". Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482 (7th Cir. 1996) , also held the plan, which was the insurer, was the only proper defendant.

 

            There is also no right to a jury trial in an ERISA case.  Because ERISA is considered a law of equity, cases such as Wardle v. Central States, Southeast and Southwest Areas Pension Fund, 627 F.2d 820 (7th Cir. 1983), Morgan v. Ameritech, 26 F.Supp.2d 1087 (C.D.Ill. 1998) , Thomas v. Oregon Fruit Products Company, 228 F.3d 991 (9th Cir. 2000), explicate the denial of jury trials under ERISA.

 

Usually, there is not even a trial.  Given the usual situation where the plans reserve discretion and court review is deferential, most benefit claims under ERISA are resolved by summary judgment.  If the standard of review is de novo, however, Kearney v. Standard Insurance Company, 175 F.3d 1084 (9th Cir. 1999) , Wilkins v. Baptist Healthcare Sys.Inc., 150 F.3d 609 (6th Cir. 1998); and Hess v. Hartford Life & Acc. Ins. Co.,  274 F.3d             456 (7th Cir. 2001), suggest that a "trial" consist of the court's review of the claim record and weighing of that evidence. 

 

            Discovery in ERISA litigation is also restricted by the courts.  Because the only evidence being reviewed in most ERISA claims is the administrative claim record, courts find no reason to allow discovery even on the issue of whether the insurer is acting under a conflict of interest.  Newman v. Standard Insur. Co., 997 F.Supp. 1276 (C.D.Cal. 1998) ; Palmer v. University Medical Group, 21 EBC 1824, 1834 (D.Ore. 1997); but see, Tremain v. Bell Industries, 196 F.3d 970 (9th Cir. 1999) .  In the Seventh Circuit,  according to Perlman v. Swiss Bank Corp., 195 F.3d 975 (7th Cir. 1999) , discovery is viewed as unnecessary because the only relevant evidence is the administrative record.  However, the basis for that ruling was what was characterized in the later Herzberger v. Standard Insurance Co. case as a faulty analogy between Social Security cases and ERISA cases.  An important point to keep in mind as well is that while no discovery is allowed in Social Security cases, court review only occurs following an administrative hearing with the opportunity to conduct cross-examination of adverse witnesses.  No such hearings occur in most ERISA cases.  Thus, according to Richardson v. Perales, 402 U.S. 389, 91 S.Ct. 1420, 28 L.Ed.2d 842 (1971) , the leading decision on due process in Social Security disability claims, because of the right to subpoena and cross-examine witnesses, claimants receive due process protection absent in ERISA cases.  Thus, to argue that ERISA claimants have no right to discovery, which means that they are being deprived of due process, seems ludicrous and completely contrary to the remedial purpose of the ERISA statute.

 

Step 5-What are the available damages?

 

            ERISA's statutory scheme allows only for recovery of benefits (§502(a)(1)(B)) or equitable relief (§502(a)(3)), but does not allow for recovery of damages.  Mertens v. Hewitt Associates, 508 U.S. 248 (1993); Great-West v. Knudson, 122 S.Ct. 708 (2002).  ERISA also disallows "bad faith" damages as well.  See: Step 1, above.

            Although extra contractual damages are disallowed in ERISA litigation, pursuant to 29 U.S.C. §1132 (g), the court in its discretion may award attorneys' fees and costs to the prevailing party in an ERISA suit.  While not required, an award of fees is "expected absent special circumstances which would make an award unjust."  Stanton v. Larry Fowler Trucking, Inc., 52 F.3d 723 (8th Cir. 1995) ; Smith v. CMTA-IAM Pension Trust, 746 F.2d 587 (9th Cir. 1984) .  The majority of courts apply a five factor test to determine whether a prevailing plaintiff is entitled to fees in an ERISA benefit case.  In Bittner v. Sadoff & Rudoy Industries, 728 F.2d 820, 828 (7th Cir. 1984) , the court set forth those factors: (1) The degree of the offending parties' culpability or bad faith; (2) the degree of the ability of the offending party to satisfy personally an award of attorney's fees; (3) whether or not an award of attorney's fees against the opposing parties would deter other persons acting under similar circumstances; (4) the amount of benefit as a whole; and (5) the relative merits of the parties' positions. Id.. Of those factors, bad faith and substantial justification for the losing party's position are the key factors.  The Seventh Circuit has also ruled there is a modest presumption in favor of awarding fees.  Bittner , supra.; also see, Bowerman  v. Wal-Mart Stores, Inc., 226 F.3d 574 (7th Cir. 2000). 

 

            Attorneys' fees may also be awarded to a prevailing defendant; however, such awards are rare and are generally made only in cases involving plaintiff bad faith or if the case is wholly frivolous.  Maune v. IBEW Local No. 1 Health Fund, 83 F.3d 959 (8th Cir. 1996) ; Little v. Cox's Supermarkets, 71 F.3d 637 (7th Cir. 1995) .  In an unusual decision, though, a district court in California imposed attorneys' fees against the plaintiff's attorney even in the absence of bad faith.  Ghorbani v. Pacific Gas & Electric Co. Group Life Insur., 100 F.Supp.2d 1165 (N.D.Cal. 2000) .

 

            However, no fees are payable for work performed prior to litigation; i.e., the administrative appeal. In both Cann v. Carpenters' Pension Trust for Norethern California, 989 F.2d 313 (9th Cir. 1993) and in Anderson v. Proctor & Gamble, 220 F.3d 449 (6th Cir. 2000) , courts ruled that the fee shifting language of 29 U.S.C. §1132(g) applies only to litigation.

 

Step 6 - What are some recent important decisions to keep in mind?

 

            Perhaps the most significant recent decision in this area is Regula v. Delta Family-Care Disability Survivorship Plan, 266 F.3d 1130 (9th Cir. 2001).  Regula resolves at least three crucial issues in ERISA benefits claims.  First, the court incorporated from Social Security disability claims the "treating doctor rule," which gives deference to the claimant's treating doctor.  Second, because Regula had been receiving benefits for a number of years, the court questioned the insurer's motivation to suddenly terminate benefits based on thin evidence.  Third, the court was highly suspicious of claim reviewers that were used frequently by the benefit plan.

 

            Two other important recent decisions are Lasser v. Reliance Standard, 146 F.Supp.2d 619 (D.N.J. 2001) and Saliamonas v. CNA, 127 F.Supp.2d 997 (N.D.Il. 2001).  Both cases deal with the recurrent issue of "risk of disability."  In both Lasser and Saliamonas, the courts ruled that the claimants need not die in order to collect benefits-a significant risk of further aggravating their impairments was sufficient to require benefit payments.  In addition, Cohen v. Standard Insurance Co., 155 F.Supp.2d 346 (E.D.Pa. 2001) highlighted the association between stress and risk of adverse cardiac events in a case involving an attorney.

 

            Cases involving diseases such as fibromyalgia and chronic fatigue syndrome are often difficult to establish.  Dorsey v. Provident Life and Accident, 167 F.Supp.2d 846 (E.D.Pa. 2001) and Brenner v. Hartford Life & Accident Insur.Co., 2001 WL 224826 (D.Md. 2001) were both solid victories for plaintiffs and established an entitlement to benefits even in the face of surveillance and reviewing doctors' opinions recommending denial of benefits.  Even in the absence of clear-cut objective evidence, plaintiffs were able to prevail.

 

            Ebert v. Reliance Standard, 2001 WL 1464030 (S.D.Ohio 2001) is another useful case which rejected the notion that a disability insurer does not have to consider the specific demands of the plaintiff's job.  The court also criticized the insurer for its selective review of the evidence.

 

            Finally, Dunnigan v. Metropolitan Life Insurance, 277 F.3d 223 (2d Cir. 2002) ruled that prejudgment interest is required on overdue disability benefit payments.