After overturning a district court denial and winning a victory in the U.S. Court of Appeals finding Unum’s interpretation of the self-reported illness clause in its disability insurance policies was arbitrary and capricious (661 F.3d 323), the plaintiff was denied fees on remand. Weitzenkamp v. Unum Life Ins. Co. 2011 U.S.Dist.LEXIS 11095 (E.D.Wisc. Jan. 31, 2012). Although the court acknowledged the plaintiff was eligible for a fee award after achieving success on the merits, and the court also found a prevailing party “enjoy[s] a small presumption that a fee award would be appropriate,” the court nonetheless refused to award fees. The court applied a test that it distilled into the question of “whether the losing party’s position was justified to a degree that could satisfy a reasonable person” and determined that Unum’s position was justified since the district court had initially ruled in Unum’s favor.

The court explained, “Having ruled in Unum’s favor, the only way I could conclude that its position lacked substantial justification would be if I concluded that my own analysis was not just erroneous, but unreasonable .” The court added, “when a district court is later reversed due to a bona fide disagreement about a novel question of law” rather than clear error “the party who lost on appeal is likely to have been substantially justified.” The court found no basis for concluding that Unum acted in bad faith since it was acting based on what the court deemed “a reasonable, if erroneous, interpretation of its plan language and consultation with numerous medical professionals.”

Nor did the court deem deterrence a factor since “Unum lost not because of its ‘conduct’ or other behavior, but simply because an appellate court took a different view of its plan language.”

Finally, the court concluded that only a limited number of plan participants would benefit from the ruling and such benefit would come “at the expense of the other members, either through cost increases or otherwise.” Consequently, the court denied fees.

This ruling is surprising. The appellate court reversed the district court and found Unum’s interpretation, despite its broad discretion, arbitrary and capricious, pointing out:

“The… interpretation advanced by Unum would sweep within the limitation virtually all diseases, leaving only a small subset for coverage beyond that time period. For most illnesses or injuries, the disabling aspect is not the disease itself, but the pain, weakness or fatigue caused by that illness or injury. Even diseases that are extremely likely to cause an inability to work, such as Stage IV cancer or advanced heart disease, are disabling because of the pain, weakness or fatigue. Under Unum’s interpretation, however, those diseases would fall within the 24-month limitation because pain, weakness and fatigue are self-reported symptoms that are difficult if not impossible to verify using objective medical evidence. In fact, at oral argument, Unum conceded that under its interpretation the provision would limit coverage for all conditions in which the disabling symptom is pain. Unum even maintained this was true regardless of the etiology of the pain, so that even if the underlying condition were highly likely to cause pain, the limitation would apply because the pain itself is self-reported and not verifiable.  Neither could this court countenance a reading that would allow Unum arbitrarily to disallow any illness or injury that it preferred not to cover while not making that explicit in its SPD. Although we must give deference to the administrator’s interpretation of the plan terms,… we cannot conclude that Unum’s interpretation is reasonable.” 661 F.3d at 330-331.

As to the particular issue presented here, in Moon v. Unum Life Ins.Co., 2006 U.S.App.LEXIS 16597 (6th Cir. June 29, 2006) (non-precedential), the 6th Circuit criticized a district court for refusing to award fees based in part on the lower court’s finding that it had originally sided with the insurer. The appeals court reversed, holding:

“It is wholly inappropriate for the district court to rely on its overturned decision to support the denial of Moon’s petition for attorney fees in the instant case. It is an affront to our system of justice for the district court to heavily and repeatedly rely on its incorrect decision to support its conclusion that Moon was not entitled to attorney fees. The district court’s conclusion was in err [sic].” *12.

The district court here also apparently misinterpreted the “bad faith” standard applicable to ERISA fee awards. Since the 7th Circuit relies so heavily on the connection between ERISA fees and fees awarded under the Equal Access to Judgment Act, 28 U.S.C. § 2412, the 7th Circuit has explained:

“A position taken by the commissioner is substantially justified if it has a reasonable basis in fact and law, and if there is a reasonable connection between the facts and the legal theory. See Pierce v. Underwood. 487 U.S. 552, 565, 108 S. Ct. 2541, 101 L. Ed. 2d 490 (1988); Conrad v. Barnhart. 434 F.3d 987, 990 (7th Cir. 2006).

Stewart v. Astrue. 561 F.3d 679, 683 (7th Cir. 2009) (reversing a denial of fees sought under EAJA). Since Unum’s position was found arbitrary, the district court’s rationale for denying fees is undermined.”

Finally, the court’s assumption that few will benefit from the 7th Circuit’s ruling is entirely misplaced. Although Susie Weitzenkamp’s condition was fibromyalgia, the appeals court pointed out that if Unum’s position had been accepted, Unum would have been able to limit benefits to a wide swath of individuals suffering from numerous impairments such as cancer or heart disease. Thus, contrary to the district court’s finding, this ruling will be beneficial to other plan participants.

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