Every client always has the option of paying me on an hourly basis if he or she wants. But over the past 20 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. I have not always been comfortable with the concept. But over time, I've come to accept it as inevitable. The following may explain why.
Although my background in the ERISA field goes back well over 30 years, for the first 12 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. I did not want to defend insurance companies against claimants. There was no way I could bring myself to do that. And as far as representing claimants, that was not particularly appealing to me either. ERISA cases are complex. They often require hundreds of hours of attorney time to pursue. And because of the prevailing case law back in 1983 (when I first hung out my own shingle), I regarded ERISA benefit cases as virtually impossible to win; and thus, a short road to my own bankruptcy.
But as I watched the case law develop over the next decade, I started to think that it might be possible to win an ERISA benefit case in court. Even then, I still shunned the idea of actually taking on a case. Since punitive damages are not recoverable under ERISA, there just wasn’t enough money in it to justify the risk, unless I were to take a percentage of claimants’ benefits, which I was reluctant to do at first.
ERISA does provide for an award of attorney fees incurred in litigation. However the only way to recover attorney fees under ERISA is to first file a lawsuit; win the case in court (or prevail on a "significant issue" in litigation); 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 discretion of the trial judge. And even then, the only fees you can recover are for the time spent working on the litigation.
ERISA does not provide for any award of fees for time spent during the administrative appeal process. So you can’t recover any attorney fees for the time spent working on the administrative appeal. See, e.g. Cann v. Carpenters' Pension Trust Fund, 989 F.2d 313, 316 (9th Cir. 1993). But before you can file a lawsuit under ERISA you must first exhaust all of the plan’s "administrative remedies". That is the stage of the claim where the "administrative record" is built. In all probability, that "administrative record" is the only thing that a judge will look at in deciding the case in court. (i.e. You are generally not allowed to put on witnesses or introduce exhibits to prove a claim that were not first submitted to the "administrator" -- usually the insurance company -- during the administrative appeals process). So that means practically all of your evidence-gathering and analysis must be done during that administrative process. If there is any deficiency in the record as far as proving the claim, you have to shore up that deficiency during that process. A great deal of work (often an enormous amount of work) necessarily goes into preparing that administrative appeal. And 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.
So when you consider the amount of attorney time that must be devoted to what is a document-intensive administrative process, as well as 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 disability litigation did not look very attractive to me. It was a dilemma. I was both drawn to it because I found the field interesting (and to put it perhaps not so modestly, I thought I was 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).
However, eventually I did take on quite a few ERISA health benefit cases for medical providers and I was having a lot of fun doing it. These were claims that providers had basically given up on, after making every effort they could to collect on them, in-house. I made a decent amount of money doing them, because I was charging a relatively high-percentage contingency fee. But I continued to avoid ERISA LTD cases. I was contacted by a procession of disability 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 than for the insurance company to get to keep it." Again, I said "No". It just didn’t feel right. As time passed, I encountered a lot of people with legitimate disability claims, who were paid nothing by their insurance plans because they didn’t have a lawyer to represent them. Some did find lawyers, but often those lawyers did not seem as competent as I felt I was. Eventually, I came around to accepting the fact that if I didn’t take these cases on contingency, potential clients would be worse off than if I did. So I did.
My contingency fee agreements in ERISA long term disability cases 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. However, if the case is litigated, I do keep track of all my time; 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 those rare instances where a fee award exceeds the contingency fee, I am entitled to keep the excess amount, while the client pays nothing. But in other instances, where the insurance company (or "administrator") 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.
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 an 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.
There are some attorneys out there, who rush into court by filing an ERISA disability case right away; then they try to crank out billable hours, in hopes of jacking up a potential court award of fees. In my opinion, that is a recipe for disaster and I would like to know what the win/loss percentage is for any attorney who does that. The preparation of
an administrative appeal / record is a lengthy and difficult process, if done properly. It involves a lot of attorney time
and effort and it cannot be rushed. And if the attorney does his job very well; and if the insurance company believes
it will likely lose in court, it may very well reverse its initial denial and agree to pay the claim before any lawsuit is filed. And if it does that, then as explained above, there will be no court awarded fees.
Some other lawyers try to handle a "volume" ERISA-disability practice. What that sometimes means is they take any case that comes in the door and then shoot for any low-ball settlement they can get. If they achieve that goal, they sell their client’s interest out for a quick buck. If they don’t, they find themselves in court ill-prepared. Either way, the client’s interests are not well served.
Bottom line is 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. Also, as with any purchase, find out the lawyer’s background, experience and track record. It is critically important that the attorney truly shares your goals. So find out right up front the kind of lawyer you’re dealing with. Ask questions. Weigh the alternatives carefully. Then make an informed choice.
CONTINGENCY FEE AGREEMENTS
FOR HANDLING ERISA DISABILITY CASES
Why They're Important and What to Expect
By: Michael A. McKuin
ERISA Disability Lawyer