The plaintiff commenced this action seeking injunctive relief under the ERISA statute after Prudential terminated her benefit claim for the third time. Perkins v. Prudential Insur. Co. of America, 417 F.Supp.2d 1149 (C.D.Cal. March 1, 2006).

Perkins initially became disabled in 1997; after Prudential denied her claim, litigation resulted in an award of benefits. Another benefit termination two years later resulted in a second round of litigation that also ended in Prudential’s reinstatement of benefits and an award of attorneys’ fees, although the court refused to grant an injunction precluding Prudential from terminating benefits again in the future. Two years later, Prudential terminated benefits a third time. Without engaging in a pre-suit appeal, Perkins filed her third lawsuit shortly after the denial. The court directed the parties to participate in mediation; after two sessions, Prudential agreed to reinstate benefits and to allow a petition for attorneys’ fees.

Although Prudential argued it should not have to pay fees because Perkins failed to exhaust administrative remedies prior to bringing suit, the court disagreed. Pointing out that the court has the discretion to excuse exhaustion, the court ruled that an appeal would have been futile:

”Prudential has consistently refused to pay Perkins’ benefits until sued. Perkins has been forced to file multiple suits to obtain benefits that Prudential now concedes she is due. When Prudential terminated Perkins’ benefits the first time, she requested payment of benefits while the appeal was being administered.

”Prudential failed to respond to her request. Perkins was forced to file suit merely to get a decision on the appeal from Prudential – after a year of waiting, all the while not receiving benefits she was due. There is no reason to think Prudential would have been any more receptive to an administrative appeal in the instant case. That Prudential has repeatedly paid Perkins’ benefits only after the institution of litigation compels the conclusion that litigation was necessary. In short, Perkins had no choice but to file suit to ensure that benefits to which she was entitled would not be terminated pending the administrative appeal; any other course would have been futile. Accordingly, Perkins has made the requisite showing of futility to justify her circumvention of the administrative review process.”

The court also examined the normal five factors considered in weighing a request for fees: ”(1) the degree of the opposing parties’ culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of fees; (3) whether an award of fees against the opposing parties would deter others from acting under similar circumstances; (4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and (5) the relative merits of the parties’ positions.”

Finding that most of the factors favored an award of fees, the court deemed fees payable and applied a lodestar approach to the award of fees – determining a reasonable hourly rate and multiplying that rate by the number of hours reasonably expended in the course of the litigation. Approving a $400/hour fee, the court found the fees requested were reasonable and awarded $20,000 in fees.

Discussion: It is truly a shame that the court did not use this case as an opportunity to point out the failings of the ERISA law. This case illustrates that Unum’s behavior, which seems to have attracted almost all of the media’s attention, is not unique. Prudential’s actions here make it clear that insurers have used the ERISA law perversely in an effort to deny, obfuscate, extort, intimidate and misbehave. The reasoning is quite simple – there is no practical consequence for engaging in such actions. Another judge in California ruled several years ago in a disability benefit case:

”[T]he facts of this case are so disturbing that they call into question the merit of the expansive scope of ERISA preemption. Unum’s unscrupulous conduct in this action may be closer to the norm of insurance company practice than the Court has previously suspected. This case reveals that for benefit plans funded and administered by insurance companies, there is no practical or legal deterrent to unscrupulous claims practices. Absent such deterrents, the bad faith denial of large claims, as a strategy for settling them for substantially less than the amount owed, may well become a common practice of insurance companies.

”Consequently, ERISA may need to provide a greater deterrent to bad faith conduct in the administration of ERISA plans. The court continues to believe that providing for punitive, ‘bad faith,’ or compensatory damages beyond the amount of the claimed damages would adversely disturb the balance struck by ERISA. However, for the first time, it believes that at least in the case of insurance-funded and administered plans the public interest would be advanced if ERISA contained a statutory penalty, which could be imposed by the Court in extraordinary cases.” Dishman v. Unum Life Insur. Co. of America, 1997 WL 906147 *11 (C.D. Cal. 1997).

Obviously, nothing has changed. Here, too, the court was left with imposing the only possible remedy the law affords – an award of attorneys’ fees.

A leading ERISA scholar, Yale Law School Professor John Langbein, is currently working on a paper tentatively titled, ”Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials under ERISA,” a draft of which should soon be available at the Social Science Research Network ( In his draft, Langbein contrasts the Supreme Court’s view of ERISA plan administrators as neutral trustees and the scandal that has resulted from misbehavior of disability insurers. The current system has plainly broken down, and while normally, it would be the business of Congress to fix it, because the breakdown was caused by the courts, the courts have the power to repair what they have damaged. Judge Edward Becker of the 3d U.S. Circuit Court of Appeals pointed this out in the context of denial of medical care by an HMO. His concurring opinion in DeFelice v. Aetna U.S. Healthcare, 346 F.3d 442 (3d Cir. 2003) remarked:

”ERISA generally, and § 514(a) particularly, have become virtually impenetrable shields that insulate plan sponsors from any meaningful liability for negligent or malfeasant acts committed against plan beneficiaries in all too many cases. This has unfolded in a line of Supreme Court cases that have created a ‘regulatory vacuum’ in which virtually all state-law remedies are preempted but very few federal substitutes are provided.”

He attributed the problem to the same cause as Judge Spencer Letts in the Dishman case:

”The unavailability of extracontractual damages has effects that are perverse. First, as stated above, contingency fees are rendered entirely impractical – precious few lawyers would be willing to undertake a horrendously complex case of uncertain outcome when the greatest potential reward is merely provision of the care that had been contractually promised. Without contingency fees, participants in the midst of medical crises are completely at the mercy of HMOs unless they are fortunate enough to have the financial means to bring a suit for an injunction, a circumstance that is no doubt exceptional. Although it might seem a simple matter to seek an injunction compelling contractually-guaranteed coverage of a procedure, nothing is further from the truth where … the contractual availability of coverage hinges on a highly fact-intensive determination of medical necessity involving accepted standards of care and tolerable levels of risk for the participant’s malady. To the extent that participants are unable to seek an injunction compelling coverage, ERISA’s remedial scheme is almost entirely illusory.

”The second perverse effect is that, at the same time as ERISA makes it inordinately difficult to bring an injunction to enforce a participant’s rights, it creates strong incentives for HMOs to deny claims in bad faith or otherwise ‘stiff’ participants. ERISA preempts the state tort of bad-faith claim denial, see Pilot Life, 481 U.S. at 54-56, so that if an HMO wrongly denies a participant’s claim even in bad faith, the greatest cost it could face is being compelled to cover the procedure, the very cost it would have faced had it acted in good faith. Any rational HMO will recognize that if it acts in good faith, it will pay for far more procedures than if it acts otherwise, and punitive damages, which might otherwise guard against such profiteering, are no obstacle at all. Not only is there an incentive for an HMO to deny any particular claim, but to the extent that this practice becomes widespread, it creates a ‘race to the bottom’ in which, all else being equal, the most profitable HMOs will be those that deny claims most frequently.

”In sum, ERISA’s remedial scheme gives HMOs every incentive to act in their own and not in their beneficiaries best interest while simultaneously making it incredibly difficult for plan participants to pursue what meager remedies they possess, a confounding result for a statute whose original purpose was to protect employees.”

Becker therefore nearly begged the Supreme Court to correct its prior rulings or for Congress to step in; however, there has been no positive response to date. What this shows, though, is that the ERISA issues that have infected the administration of disability benefit claims literally have life and death consequences in the administration of medical benefits, yet the courts have maintained a system that allows injustice to prevail. The time has come to restore fairness to the process; the 30-year experiment in allowing insurers to virtually police their own behavior has proven to be an utter failure.

This article was initially published in the Chicago Daily Law Bulletin. 

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