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Harvard University ordered to pay $53,817.50 in attorney fees to disability insurance claimant

Rosemary McGahey’s long-term disability attorney did an excellent job of representing her in U.S. District Court’s Massachusetts district in December of 2009. McGahey’s disability attorney carefully demonstrated that the administrators of the Harvard University Flexible Benefits Plan had wrongfully terminated McGahey’s long-term disability benefits. As part of the court’s decision to award McGahey compensation for the expense of pursuing her claim in court, her disability attorney was given instructions to put together the appropriate documentation to demonstrate what the attorney fee award should be.

McGahey’s disability attorney filed a petition for an award on her behalf on February 1, 2010. On February 19, the disability insurance attorney was back in court again because Harvard opposed the grant of any award at all, but specifically objected to some of the fees and billing rates.

On December 11, 2009, the Court heard arguments from both McGahey’s disability attorney and Harvard’s attorneys. The court then reviewed Harvard’s disability termination decision in the light of these arguments. For a history of this case against Harvard see our prior discussion at Harvard University ordered by Massachusetts federal court to pay long-term disability benefits to a former employee.

Because Harvard self-managed their flexible benefits plan, the Court used the arbitrary and capricious standard of review. The review of the record revealed that Harvard had abused its discretion by choosing to give almost exclusive weight to the opinions of doctors they had chosen, while simultaneously ignoring positive benefits decisions by the Social Security Administration and the Massachusetts Department of Industrial Accidents, and information from McGahey’s physicians that conflicted with their doctor’s opinions.

Court Uses Specific Guidelines to Determine Eligibility for Disability Attorney Fee Compensation.

Under the guidelines of the Employee Retirement Insurance Security Act (ERISA), the Court has the right, at its discretion, to award reasonable attorney’s fees to either side. The law regarding an award of attorney fees has changed as a result of a recent US Supreme Court Ruling. See our prior discussion on attorney fees at ERISA disability claimants can receive attorney fees with “some degree of success”.

There are five factors that the Court considered when determining whether to award attorney’s fees. Any one of the following reasons may stand alone as a reason in the Court’s eyes as a reason to compensate or choose not to seek compensation.

  1. The ERISA decision maker acted in bad faith or was guilty (culpability).
  2. The plan or the administrator has the ability to satisfy an award of fees.
  3. Awarding attorney’s fees would act as a deterrent to prevent similar cases in the future.
  4. The litigation decision has the potential to benefit other plan members.
  5. The wrongful denial of benefits was without relative merit.

On December 11, 2009, the Court determined factors 2, 3 and 5 clearly applied to Harvard, with the possibility that Harvard had also acted in bad faith. It was for this reason that the Court had already ruled that an award of reasonable attorney’s fees might be appropriate. On January 11, 2010, the court ordered Harvard to pay the $350 fee required to file the claim for attorney’s fees, but it was clear the Court expected the actual bill for the disability attorney’s fees to be contested.

Harvard Argues That Disability Attorney Cannot Bill for Work Connected with Administrative Appeal.

As expected, Harvard argued that the awarding of attorney’s fees was not appropriate, but on February 19, District Judge Stearns stood by the court’s previous consideration. Harvard’s main argument was that the disability insurance plan had not acted in bad faith, but if the disability insurance plan had to pay attorneys fees, the amounts being asked for by McGahey’s long-term disability insurance attorney were excessive.

Hartford also pointed to the fact that McGahey’s attorney had requested reimbursement for fees associated with representing her during the administrative appeals process. Harvard’s attorneys pointed to the fact that case law in other federal circuits had already established unanimously that ERISA attorney’s fees that occur while exhausting administrative remedies cannot be recaptured under an ERISA claim.

Judge Stearns reviewed a number of cases where other District Courts have ruled that ERISA only authorizes the award of fees directly connected to suits filed in District Courts and the U.S. Court of Appeals. There is a clear reason for this. Congress passed ERISA with a clear goal in mind, to prevent complex administrative costs or litigation expenses from discouraging employers from offering welfare benefit plans. As a result, any disability insurance benefits plan must have internal dispute resolution procedures established, so that frivolous ERISA lawsuits are to a large extent eliminated.

The court has consistently ruled against awarding disability insurance attorney fees that are connected with representing a client through the administrative appeals process. The great concern is that once attorneys become a routine part of the administrative appeals process and can get paid for it from court mandated settlements, more protracted litigation would occur in a great many cases. This would then drive up the cost of providing employee benefit plans, and fewer employers would provide them. Judge Stearns sided with Harvard in this matter.

Judge Considers the Basis for Awarding Disability Attorney’s Fees.

While Judge Stearns agreed that in all likelihood Harvard had not acted in bad faith, he did feel it worth evaluating the other three reasons that Harvard should be held accountable for McGahey’s disability attorney expenses.

Did Harvard have the ability to satisfy an award of fees? The value of McGahey’s benefits package had an estimated value of $500,000. Considering Harvard’s relative wealth as an institution, the Court did not feel that an award of fees that fell around 10% of the disability benefits package size would be beyond the capabilities of an institution that is supported by a private endowment of some $26 billion.

Would awarding attorney’s fees act as a deterrent to prevent similar cases in the future? Judge Stearns felt that it would sensitize Harvard’s plan administrators to the conflict of interest that existed when they required beneficiaries to pursue disability determinations by both state and federal agencies, but failed to give weight to the decisions of these organizations when these agencies found the applicant was disabled.

Judge Stearns recognized that the decisions of state and federal agencies do not mandate an automatic finding of disability by the disability insurance plan administrators. What concerned him was Harvard’s failure to give fair probative consideration to these decisions. Judge Stearns also considered the fact that Harvard had failed to give weight to the medical opinions of doctors who had treated McGahey. It was his opinion that awarding attorney’s fees would definitely act as a deterrent against such careless practices in the future.

Judge Stearns also felt that this decision had the potential to benefit other plan members. In future, he hoped Harvard would be much more careful in its claims review process. McGahey had been clearly wronged in Harvard’s disability benefits termination decision. Based on all of these above reasons, determining what would be reasonable attorney’s fees for McGahey’s disability insurance attorney was the next decision to reach.

Disability Attorney’s Fees Are Reviewed.

While Harvard had no argument with the number of hours presented by McGahey’s long-term disability insurance attorney they did argue that the fees were overly generous. McGahey’s attorney divided his hours into “core” hours which covered the legal research, writing of legal documents, court appearances, negotiations with Harvard, monitoring, and implementing court orders. His fee for “core” hours was $395 per hour. He billed for “non-core” activities such as letter writing, telephone conversations, and clerical tasks at $265 per hour.

Harvard argued that $250 an hour was a much more reasonable “core” rate, and that $150 an hour for “non-core” work was more appropriate. They base these figures on rates used to settle attorney’s fees in Giannone six years prior.

McGahey’s disability attorney was prepared for this. He provided the court with a statement from Giannone’s attorney, who now charged $485.00 an hour.

Meanwhile Judge Stearns reviewed affidavits submitted by Boston area ERISA attorneys and found that there was a range falling between $300 and $550 an hour. Judge Stearns considered the National Consumer Price Index which had risen 17 to 18% since the Giannone decision. And a recent case had approved $350 an hour as fair compensation. Judge Stearns settled on an hourly core rate of $350 and a non-core billing rate of $225 an hour, which he felt reflected McGahey’s disability attorney’s experience as an ERISA claims attorney.

Court Finds Disability Attorney’s Hours Reasonable.

McGahey’s disability attorney reported 125.8 core hours and 43.5 non-core hours in his billing records. This is how many hours it took to accomplish McGahey’s successful litigation. Hours that had been spent that resulted in unsuccessful efforts, such as supplemental research into the prior record of one of Harvard’s independent medical examiners, had been subtracted appropriately from the final billing.

Harvard did not object to the number of hours that were billed. Nor did the disability insurance plan administrators find any problems with the way the line items were reported.

When McGahey’s disability attorney walked into the courtroom on February 17, he was seeking attorneys fees of $61,219.00 which included $5000.00 in fees related to assisting McGahey with her administrative appeals. When Judge Stearns calculated the final figure, he allowed McGahey to collect compensation of $53,817.50. The $5000.00 was disallowed under ERISA case law.

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