Long Term Disability Benefits: Process from Appeal to Litigation

On May 24, 2010, in Bridget Hardt, v. Reliance Standard Life Insurance Company, U.S. (2010), the United States Supreme Court decided the issue of an award of attorney's fees in ERISA disability cases addressing long term disability benefits. An award of attorney's fees in the wrongful denial of long term disability benefits is always within the discretion of Court. The Supreme Court put to rest the issue of whether a claimant had to be a prevailing party in order to seek attorney's fees. The Supreme Court ruled that under the Section 1132 (g)(1) of ERISA, a party need not prove that he/she prevailed in the litigation but rather that he/she achieved some degree of success on the merits”. Section 1132 (g)(1) provides:

In any action under this subchapter (other than an action described in paragraph (2)) by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.

In the case before the Court, petitioner Bridget Hardt was diagnosed with carpal tunnel syndrome. She had surgeries to both wrists which failed to alleviate her pain. At the time, she was employed as an executive assistant at a textile manufacturer Dan River, Inc..

Petitioner's employer had a long term disability plan in which respondent, Reliance Standard Life Insurance Company, decided whether the employee qualified for benefits under the plan. Initially, Reliance Standard Life had completely denied benefits. Petitioner filed an administrative appeal as required under the policy, Reliance Standard Life reversed its decision and found that petitioner was totally disabled from her regular occupation and entitled to temporary disability benefits for 24 months. Also, while this administrative appeal was pending, petitioner began experiencing new symptoms in her feet and calves, including tingling, pain and numbness. She was diagnosed with small fiber neuropathy.

While collecting temporary disability, petitioner applied for and was awarded Social Security Administration disability benefits. Her doctors had concluded that she could not return to full gainful employment because of her neuropathy and other ailments.

Respondent Reliance Standard Life notified the petitioner that she was near the end of her twenty four months of temporary disability benefits and benefits would be terminated at the conclusion of the twenty four months because after twenty four months, the Plan required that she be totally disabled from all occupations . Respondent Reliance Standard Life had found that she was not totally disabled.

Petitioner filed another administrative appeal. She gave to Reliance Standard Life all the papers and records she submitted to the Social Security Administration. Reliance Standard Life referred the petitioner for an updated functional capacities evaluation. Although Reliance Standard Life knew that petitioner had been diagnosed with neuropathy after her first evaluation, Reliance did ask the evaluator to review petitioner's neuropathic pain. The evaluator found that petitioner did not make full effort to participate in the evaluation and refused multiple tests for fear of nausea, illness and further pain complaints.

Reliance then hired a physician and a vocational rehabilitation counselor. The physician did not examine the petitioner. He only reviewed some of her medical records. The physician rendered a report that petitioner's health was expected to improve. The vocational rehabilitation counselor did a labor market study and identified eight employment opportunities suitable for petitioner. Based on these reports, Reliance Standard Life terminated petitioner's benefits.

Petitioner's administrative remedies had been exhausted and she filed suit in Federal Court (Fourth Circuit). Both party's made applications for summary judgment. The district court denied both applications for summary judgment. The court found that Reliance Standard Life's decision to deny benefits was based on incomplete information because none of the functional capacities evaluations were to assess the impact of neuropathy and neuropathic pain on the petitioner and the reviewing physician's report was incomplete and that he failed to address the treating physicians' medical findings and failed to cite any medical evidence to support his conclusions.

The District Court denied petitioner's motion for summary judgment because Reliance Standard Life had not had the opportunity to address the deficiencies that were pointed out by the court. The Court found that the plan administrator had failed to comply with ERISA guidelines. The Court commented that there was compelling evidence that petitioner was totally disabled. The Court ordered that Reliance Standard Life, within 30 days, address the deficiencies or otherwise, summary judgment would be entered in favor of the petitioner.

Reliance Standard decided to reverse the termination and award long term disability benefits to the petitioner. Petitioner sought counsel fee's and costs. The District Court awarded attorneys fees and costs. The Court of Appeals reversed because the District Court did not require Reliance to pay benefits, and there was not an adjudication on the merits. The petitioner moved for certiorari before the United States Supreme Court which was granted. The Court found that the ERISA statute did not contain the requirement that a party prevail before an award of attorneys fees and costs can be granted. The Court acknowledged the American Rule which requires each party to pay his/her attorney's fees and costs except if a statute or contract provides otherwise. Here, the Court recognized that the ERISA statute provides for an award of attorney's fees and costs to either party in the discretion of the court. The Court held that a party need not prove that he/she is the prevailing party but must show some degree of success on the merits before there can be an award. The Court further found that trivial success or purely procedural victory is not sufficient. To satisfy the standard of some degree of success on the merits , the Court must be able to fairly call the outcome of the litigation on the merits ..without conducting a 'lengthy inquir[y] into the question whether a particular party's success was 'substantial' or occurred on a central issue.'

Reliance Standard Life agreed with the Supreme Court's charge but argued that under the facts of the case, the District Court remanded the case for further consideration thereby negating any finding of success on the merits. The Supreme Court rejected this argument. finding that Reliance missed the point . The District Court had already found that the administrator failed to comply with ERISA guidelines, that there was compelling evidence that petitioner is totally disabled and that it was inclined to rule in petitioner's favor. The Court held that these findings by the District Court constituted some degree of success on the merits” and affirmed the district court's award of attorney fees and costs.

Commentary

In this case, petitioner was forced to litigate her case and the District Court, rather than simply deny Reliance Standard's motion, made findings on the record. In the typical case, the insurance company will reverse itself in the administrative process or if in litigation, posture during the settlement proceedings to reinstate benefits but refuse to pay attorney's fees and costs. Since there is no requirement that a District Court place findings such as in the Hardt case and even if the Court did so, the nature of these findings can't be predicted with any certainty, many claimants decide not 'to roll the dice' with litigation and accept the reinstatement and be responsible for fees and costs.