New York Court orders CIGNA to pay over $100,000 in attorney fees following long term disability denial

When Steven Alfano won his claim against CIGNA Life Insurance Company, it was a clear victory. While we have discussed attorney’s fees in connection with other ERISA victories, this application is worth discussing because the Court has explained its reasons for ordering CIGNA to compensate Alfano for these costs so clearly. This is also another time when the disability attorney representing Alfano did everything an excellent ERISA attorney should.

It should be understood that the Court has considerable discretion in evaluating whether an award of attorney’s fees is warranted under ERISA. In Chambless v. Masters, Mates & Pilots Pension Plan, the Second Circuit established five factors to guide the Court in reaching a decision on whether to award attorney’s fees or not. We will look at each one of these in the same way that the Court did as it evaluated Alfano’s ERISA attorney’s application for reimbursement for attorney’s fees.

CIGNA’s Culpability or Bad Faith

In CIGNA’s case, the Court found the disability insurance company was culpable, even though it had not acted in bad faith. As in Salovaara v. Eckert and Rappa v. Connecticut Gen. Life Ins. Co., CIGNA had violated ERISA, this depriving Alfano of his rights under the pension plan. A sound basis for terminating Alfano’s long-term disability benefits did not exist. Thus, even though the Court would have given this factor even more weight if CIGNA had also shown bad faith when it terminated benefits, it still weighed in favor of awarding attorney’s fees.

CIGNA’s Ability to Withstand Payment

Clearly CIGNA’s assets would give the long-term disability insurance company the ability to pay. This does not mean that the Court automatically concluded that CIGNA should pay. Rather, the Court gave the ability to pay neutral weight, neither arguing for Alfano or CIGNA.

Deterrent Effect on CIGNA and Other LTD Plans

While CIGNA itself may or may not have been guilty of consistently issuing decisions to deny or terminate long-term disability benefit that are without merit, the Court found this a matter to consider seriously. One concern is the fact that the costs of litigating a denial of benefits under ERISA is high, even when the amount of the benefits being recovered isn’t very much.

The Court has reason to suspect that if attorney fees were denied when a case has as much merit as this one did, disability plans would become bolder in taking the risk of wrongfully denying disability claims. The award of attorney fees would deter unscrupulous or careless plan administrators from denying meritorious claims. There would be the additional concern that if plaintiffs like Alfano always had to pay their own attorney’s fees, even though they had won their claim, many individuals who had been wrongfully denied benefits would not pursue their legal rights due to lack of affordability.

Relative Merit of Each Side’s Position

The Court the weighted the relative merit of Alfano’s position against the merits of CIGNA’s position when the final decision was reached. Alfano clearly established his entitlement to long-term disability benefits under the plan. For a history of Alfano’s claim against Cigna please see our article CIGNA long term disability denial is reversed by New York Federal Judge. CIGNA’s termination of his benefits was totally unjustified. While the medical evidence showed that his condition was worsening, CIGNA claimed it was improving.

CIGNA argued that some of its arguments had merit. The Court found that these arguments addressed side issues such as which standard to use in evaluating Alfano’s lawsuit. The question was not whether CIGNA was reasonable once it reached the courtroom. It was whether CIGNA had made the correct decision when it chose to terminate a man’s disability benefits.

CIGNA had denied a man long-term disability benefits without just grounds for doing so. This would weigh against the disability insurance company.

Common Benefit on a Class

Because Alfano’s lawsuit represented an individual seeking compensation for personal damages, it did not have the ability to benefit the other members of the group plan he participated in. This meant that this factor would weigh in CIGNA’s favor.

Court Reaches Decision Regarding Attorney’s Fee Award

Locher established the precedent that failure to satisfy all five of the Chambless factors does not preclude awarding attorneys fees. The two factors of deterrence and merit can be enough to lead to the award of fees.

In Alfano’s case, the additional factor of culpability contributed to a finding that he was entitled to an award of attorney’s fees. The only remaining issue, then, was how much compensation should he receive. The Court would apply what is called the lode-star method.

When the Court uses this method, it determines the reasonable hourly rate the attorney should use. Then the Court establishes the reasonable number of hours the attorney should have spent bringing the ERISA claim before the Court. These two figures are multiplied to establish the fair compensation.

The power of District Courts to independently review and assess the reasonableness of an attorney’s rates has been established through multiple cases. The right of District Courts to exercise discretion in determining whether the hours worked were reasonable is also well established.

Court Establishes the Disability Attorney’s Reasonable Hourly Rate

Alfano’s ERISA attorney presented the Court with an invoice using $450.00 per hour as his fee. In order for this fee to be accepted, the Court first had to determine whether this fee was in line with the prevailing rates of similarly skilled attorneys in his local community. CIGNA argued that this rate was excessive because Alfano’s ERISA attorney had failed to prove he had the experience to demand such a high fee.

The Court was not swayed by this accusation. Alfano’s attorney had supplied sworn testimony that indicated he had been representing disability claimants for 25 years, many of which were with a leading firm in the field of ERISA claims. The Court was also impressed with how he conducted himself. The Court found that he demonstrated superior competence. The Court found that a California Court had awarded $450.00 an hour for a California disability attorney that had 20 years experience. The Court confirmed $450.00 as the fair hourly rate.

Court Establishes Disability Attorney’s Reasonable Hours

The Court requires careful time records. This enables the Court to scrutinize the record for any questionable entries. Alfano’s ERISA attorney had kept careful records.

CIGNA argued that some of the tasks listed in the ERISA attorney’s time records were unnecessary and excessive. The Court found that the majority of the entries were reasonable. There were a few minor entries that the Court agreed reflected excessive time expenditures or unnecessary activities.

For example, the attorney had spent 4.1 hours preparing for a possible default. The risk of CIGNA defaulting was low in the first place. In addition, CIGNA had not defaulted, thus this was an unnecessary use of time.

Otherwise, the Court ruled that the ERISA attorney had the right to research various theories and lines of argument in preparation of his presentation of Alfano’s claim. Even though, he did not use all of the research directly, the Court found that he had the right to pursue research on those matters which he knew could lead to productive motions.

While CIGNA tried to get time spent researching issues which were not raised, the Court saw no evidence that Alfano’s ERISA attorney had pursued any research that he should have known would prove fruitless.

There were some time expenditures which the Court did find excessive. Because Alfano’s 56.1 statement duplicated the complaint considerably, the Court found that spending 25.2 hours preparing it was excessive. The attorney argued that it took considerable time adding the record citations, but the Court noted that he had billed a significant number of hours for the time he spent reviewing Alfano’s administrative record. The Court felt he should have been familiar enough with the record to work more efficiently. The Court adjusted the hours down to 12.6.

The Court also found that Alfano’s ERISA attorney had billed 22.9 hours for drafting Alfano’s summary judgment motion. This was reasonable, but the number of hours billed for researching in order to prepared the motion (30 hours) and reviewing the record (35.5 hours) were excessive. The Court reduced the hours for research to 15, and for review to 30.2.

The Court determined that rather than using the attorney’s requested 272.20 hours, it would use 235.2 hours to calculate the appropriate attorney’s fee award. This meant that the Court would award $105,840.00 in attorney’s fees.

Court Also Awards Costs

Alfano asked the Court to award him $1,576.76 to cover his litigation costs. This included services fees, postal fees, copying charges, filing fees, deposition costs and transportation costs. CIGNA offered no objection to Alfano’s accounting, so the Court granted him these costs as well.

Court Rules that Prejudgment Interest is Also Necessary for Full Compensation

Alfano’s ERISA attorney argued that in order for his client to be fully compensated for damages, he should also receive prejudgment interest. He contended that CIGNA had access to the funds it wrongfully denied his client and benefitted from possession of those funds. The Court agreed that Alfano was clearly entitled to prejudgment interest. The question was how much?

The ERISA attorney requested a rate of 9%. CIGNA argued that the Treasury rate was the fair rate to apply. The Court chose to validate 9% because numerous courts had awarded prejudgment interest at this rate.

CIGNA had stopped paying disability benefits on October 27, 2005. The Court determined that this would be the date from which the prejudgment interest would begin accruing. CIGNA would have to pay 9% interest between that date and January 30, 2009, the date the Court ordered the long-term disability company to be reinstated Alfano’s benefits retroactively. The prejudgment interest payment would be on top of the final judgment ordered by the court of $107,416.76 for attorney’s fees and costs.

Mr. Alfano was very fortunate that the court awarded attorney fees. In ERISA disability cases attorney fees are discretionary with the court and they are not always granted. A disability insurance company is not required to pay for any attorney fees that are incurred during the ERISA administrative appeal process. Attorney fees can only be awarded if a claimant wins their case after a lawsuit has been filed.