Liberty Mutual ordered to pay interest & attorney fees following disability insurance claim denial
A recent Federal Court decision from New Jersey sided with a disability claimant who filed an ERISA suit after her disability insurance benefits were wrongfully denied by Liberty Mutual Life Insurance Company. The Court held that the claimant was both entitled to a fair and equitable rate of interest as well as reasonable attorney’s fees under the circumstances of the case. The issue that I find frustrating about this case is that after the claimant proved that Liberty was wrong in denying disability benefits, they continued to battle the claimant by refusing to pay attorney fees and the interest on the money that Liberty saved over a 5 year period. Liberty probably spent more in battling against paying attorney fees than they could have paid the claimant by agreeing to pay her attorney fees and interest.
Joanne Culley was injured in early 2001 and eventually left work due to back pain in August 2002. After receiving short-term disability benefits, her long terms benefits were approved in January 2003. Her long-term benefits were, however, terminated in August 2003 after a physician employed by Liberty Life determined that the Culley was no longer disabled. After unsuccessful ERISA appeals, Culley filed suit against the Liberty Life in April 2005 alleging that its decision to withdraw benefits was arbitrary and capricious. In September 2007, the Court ruled that there was no credible evidence in the record supporting Liberty Life’s decision, and thus held that they acted arbitrarily in finding Culley not disabled during the “own occupation” period.
Under the terms of the insurance policy, the criteria for qualifying as “disabled” were supposed to change over time. For the first two years after the injury (the “own occupation” period), the claimant would be considered disabled if she was incapable of performing her occupation at the time of injury. In the years after (the “any occupation” period), the claimant would be considered disabled only if she was incapable of performing any occupation at all.
More than two years had passed since Culley had applied for long-term disability benefits, however the Court failed to mention whether Liberty Life acted arbitrarily denying benefits during the “any occupation” period. In December 2009, the Court asked Liberty Life to undertake a review to determine if Culley is and had been disabled under the “any occupation” standard since February 2005. Liberty Life concluded she was disabled under the “any occupation” standard and paid back disability payments from February 2005 through May 2010. However, Liberty Life refused to pay interest on the “any occupation” back payments. Culley then filed a motion for this interest as well as attorney fees relating to the motion.
Liberty Life argued that it did not pay “any occupation” benefits because an “any occupation” review had never been performed. The Court noted that the reason an “any occupation” review was never performed is that the Liberty Life had already wrongfully determined that Culley was not entitled to benefits during the “own occupation” period. The Court continued that this does not excuse Liberty Life’s failure to pay long term disability benefits during the “any occupation” period. Accordingly, the Court held that since Liberty Life wrongfully withheld benefits of an ERISA plan, Culley is entitled to a fair and equitable interest on her delayed “any occupation” benefits.
The Court first noted that it has discretion to award attorney’s fees in ERISA cases, and mentioned that it had previously granted attorney’s fees for Culley when it ruled that Liberty Life acted arbitrarily in denying Culley’s long-term disability benefits under the “own occupation” period. The issue now is whether the Court should award attorney’s fees for Culley’s current motion for the requested interest previously discussed. The Court determined that, here, Culley is successful in her efforts to obtain interest on the “any occupation” benefits. Accordingly, the Court ruled that she may recover the related attorney’s fees on her motion for interest.
In conclusion, the Court ruled that, in order to ensure full compensation to the claimant and to prevent unjust enrichment, a plaintiff may recover interest only on benefits that were wrongfully withheld or wrongfully delayed in violation of ERISA or an ERISA plan. Also, the Court held that a party may recover attorney’s fees if they are successful, even on a motion, so long as it is part of the successful prosecution of their claim.