Every client always has the option of paying me on an hourly basis if he or she wants. But over the past 25 years, I've encountered very few ERISA long term disability (LTD) clients, who can afford to do that; or who would want to do it. Almost all LTD cases I handle are done on a contingency fee basis. That means taking a percentage of the client’s disability benefits if I'm successful. At first I wasn’t always comfortable with the concept. But over time, I came to accept it as inevitable. The following may explain why.
Although my background in ERISA goes back well over 35 years, for the first 11 years in private practice, I avoided ERISA disability cases like the plague. While I represented and advised several ERISA benefit plans as to plan structure and design, I avoided ERISA litigation cases in general. There were several reasons for that. ERISA benefit cases are complex. Because of that complexity, they often require hundreds of hours of attorney time to pursue. I regarded them has a high risk / low reward endeavor and thus a short road to my own bankruptcy.
ERISA does provide for an award of attorney fees incurred in litigation. But the problem is the only way to recover fees under the statute is to first file a lawsuit; prevail on a “significant issue” in litigation (which generally means winning the case in court); and then file a motion asking that the court award fees. The decision to award fees, as well as the amount to be awarded, are within the sole discretion of the trial judge. And even then, the only fees you can recover are for the time spent working on the litigation. You can’t get fees for any of the time spent during the administrative appeal process and it is during that process when most of the heavy lifting (of preparing the “administrative record”) is done. Any evidence in support of the claim must be provided to the insurer before a lawsuit is filed. There is only a limited amount of time allowed to build the administrative record, normally within 180 days, which often means working at a frantic pace. But if that appeal is done correctly, more often than not, the case will be resolved (either by way of an administrative reversal or settlement) before the case proceeds to a judgement and thus before any attorney fee award can be entered by a judge. As a result, such court-ordered fee awards are usually few and far between.
When I considered the amount of time that must be devoted to what is a document-intensive administrative process, as well as possibly complex (also document-intensive) litigation, combined with the risks of delayed payment (for months, sometimes years), low payment or in some cases no payment, ERISA benefit litigation did not look very attractive to me. However, as I watched the case law develop over the next decade, I was drawn more and more to it because I found it interesting (and to put it perhaps not so modestly I thought I’d be pretty good at it). But I was simultaneously repelled by it because of the amount of work in relation to the lack of predictable cash flow and the risk of non-payment.
Eventually, I sort of tip-toed into the field by taking on quite a few ERISA health benefit cases for medical providers. These were claims that they had basically given up on, after making every effort they could to collect on them. I was having fun doing it and making a decent amount of money in the process, because I was charging a relatively high-percentage contingency fee. But I continued to avoid ERISA disability cases. I was contacted by a procession of claimants, who sometimes pleaded with me to take their cases. Again and again, I declined. When asked, "Why?" I explained that I just didn’t know how to handle the cases profitably. Many of these folks, offered to pay contingency fees equal to half of their benefit amount. One of them even offered to pay me 100% of all of his disability benefits. He said, “I’d rather you get the money to allow the insurance company to get to keep it.” Again, I said “No”. It just didn’t feel right. But as time passed, I encountered a lot of people with what I regarded as obviously legitimate claims, but they were paid nothing by their insurance plans because they didn’t have a lawyer to represent them. And I encountered other people, who did indeed find lawyers, but they were often the wrong lawyers, who simply did not understand ERISA.
Ultimately, I accepted the fact that if I didn’t take these cases on a contingency, potential clients would be worse off than if I did. So I did. Over the ensuing ten years, I took on more and more, while gradually phasing out my general corporate / business litigation / personal injury practice, which I had grown tired of anyway. By the time I hit year twelve of my law practice, I was doing nothing but ERISA cases and for more than the next quarter century, that’s all I’ve done.
My fee agreements have evolved over the years, but I have tried my best to come up with an equitable arrangement that works to the mutual benefit of my clients and myself. As a general rule, I take 33 1/3% of the net amount recovered (after any offsets such as Social Security Disability benefits, workers compensation benefits, etc., but before any taxes are deducted), including "back benefits", "future benefits", or a "lump sum" settlement. The 33 1/3% applies, regardless of the stage at which a recovery is obtained. I suppose, in a manner of speaking, if a case resolves in six months or less I may win. But if it drags on for five years or more I may lose. It all depends on the amount of time and effort required, which is something you can’t know with any degree of certainty, until it’s all over. So a contingency fee has to be based on the facts and circumstances known to exist at the time the fee agreement is entered into. In those case where the insurer reverses the initial denial administratively (i.e. before litigation is commenced), no court-awarded fees are possible and my fee is a flat one-third of the amount recovered.
However, if a case is litigated, I keep track of all my time spent on the litigation and if I prevail I make a motion for attorney fees. Any fees awarded by the court and / or collected from the defendant are then deducted from my contingency fee. If such an award is less than the contingency fee, that will have the effect of reducing the contingency fee by the amount of the award. In some rare instances where a fee award exceeds the contingency fee, I am entitled to keep the excess amount, while the client pays nothing.
It's important to remember that contingency fee arrangements involve significant risks for the attorney. When a client pays a lawyer on an hourly basis, the client generally pays an "up front" retainer fee to cover the lawyer's services for an initial period of time. After that, the lawyer bills the client for his time on a monthly basis. The longer the case takes, the more the client pays. The attorney gets paid for his time, regardless of the outcome. The client takes all the financial risk and the client keeps all the reward, if there is one. When a client hires a lawyer on a contingency fee basis, the lawyer takes most of the financial risk when it comes to his compensation. If there is no recovery, the lawyer usually gets paid nothing. If there is a recovery, the client and lawyer share that recovery.
Different attorneys have different fee arrangements. As with any purchase, a potential client should "shop around" to get an idea of how different lawyers charge for their services. But it’s at least equally and perhaps more important to find out the lawyer’s background, experience and track record because in the end you may get exactly what you pay for. In my opinion, a client would be well advised to avoid law firms that pursue a "volume" ERISA-disability practice because it necessarily means that individual cases will not be given “individualized” attention. I believe that sole practitioners and small firms, who have substantial litigation experience and who have survived in the ERISA field for many years are the best bet. It’s critically important that the attorney truly shares the client’s goals. So find out right up front the kind of lawyer you’re dealing with. Also, as with any purchase, ask questions, weigh the alternatives then make an informed choice.
Contingency Fee Agreements for Handling
ERISA Long Term Disability Cases
Why They're Important and What to Expect
By: Michael A. McKuin
ERISA Disability Lawyer