In a recent decision that could actually end up deterring settlements in ERISA benefits cases, the Third Circuit awarded attorney fees to plaintiffs in an ERISA case despite the fact the case was settled without court intervention, holding that the lawsuit was the “catalyst” that caused the defendant to settle and therefore, the plaintiffs met the required “success on the merits” threshold under Hardt v. Reliance Standard Life Ins., 560 U.S. 242 (2010), a threshold that appears to be getting lower and lower on an almost weekly basis. This latest example seems to make it a given that plaintiffs will seek attorney fees even when cases are settled and plan administrators and insurers should take this into consideration when assessing a potential settlement. In fact, the low threshold may actually cause plan administrators and insurers to be wary of settling cases where the facts are strongly in their favor.

In Templin v. Independence Blue Cross, No. 13-4493, 2015 WL 2151778 (3d Cir. May 8, 2015), plaintiffs initially sued in 2009 because they claimed they were denied benefits when Independence Blue Cross did not pay for hemophilia medication and they were joined by two pharmacies. The district court denied Independence’s motion to dismiss and remanded the case back to the company for review, after which it paid the claims. Both sides moved for fees, which were denied and both sides appealed to the Third Circuit, which upheld the denial of fees but remanded on the sole issue of whether or not the plaintiffs were entitled to interest. On remand the plaintiffs sought between $1.3 and $1.8 million in interest but settled for $68,000 at a pretrial conference and the court dismissed the case. Plaintiffs then sought $350,000 in attorney’s fees, which the court denied because it found that plaintiffs had not achieved success on the merits since the case was settled “outside the courtroom and without a judgment from the court” and because it felt that the amount plaintiffs settled for was trivial compared to what they had sought. Plaintiffs, unsurprisingly, appealed.

The appeals court noted that other courts had acknowledged the “catalyst theory,” which allows recovery of statutory attorney’s fees “where the pressure of the lawsuit was a material contributing factor in bringing about extrajudicial relief” in other, non-ERISA contexts. In extending it to ERISA cases and awarding fees here, the appeals court held that a party is eligible for a fee award where the “litigation efforts resulted in a voluntary, non-trivial, and more than procedural victory that is apparent to the court without the need to conduct a lengthy inquiry into whether that success was substantial or occurred on a central issue.” In other words, did filing the lawsuit cause settlement of the dispute? Such a low threshold seems to makes it a virtual certainty that every plaintiff will seek attorney fees even when cases are settled and plan administrators and insurers need to take this into consideration when settling a case, especially if the settlement is of the nuisance variety.