Plan Fiduciaries and TPAs May Recover Fees After Settlement

March 3, 2006 ( - The US District Court for the Southern District of New York has decided that plan fiduciaries and third party administrators (TPAs) have a right under the Employee Retirement Income Security Act (ERISA) to try to recover attorneys' fees and legal costs after settling lawsuits.

EBIA reports that the court pointed out that ERISA Section 410(a), which prohibits any provision that would relieve fiduciaries from their responsibilities or liabilities, bars a fiduciary who has been found in breach of its duties from recouping its expenses from the plan it injured.   However, courts enforce plan indemnification provisions when the fiduciary has been “vindicated by litigation.”

The court determined that prohibiting fiduciary indemnification by a plan after a settlement would “unjustly relieve the plaintiff.” Therefore, the court ruled that enforcing contractual indemnification rights following a settlement generally does not violate ERISA, according to EBIA. The court also decided that specific indemnity provisions in the plan documents either explicitly or implicitly limited indemnification “to the extent permitted by ERISA” and as such, did not run afoul of ERISA Section 410(a).

Current and former participants in four ERISA-governed union plans had sued the plan’s fiduciaries and TPAs for fiduciary duty breaches.   After settling the lawsuit while denying any wrongdoing, the fiduciaries and TPAs sought to recover attorneys’ fees and legal costs from the plans based on indemnification clauses contained in the plans, trusts, and service contracts.

The case is Martinez v. Barasch.