ERISA & Employee Benefits Litigation Blog

Cloud of Litigation Rains on a Plan

Posted in Plan Administration Litigation

By: Sheryl Skibbe and Kathleen Cahill-Slaught

The winds of change are benefiting Plan participants these days in their quests for reimbursements of attorney’s fees spent in ERISA benefits litigation.  Recently, in an unpublished decision by the 9th Circuit, a plan participant whose lawsuit may have caused the plan to pay for her medical benefits could be entitled to attorneys’ fees.  (Bryant v. Cigna Healthcare of Cal., Inc., 9th Cir., No. 11-57249, unpublished 9/30/13).

After a car accident, the participant filed a lawsuit against her health plan, challenging its failure to pay for her medical treatment.  Ultimately the plan negotiated and  paid the provider directly. The lower court ruled in favor of the plan and declined to award the participant attorneys’ fees.

On appeal, the Ninth Circuit affirmed the district court’s ruling in favor of the plan, but vacated and remanded its ruling on attorneys’ fees.  The Ninth Circuit instructed the district court to consider whether the plan “paid up only under the cloud of litigation.”  If that were the case, the Ninth Circuit said, the participant likely achieved “some degree of success” on the merits of her actions and would therefore be eligible for an award of attorneys’ fees.

Last month, the U.S. Court of Appeals for the Second Circuit also remanded a district court opinion denying an ERISA plan participant’s request for attorneys’ fees, finding that the participant achieved some degree of success by causing the plan administrator to adopt a plan amendment providing her with higher benefits (Carlson v. HSBC-N. Am. (US) Ret. Income Plan, 2013 BL 248631, 2d Cir. No. 12-1209–cv, unpublished 9/12/13 (178 PBD, 9/13/13; 40 BPR 2204, 9/12,/13)).

Decisions such as these make for bad policy.  Plans faced with a lawsuit might decide for business reasons to grant the benefit, notwithstanding its good faith belief in its legitimate basis for denial of the claim.  Thus, Plans may face a Hobson’s choice—implement the change unilaterally, and risk the plaintiff seeking catalyst theory attorneys’ fees; or, implement the change as part of a negotiated settlement with the plaintiff, and risk the plaintiff exacting some monetary payment in return for waiving the catalyst theory attorneys’ fees claim.