ERISA – 2nd Circuit: Reversible Error To Deny Successful Claimant’s Attorney Fees Solely Because There Was No Evidence of Bad Faith

Can a court deny a successful ERISA claimant’s attorney fees solely because there is no evidence of bad faith?  NO.

Here’s the case of Donachie v. Liberty Life Assurance Company of Boston, __ F.3d __ (2nd Cir. March 11, 2014) [PDF].

FACTS: Donachie had a peculiar heart condition: Everyone “sitting in the same room” with Donachie could literally hear his heart beating.  This caused him anxiety and he sought ERISA-governed Long Term Disability (LTD) benefits. After Donachie’s claim appeal was denied, he filed a lawsuit for ERISA benefits.

The trial court eventually granted Donachie disability benefits. The court then DENIED Donachie’s request for attorney fees because he had “failed to show any bad faith by [the Plan] administrator in making its LTD determination.”

ISSUE: Can a Court deny Claimant’s attorney fee request because there is no evidence of a “bad faith” claim denial?

SECOND CIRCUIT HELD:

  1. “’Congress intended the fee provisions of ERISA to encourage beneficiaries to enforce their statutory rights.’” Op. at 8.
  2. Attorney fees may be awarded to a beneficiary only if he has obtained “some degree of success on the merits.”  Op. at 8.
  3. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010) permits courts to use the five factor test to channel discretion in awarding fees. Those factors are: (a) degree of bad faith; (b) ability to pay an award of fees; (c) whether an award would deter other persons in similar circumstances; (d) whether the decision benefits all participants or resolves a significant ERISA legal issue; (e) the merits of the parties’ positions.  Op. at 9.
  4. “[T]here is no question that Donachie…was eligible for an award of attorneys’ fees.”  Op. at 11.
  5. The trial court abused its discretion by failing to consider all five factors, and denying fees on the sole basis that the plan “had not acted in bad faith [because the court has]  explained that ‘a party need not prove that the offending party acted in bad faith’ in order to be entitled to attorney fees.”  Op. at 11.

Topics:  Attorney's Fees, Bad Faith, Disability, Disability Benefits, ERISA, Reversible Error

Published In: Insurance Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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