DATE POSTED 31. 07. 2011, By

Disability Plan Liable for Attorney Fees When Waiting to Pay Benefits Until Complaint Filed

Employees and executives in Chicago frequently want to know when a participant in an ERISA covered plan can recover attorney fees. ERISA does provide for fee shifting in litigation. ERISA § 502(g). However, these fees are only recoverable once they are incurred in litigation upon achieving “some degree of success on the merits.” Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149, 2152 (2010). This case changed the standard, where previously a claimant had to be a prevailing party. This gave long term disability insurers and plan administrators every incentive to withhold benefits, wait until a complaint was filed, and then just pay the claim–preventing the claimant from becoming a prevailing party. This precise strategy was demonstrated recently in Pakovich v. Verizon LTD Plan, No. 10-1889, Slip Op. (7th Cir. July 22, 2011).

In Pakovich, the claimant achieved a remand in court back to the administrator to make a determination on her benefits claim. Rather than make the determination on remand, the plan just did nothing. After several months, Pakovich filed another complaint in court seeking benefits due, arguing he claim was “deemed denied” because the plan did not render a decision on her claim within the time allowed by ERISA. Soon after filing the complaint, the plan paid all benefits due. The plan then moved to dismiss the case, arguing it was moot. The district court granted the motion, and denied any attorneys fees to Pakovich because she was not a prevailing party. Both parties appealed.

The Seventh Circuit Court of Appeals held the claim for benefits was moot, because the plan paid Pakovich all the benefits to which she was entitled. But the court also held the plan had to pay Pakovich’s attorney fees. A contrary holding would permit “opportunistic plans [to] routinely delay deciding whether to pay benefit claims until participants and beneficiaries file suit, effectively requiring them to incur legal costs unrecoverable under ERISA § 502(g) in order to receive benefits to which they are legally entitled . . . . Such a barrier would contradict one of ERISA’s primary policies, to protect ‘the interests of participants in employee benefit plans and their beneficiaries . . . .” Id. at 9.

If you are a participant in an employer-sponsored employee benefit plan and the administrator or insurer is not responding to your claim for benefits, contact an experienced ERISA lawyer.

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