You already know that under ERISA the court has discretion to award attorney fees to a party that has “some success on the merits.”
But what happens when the ERISA plan and the insurer are defendants, and the plan disagrees with the insurer’s denial of ERISA-governed disability benefits?
Can the ERISA plan, a nominal defendant, recover attorney fees against the insurer? YES.
This new case illustrates the point: Micha v. Sun Life and Group Disability Benefits Plan for Gynecologic Oncology Associates Partners, LLC, 2015 WL 5732124 (S. D. Cal., September 30, 2015).
FACTS. Group Disability Benefits Plan is an ERISA plan and purchased a disability policy from Sun Life. When Sun Life denied a disability claim brought by John Micha, he brought suit against Group Disability and Sun Life. Group Disability filed an answer admitting Micha’s disability allegations, and then sought indemnification from Sun Life.
After the matter was settled, Group Disability brought a motion for $101,000 in attorney fees against Sun Life.
ISSUE: Whether the ERISA plan can recover attorney fees as a “prevailing party” when the insurer settles a claim by a beneficiary?
HELD: Yes for fees incurred during the litigation on the merits; NO for fees incurred on the appeal.
- Under 29 U.S.C. 1132(g), the court in its discretion may allow reasonable attorney fees. “To qualify for an award of attorney’s fees, a party must have “some success on the merits.'” Op. at 4.
- The Ninth Circuit had previously determined that Group Benefits, an ERISA plan and a nominal defendant, can be eligible for an award of attorney’s fees under ERISA. Op. at 4.
- “If a party has met the burden of showing some success on the merits, the court must examine five factors set forth in Hummell…. None of the Hummell factors is ‘necessarily decisive.’” Op. at 4.
- Although Sun Life was required to pay Group Disability’s attorney’s fees for the underlying lawsuit, Sun Life was not required to pay attorney fees arising out of the appeal of that ruling because the appeal presented a novel legal issue. Op. at 6.
KEY TAKE AWAY: This developing line of cases should be considered early on in the case. A proactive approach with the Plan is advised, to avoid the risk of paying for the Plan’s attorney fees.