Plan Sponsors Not Required to Pay Participant Attorney Fees

February 25, 2003 ( - Employer-sponsored health plans are not obligated to pay a share of the attorneys' fees incurred during a participant's personal injury lawsuit.

US District Judge James Zagel found that the Illinois common fund doctrine cannot overcome ERISA when a plan clearly forecloses on a participant’s right to recover attorneys’ fees from the administrator, according to Washington-based legal publisher BNA.

Zagel, of the US District Court for the Northern District of Illinois, said that while he agreed with the intention that the administrator should pay a share of the attorneys’ fees incurred by the participant, there was “too much support for the proposition that state law cannot void explicit and lawful provisions in ERISA plans.”

Personal Injury

Jean Hummell incurred nearly $17,000 in medical expenses due to injures she suffered in an automobile accident.    Wal-Mart’s health plan paid Hummell’s medical costs under a plan provision that said Wal-Mart had the right to recover 100% of the benefits it had paid in the event Hummell received a personal injury settlement.

Hummell and her attorney eventually worked out a $150,000 agreement with the party responsible for the injuries. Hummell’s attorney offered to reimburse the plan less a deduction for his attorneys’ fees, but Wal-Mart’s plan administrator refused and instead sued, seeking a declaration that it had no obligation to pay for Hummell’s attorneys’ fees in the first place.

Free Ride

Countering the administrator’s claim that the plan made clear that Wal-Mart had no obligation to pay for Hummell’s fees, Hummell’s attorney argued that allowing Wal-Mart to recover the $17,000 without paying for a share of the fees would allow Wal-Mart a “free ride” on the attorney’s efforts in obtaining the $150,000 settlement.

The district court said so far, three judges in the Northern District of Illinois have addressed the issue and two have found that the common fund doctrine cannot overcome explicit language in ERISA plans, while the third judge found that the doctrine can be used to require an ERISA plan to share in the cost of attorneys’ fees.

The case is Administrative Committee of the Wal-Mart Stores Inc Associates’ Health and Welfare Fund versus Hummell.