When can a disabled worker obtain attorney fees from an insurance company in an ERISA long term disability case? The Second Circuit Court of Appeals, in Scarangella v. Group Health Inc., 12-2750-cv, gave new life to the catalyst theory for recovery of attorney fees. Under ERISA, a court has discretion to award attorney fees to either party. ERISA does not contain a prevailing party standard. The courts have broader discretion in determining when and to whom attorney fees should be awarded. Other federal statutes contain a fee shifting statute which allows for fees to be awarded to a prevailing party. See Buckhannon Bd. & Care Home, Inc. v. W. Va. Dept. of Health, 532 U.S. 598 (2001). ERISA does not contain such a provision.
In Scarangella, the Second Circuit grappled with the question, what must a party achieve or obtain to show some degree of success on the merits in order to entitle it to an award of fees? Village Fuel, the plaintiff, obtained some success when it defeated a restitution claim by defendant GHI. Citing Hardt v. Reliance Std. Life Ins. Co., 560 U.S. 242 (2010), the Court held that the leading case for ERISA attorney fees is Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983), not Buckhannon. A favorable court judgment is not required to satisfy the threshold for awarding attorney fees. Instead, the catalyst theory remains a viable means of showing that judicial action in some way spurred one party to provide another party with relief, potentially amounting to success on the merits.
Where the parties have received a tentative analysis of their legal claims within the context of summary judgment, a party may be able to show that the court˚s discussion of the pending claims resulted in the party obtaining relief. The Court noted that this is in line with the underlying policy considerations of ERISA to protect the statutory purpose of vindicating employee benefit rights.
In Scarangella, the Second Circuit remanded the case back to the district court to apply the correct standard to the facts of the case.
The case should give needed relief to some plaintiffs to help vindicate their rights to obtain disability benefits.