Friday, May 28, 2010

An ERISA defense firm lets the cat out of the bag; so-called "fiduciary" ERISA insurers put their bottom line ahead of the interests of ERISA participants and beneficiaries

McDermott Will & Emery (MWE), among other things, represents ERISA insurers when they get sued. Given the absurd legal rules favoring MWE’s clients, this is roughly as difficult as coaching the Soviet Olympic basketball team.

Last week the Supreme Court issued its decision in Hardt v. Reliance Standard Life Insurance Company, which involved the circumstances under which an ERISA claimant might be eligible for an award on account of his attorney fees.

ERISA is incredibly stingy when it comes to the remedies successful claimant can recover, such that they cannot realistically expect to be made whole for what they’ve lost, never mind recovering any sort of extra award for things like emotional distress, out of pocket losses or punitive damages. So when they have to pay their own attorney out of the meager recovery ERISA allows, that only further diminishes the net compensation they can realize after being defrauded by an ERISA insurer.

The section of ERISA providing for a fee recovery (look for subsection (g)) does not expressly provide, as most other such provisions do, that only a “prevailing party” can recover fees; the judge is allowed to award fees to “either party,” although practically speaking if you lose in court (which is the way to bet) you’re not going to see any fee award. In Hardt the claimant sorta-kinda won, and the court determined Reliance Standard had indeed wrongfully denied Hardt’s disability insurance benefits. You would think that’d be the end of it, but in yet another breathtaking injustice of the sort only ERISA can create the court sent the case back to Reliance Standard to take another look at it. This time (with a pretty good nudge by the judge) Reliance Standard approved the claim and Hardt got the benefits which had been wrongfully withheld.

So Hardt asked for attorney fees, and Reliance Standard argued that all Hardt had been able to do in court was to get a remand, with no actual order that benefits be paid – that Reliance Standard did out of the goodness of its heart of course. The Supremes said Hardt had achieved “some success on the merits,” and that was good enough to allow the court to award fees.

WME represents ERISA insurers, who are supposedly subject to a so-called “fiduciary” duty that they’ll put the interests of ERISA participants and beneficiaries first. So what lesson does WME draw from Hardt? Why, its “fiduciary” clients are going to become more reluctant to award benefits, because if they do they might have to write a check for the claimant’s fees:

The Supreme Court’s decision could also serve as a disincentive for plan administrators to grant benefits voluntarily on remand in the absence of clear language that the reviewing court finds the determination incorrect on the merits.

Yabbut that is not supposed to be any disincentive for these fine upstanding "fiduciaries" who hold the interests of ERISA participants and beneficiaries paramount, is it? I mean if that mattered to them then they’d just be plain old insurance companies who are subject to liability for things like fraud and wrongful death. As it is they’re so squeaky-clean, so pure in their motives, that they’re above the sort of self-interested profit motives which might influence the rest of us mere mortals.

MWE is exactly right, of course: their ERISA insurer clients will be incentivized to screw people to protect their own bottom line. That’s how they roll.

And MWE has simply, if inadvertently, confirmed it.

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