The Standard For An Award of Attorney's Fees and Costs in ERISA Disability Cases

By: Donna Russo, Esq. 

    In Hardt v. Reliance Standard Life Insurance Co, decided May 24, 2010, the United States Supreme Court ruled that the standard for awarding attorney's fees and costs in ERISA long term disability cases under Section 1132(1)(g) is "some degree of success on the merits" by either party. The Court found that Congress never used the words "prevailing party" in this statute and that a party does not have to establish that he/she prevailed in the litigation. Rather, the party is to make a finding of "some degree of success on the merits" and that this requirement is not satisfied by a "trivial success on the merits" or a" purely procedural victor[y]."
The Supreme Court distinguished "prevailing party" and "success on the merits" by focusing on the factors to prove each. Under the "prevailing party" standard, the Court review five factors: "(1) the degree of the opposing parties' culpability or bad faith; (2) the ability of opposing parties to satisfy an award of attorney's fees; (3) whether an award of attorneys' fees against the opposing parties would deter other persons actions under similar circumstances; (4) whether the parties requesting attorneys' fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties' positions." 

    In contrast, "some degree of success on the merits" does not require such an analysis. Rather, "some degree of success on the merits" is established whether court can fairly call the outcome of the litigation success on the merits without conducting a lengthy inquiry. 

    The facts of Hardt illustrate this distinction. In Hardt, the insurance company initially denied the claimant's application for short term disability benefits. Claimant filed an administrative appeal and during the appeal process, the insurance company reversed itself and awarded claimant twenty four months of short term disability under the provision totally disabled to perform own occupation. Shortly before the expiration of the twenty four month period, the insurance company notified the claimant that it wanted a vocational therapy assessment to determine if claimant was disabled from working in any occupation. The vocational therapist assessment found that the claimant did not make the proper effort and refused certain tests because of pain. The insurance company then proceeded to have a physician review certain records without an examination. The physician did not review all the records. The physician found that claimant should improve. The insurance company terminated benefits. Claimant filed litigation in the District Court, Fourth Circuit. Both parties filed summary judgment motions. The court found that the insurance company failed to follow ERISA guidelines, the physician did not review all the records and that there was compelling evidence that the claimant was totally disabled due to her neuropathy. Reliance Standard then reversed its decision to terminate benefits and gave claimant the long term disability benefits. Claimant then sought attorney's fees and costs which were awarded by the District Court and reversed by the Fourth Circuit Court of Appeals because the remand order did not require Reliance to award benefits to Hardt and did not constitute an enforceable judgment on the merits and therefore Hardt was not the prevailing party. 

    The U.S. Supreme Court reversed the Fourth Circuit Court of Appeals. The Supreme Court found that Hardt achieved "some success on the merits” and the at District Court properly exercised its discretion to award fees and costs.