Nozal v. Allina Health Sys. Long-Term Disability Benefit Plan, Civil No. 13-2270 ADM/TNL

Kristina Nozal, Plaintiff, v. Allina Health Systems Long-Term Disability Benefit Plan;and Life Insurance Company of North America, a CIGNA Group Company, Defendants.

Civil No. 13-2270 ADM/TNL

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

August 15, 2014

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Matthew B. Newman, Esq., Matthew B. Newman, P.A., Eagan, MN, on behalf of Plaintiff.

Daniel K. Ryan, Esq., Hinshaw & Culbertson LLP, Chicago, IL; and Michael T. Berger, Hinshaw & Culbertson LLP, Minneapolis, MN, on behalf of Defendants.

I. INTRODUCTION

This matter came before the undersigned United States District Court Judge for findings of fact and conclusions of law as to Plaintiff Kristina Nozal's ("Nozal") claim for attorney's fees. The parties successfully settled the underlying litigation at a Court-ordered settlement conference before Magistrate Judge Tony Leung but did not reach an agreement on the award of attorney's fees. Nozal and Defendants Allina Health Systems Long-Term Disability Benefit Plan ("Allina") and Life Insurance Company of North America ("LINA") agreed to submit this issue to the Court for resolution.

Thus, the Findings of Fact and Conclusions of Law herein address only the issue of Nozal's claim for attorney's fees. The findings are based on the briefing of the parties, theexhibits submitted to the Court, and the parties' declarations.¹

II. FINDINGS OF FACT

1. Nozal was injured in a car accident. Am. Compl. [Docket No. 5] ¶ 12. After initially paying Long Term Disability (LTD) benefits to Nozal, LINA discontinued those payments. Id. ¶ 13. In December 2012, Nozal appealed LINA's decision to discontinue her benefits. Id. ¶ 14.

2. On January 16, 2013, LINA acknowledged receipt of Nozal's appeal and stated that it "require[d] an extension of up to 45 days to make a decision." Id. ¶ 15.

3. On February 15, 2013, LINA wrote Nozal's attorney and stated that "we require an extension of up to 45 days to make a decision on the Appeal." Id. ¶ 16.

4. On March 14, 2013, LINA wrote Nozal's attorney and stated that "we require an extension of up to 45 days to make a decision on the Appeal." Id. ¶ 17.

5. On April 9, 2013, Nozal's attorney wrote LINA to inform it that the Social Security Administration awarded Nozal Social Security Disability Income benefits ("SSDI"). Id. ¶ 18. In this April 9, 2013 letter to LINA, Nozal's attorney stated, "I note from the record that [LINA] is not in compliance with ERISA's² administrative claim and appeal regulations, which affords Plan Administrators in disability benefit appeals a single 45 day period for extensions on appeal. LINA has taken two such extensions." Id. ¶¶ 18-19.

6. LINA did not respond to Nozal's attorney regarding the allegations that LINAwas in violation of ERISA's appeals process regulations. Id. ¶ 20

7. On April 12, 2013, LINA wrote Nozal's attorney and stated that given Nozal's award of SSDI benefits, "we would like to give you the opportunity to submit a complete copy of the medical records evaluated by the SSA-if they differ from the medical records contained in Ms. Nozal's LTD claim file. . . . If the information is not available or beneficial for the appeal review, please let us know by April 26, 2013 and we will move forward with our review based on the information contained in the claim. . . . The time it takes to submit additional information is TOLLED until you contact the Appeal Specialist. The tolled time period does not count against the mandated appeal resolution time frames." Id. ¶ 21 (emphasis in original).

8. On April 26, 2013, Nozal's attorney provided LINA with the Social Security Administration's notice of award of Plaintiff's SSDI benefits, and stated that there was no further medical information to provide LINA other than what was already included in LINA's administrative record for this claim. Id. ¶ 22.

9. On May 10, 2013, LINA's letter to Nozal's attorney stated: "We are writing to notify you of the status of Ms. Nozal's appeal . . . we have been unable to render a decision on the appeal at this time . . . at the latest we will contact you within 30 days." Id. ¶ 23.

10. On June 12, 2013, Nozal's attorney wrote LINA and stated that "Under the ERISA claim regulations, [LINA] was supposed to have one 45 day [period] to finalize its response to Ms. Nozal's appeal, plus one 45 day extension. As your records will undoubtedly show, [LINA] is currently in violation of those regulations. We continue to receive letters from you indicating you are taking another 30 days to complete this work, but that is not a proper or sanctioned procedure under the applicable regulations. Please be advised that Ms. Nozalreserves the right, if she is forced to litigate her claim for disability benefits, to seek equitable relief from the Court to exclude unfavorable reports and evidence developed by [LINA] after the date under the regulatory [sic] that you were supposed to respond." Id. ¶ 24.

11. On July 2, 2013, LINA wrote Nozal's attorney and stated that "We are writing to notify you of the status of Ms. Nozal's appeal . . . we have been unable to render a decision on the appeal at this time." LINA explained the delay was occasioned by their awaiting the results of an Independent Peer Review. LINA again informed Nozal that it was unilaterally extending its time to respond, writing, "at the latest we will contact you within 30 days." Id. ¶ 25.

12. On July 3, 2013, Nozal's attorney wrote LINA and stated that "I am in receipt of your letter of July 2, 2013, which as you know both out of your experience as an ERISA fiduciary administering claims and appeals and from my letter to you last month, is in complete violation of the ERISA administrative claim regulations. . . . This entire situation is unacceptable. It is also patently unfair to my client. . . . You are creating an unwarranted financial hardship for Ms. Nozal, and this is creating additional stress, fatigue and other difficulties for her." Id. ¶ 26.

13. Also in the July 3, 2013 letter, Nozal demanded that LINA immediately reinstate her long-term disability benefits with 5% interest. Id. ¶ 27.

14. On or about July 11, 2013, Nozal's attorney left a voice message for LINA. Nozal asked to confirm receipt of its latest letter and for a response. Id. ¶ 28.

15. LINA did not respond to Nozal's attorney regarding the allegations, her demand for benefits and interest, or to confirm that it had received these communications as Nozal's attorney requested. Id. ¶ 29.

16. In a letter to Nozal's attorney dated August 1, 2013, LINA advised that it was in receipt of the Independent Peer Review report, but that it was "unable to make a decision on Ms. Nozal's appeal at this time . . . . We will notify you immediately once we have reached a determination on Ms. Nozal's appeal. If we require additional information or if there is reason for delay, we will contact you immediately. At the latest, we will contact you within 30 days." Id. ¶ 30.

17. On August 19, 2013, Nozal filed her Complaint in this Court. Nozal pled one count for "failure to pay ERISA plan benefits and breach of fiduciary duty." Id. ¶ 41.

18. On October 10, 2013, LINA notified Nozal that her claim for LTD benefits was approved and reinstated her plan benefits.³

19. On November 19, 2013, Nozal made a written settlement demand, which included a demand for $5,000 in attorney's fees, $425 for costs, payment of past-due LTD payments with 4% interest, waiver of SSDI offset during the period of delay, and further "equitable" remedies.

20. In response, Defendants served Nozal with a Rule 68 offer under the Federal Rules of Civil Procedure. Defendants offered $5,000 for Nozal's attorney's fees and $425 for filing costs. Defendants did not respond to Nozal's request for interest or other equitable relief.

21. Nozal declined the offer.

22. On December 16, 2013, LINA served and filed its Motion to Dismiss [Docket No. 18].

23. On March 6, 2014, the Court heard oral argument on LINA's Motion to Dismiss. The Court recommended the parties attend a settlement conference prior to her ruling on the motion.

24. On March 26, 2014, following a settlement conference, LINA agreed to pay Nozal a lump-sum of $4,375.00 and to submit the remaining attorney's fee dispute to the Court.

III. CONCLUSIONS OF LAW

1. ERISA provides that in actions by plan participants, "the court in its discretion may allow reasonable attorney's fees and costs of action to either party." 29 U.S.C. § 1132(g)(1); see Frerichs v. Hartford Life & Accident Ins. Co., 875 F. Supp. 2d 923, 951 (D. Minn. 2012).

2. As a threshold matter, "a fee claimant must show some degree of success on the merits before a court may award attorney's fees under 1132(g)(1)." Deckard v. Interstate Bakeries Corp., 704 F.3d 528, 537 (8th Cir. 2013).

3. LINA argues that "all of Nozal's substantive claims, and the merits of her lawsuit, were moot as a matter of law when LINA reinstated her LTD benefits on October 10, 2013." Defs.' Opp'n to Pl.'s Fee Pet. 7. And, LINA argues its Rule 68 offer precludes any recovery by Nozal. Id. at 9.

4. The facts in this case suggest otherwise. LINA reinstated Nozal's LTD benefits on October 10, 2013, almost a year after it made the decision to terminate them. LINA's conduct in unilaterally taking repeated extensions of time in its review of her appeal is without legal support. Although LINA was ostensibly working on Nozal's appeal and finally came to the conclusion that Nozal was indeed entitled to benefits, LINA made no effort to compensate forthe delay in payment. LINA did not pay interest on the delayed benefits. The Eighth Circuit recognizes that an insurance company cannot delay payment of benefits and then dodge the consequences of delay by voluntarily paying benefits once sued.⁴ Parke v. First Reliance Std. Life Ins. Co., 368 F.3d 999, 1007 (8th Cir. 2004) (the court was "not persuaded by [the defendant's] formalistic attempt to create a distinction between instances where an ERISA-governed plan...