Principal Life denies disability benefits to a physician and then seeks attorney fees after physician’s disability denial is affirmed by Texas Judge

Dr. Bruce Leipzig had been denied long-term disability benefits by Principal Life Insurance Company, and brought his ERISA case before the District Court covering the northern part of Texas. After hearing the case, the Court issued summary judgment in favor of the disability insurance company.

The District Court, however, refused to consider Principal Life’s request for attorney’s fees, even though the physician’s Texas disability insurance attorney and Principal Life had agreed that the issue of attorney’s fees should be addressed post-judgment. It is rare that a disability insurance company will pursue attorney fees from a claimant but is a factor that any disability claimant filing a disability insurance lawsuit must be aware of. The award of attorney fees is always discretionary with the judge in ERISA disability cases.

Principal Life’s Appeal of the District Court decision was heard in New Orleans before the Fifth Circuit which hears appeals out of Louisiana, Mississippi and Texas. The issue before the Appellate Court was whether the District Court was correct to refuse to consider Principal Life insurance company’s request for attorney’s fees because they had not presented a formal request for attorney’s fees before the Texas District Court had issued summary judgment in the disability insurance plan’s favor.

Leipzig had been a surgeon at the time he became disabled. He complained of double vision which made it impossible for him to continue as a surgeon. After the elimination period ended, Principal Life paid benefits for two years under an “Own Occupation” definition of disability. When the two years expired, Principal Life reviewed whether he was disabled from “Any Occupation.”

Despite the fact that he still had vision problems and could not perform surgery, Principal Life found that he was capable of seeing patients five days a week and capable of making 66-2/3% of his pre-disability earnings as a consulting physician. The physician argued that he was unable to earn this in Brownwood, Texas where he lived because there wasn’t an adequate patient base to support a practice that did not provide surgery. Principal Life responded that lack of patients was not an ongoing disability.

The physician’s disability insurance lawyer represented his claim in court. Neither side disputed that he could no longer perform surgery. The dispute arose from Principal Life’s interpretation of the definition of “disability.” Would the Court agree with Principal Life’s interpretation that a disability only existed if the claimant was unable to work in any occupation for which his training and experience prepared him for? Or would the Court consider the physician’s argument that the disability insurance company had to consider the patient base of the physician’s home community in Brownwood, Texas?

The Court had to determine whether Principal Life had interpreted the Plan in a way that was legally correct and fair. Had Principal Life interpreted the plan in its “ordinary and popular sense as would a person of average intelligence and experience?”

The Court found that yes, Principal Life had interpreted the Plan language fairly. The Court found that the Plan made it clear that sickness or injury had to be the cause of a claimant’s inability to earn 66-2/3% of post-disability earnings in the “Any Occupation” phase of the Plan. The lack of sufficient patients in Leipzig’s home town was not a sickness or injury. Economic factors were not covered by the definition in the Plan.

Because the disability insurance plan granted discretion to Principal Life to interpret the Plan, the Court could not consider whether or not the doctor’s interpretation of the Plan language was a better one or not. The Court found that Principal Life’s reading was reasonable.

Principal Life then asked the Court to grant attorney’s fees. The District Court denied the request because Principal Life had not submitted the materials ERISA requires in order for the Court to consider such a request. Principal Life pointed to the prior agreement between it and Leipzig to address this matter after the Court had reached its decision. The District Court reasoned that it “was not bound by the parties’ agreement.”

The District Court’s decision was in contradiction to Rule 54(d)(2)(B) which states, “Unless a statute or a court order provides otherwise, the motion [for attorney’s fees] must: (i) be filed no later than 14 days after the entry of judgment… ” The motion must “specify the judgment… entitling the movant to the award.” A plain reading of this rule suggests that an attorney’s fee motion would usually be filed after the Court enters its judgment. Otherwise how could the judgment be specified?

When Principal Life failed to file a post-judgment motion for fees, the District Court pointed to this as evidence that that its decision was appropriate. The Court of Appeals disagreed. The Court of Appeals reasoned that because Principal Life had been denied the right to attorney’s fees by the Court, why would it then file a motion? The Court of Appeals found the District Court’s decision abused its discretion. The decision to deny attorney’s fees was reversed and remanded to the District Court for the necessary further proceedings.

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