No. 92-326
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
JIM G. HEAD and TAM1 J. HEAD, husband and
wife, on their own behalf, and on behalf
of their minor daughter, MELISSA HEAD,
Plaintiffs and Respondents,
CENTRAL RESERVE LIFE OF NORTH AMERICA
INSURANCE COMPANY, a foreign corporation,
Defendant and Third-Party Plaintiff
and Appellant.
CENTRAL RESERVE LIFE OF NORTH AMERICA
INSURANCE COMPANY, a foreign corporation,
Third-Party Plaintiff and Appellant,
JAMES R. PAULI,
Third Party Defendant and Respondent.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Joe L Hegel, Judge presiding.
.
COUNSEL OF RECORD:
For Appellant:
Daniel W. Hileman; Murray & Kaufman, P.C.,
Kalispell, Montana
For Respondent:
Stephen C. Berg; Warden, Christiansen, Johnson &
Berg, Kalispell, Montana
George B. Best, Attorney at Law, Kalispell, Montana
. . ..>
Submitted on Briefs: October 22, 1992
Decided: January 12, 1993
Justice Fred J. Weber delivered the opinion of the Court.
Defendant Central Reserve Life of North ~rnerica Insurance
Company, appeals the decision by the Eleventh ~udicialDistrict,
Flathead County, Montana, awarding plaintiffs Jim G. Head and Tami
J. Head a judgment in the amount of $172,765.13 plus attorney's
fees in the amount of $43,191.28 and costs of $4,165.73, for a
total judgment of $220,122.14. We affirm.
The issues presented for our review are:
1. Whether the ~istrictCourt erred in allowing the case to
be tried by a jury.
2. Whether the District Court erred in directing a verdict in
favor of third-party defendant Pauli and in denying Central
Reserve's motion for a directed verdict.
3. Whether there was sufficient credible evidence to support
the jury's verdict.
4. Whether the District Court abused its discretion in
awarding attorneyts fees and costs to the Heads.
plaintiffs Jim G. Head and Tami J. Head (Heads) brought this
action individually and on behalf of their minor daughter, Melissa
Head, against Central Reserve Life of North America Insurance
Company (Central Reserve). Central Reserve provided group
insurance benefits to employees of Viking Logging (Viking) of
Columbia Falls, Montana. Jim Head was employed by Viking.
Viking agreed to provide health insurance coverage for its
employees in 1984. The testimony during the trial conflicted as to
t h e date t h a t t h e employees met with Bruce Reimer (Reimer), t h e
2
president of Viking, and James R. Pauli (~auli), an insurance
agent, to discuss health insurance benefits and to complete
enrollment applications for the group insurance plan. Jim Head
testified that he could not remember filling out the application
himself, but he did recall answering questions to facilitate the
application. Pauli and Ron Kunik, a Central Reserve agent, both
testified that they probably would have asked questions of
applicants rather than have the employees fill them out themselves.
Pauli was not an agent for Central Reserve, but had agreed to act
as a go-between between Central Resewe and Reimer because he had
handled other insurance matters for Reimer. Pauli was a *IcaptiveBg
insurance agent for BankersB Life and thus could not sell policies
for other insurance providers. Bankersg Life did not provide group
plans for loggers at that time. The record establishes that
entries on the application form were completed by at least two
persons.
Kunik provided information to Pauli about Central Reserve's
health insurance coverage and Pauli conveyed this information to
~eimer and the Viking employees. The completed insurance
applications were dated July 16, 1984, the date that Reimer issued
a check for the first premium payment for the policy. The record
contains conflicting evidence about the date the applications were
completed, which may have been as early as June 22, 1984. Reimer
testified that he issued the check on the same date as the only
meeting with Pauli. Four witnesses (Jim Head, another Viking
employee, Pauli and Kunik) testified that more than one meeting
took place and that applications were filled out prior to July 16,
1984. Various testimony was presented as to who in fact filled out
the applications. It is not clear who completed the questions
relating to Tami Jo Head and Melissa Head. However, there is
evidence that neither Jim Head nor Pauli completed all of the
questions on the application.
These factual issues subsequently became critical because on
July 11, 1984, Dr. Pitman of Columbia Falls tentatively diagnosed
Melissa Head, then 9 months old, as possibly having Von
Recklinghausenls disease. He referred Melissa to a Whitefish
pediatrician, Dr. Casazza, for a second opinion. Dr. Casazza
confirmed Dr. Pitman1s diagnosis on July 12, 1984. Von
Recklinghausen's disease is more precisely referred to and known as
neurofibromatosis.
The testimony at trial established that neurofibromatosis is
a condition which manifests itself by brown spots known as cafe-au-
lait spots and is not a disease, but rather a predisposition to the
formation of tumors on nerve cells, on the coverings of nerve
cells, on the spinal cord and on the brain. Neurofibromatosis is
not recognized by any medical testing, it has no symptoms and there
is no known medical treatment. Medical testimony established that
while cafe-au-lait spots are not uncommon in young children, more
than six such spots is considered a sign of neurofibromatosis.
Neurofibromatosis is diagnosed only by physical examination and
requires no medical intervention or treatment prior to the
development of tumors or other complications. Dr. Mary Anne
Guggenheim, who first saw Melissa in December 1987, analogized the
condition to that of having high cholesterol which might predispose
an individual to heart attack or stroke.
Except for numerous scattered cafe-au-lait spots indicating
neurofibromatosis, Dr. Casazza found Melissa to be normal. He
referred Melissa to a Xalispell ophthalmologist, Dr. Steve Weber,
to determine whether an optic glioma (tumor) had formed on
Melissa's optic nerve; referred the Heads to Shodair Hospital in
Helena, Montana, to determine whether future children might also be
subject to the condition; and referred Melissa to Shriner's
Hospital in Spokane to determine if the condition was affecting her
orthopedically.
Dr. Casazza testified that neurofibromatosis is untreatable
prior to formation of tumors. After July 12, 1984, Dr. Casazza saw
Melissa only for well-baby checks. He testified that he was aware
of Melissa's neurofibromatosis during these examinations, although
the condition did not change and required no treatment. He advised
the Heads to be attentive for additional cafe-au-lait spots and to
maintain contact with Dr. Weber and Shriner's Hospital as suggested
by them. Dr. Casazza and Dr. Guggenheim each testified that they
did not treat Melissa for neurofibromatosis but merely followed her
condition.
Dr. Weber continued to examine Melissa periodically to
determine whether she developed amblyopia (lazy eye) or optic nerve
glioma. Medical testimony established that neurofibromatosis is
not classified as a disease or illness. All medical experts
discussed neurofibromatosis in terms of a condition as opposed to
a disease or illness. A11 testified that they had not rendered
medical treatment for the condition of neurofibromatosis prior to
1987. When asked what he had done for Melissa, Dr. Weber described
himself as a "tense observer, watching for the appearance of an
optic nerve glioma or other vision-threatening complications~
which
would make medical treatment necessary.
Medical testimony also established that children with
neurofibromatosis are predisposed to optic nerve glioma although
tumors can occur at any location in the body where there are
nerves. Many people with neurofibromatosis never develop any
symptoms more serious than a few lumps and bumps; others with the
condition develop serious abnormalities, such as the subject of the
movie "Elephant Man.u In addition to tumors which can cause bone
cysts and skeletal deformity, there may be problems with blood
vessels, bone growth and blood flow through the lungs. With the
optic nerve, there can be vision problems and loss of sight. Drs.
Weber and Casazza monitored Melissals condition to make sure she
did not develop these problems,
Central Reserve established an effective date of August 1,
1984 for health insurance coverage under Viking's plan, Central
Reserve handled Melissa's neurofibromatosis as a preexisting
condition under the plan. Paragraph 24 of the plan, entitled
@'General exclusions of the planttt
provides:
No benefits will be paid for charges ...
21. Due to a preexisting illness. Benefits will be paid
for charges incurred after the end of a continuous period
up to twelve (12) months which ends after the effective
date of coverage and during which no medical care,
diagnosis, advice or prescribed drugs were received;
...
Central Reserve believed that the visits to Drs. Casazza and Weber
constituted '9nedical care" so as to defeat the running of the
twelve-month period for preexisting illnesses. Because Central
Reserve originally denied a 1984 claim for Melissa which mentioned
neurofibromatosis, the Heads submitted no further claims to Central
Reserve relating to neurofibrornatosis until late 1987. Central
Reserve paid claims for a 1987 CAT scan and an MRI, but later
denied them.
I n 1 9 8 7 , Melissa began falling, experiencing headaches and a
bulge formed on the left side of her head. She was referred to Dr.
Guggenheim a t Shodair Hospital in Helena. Dr. Guggenheim testified
that Melissa had a h o l e in her skull bone which caused accumulation
of fluid outside the brain pushing forward into the area behind her
left eye. Dr. Guggenheim testified that although the team of
medical specialists initially thought Melissa had a tumor, her
problems were the result of a rare abnormality which was not easily
diagnosed. Eventually a craniotomy was performed at Children's
Hospital in Denver, Colorado, in February 1988. From that time
until July 31, 1991, Melissa has had nine surgeries in Denver and
one in Detroit, Michigan.
Melissa's first surgery was a massive craniotomy using rib and
cranial grafts to try to reconstruct her skull and get it back to
a normal position as Melissa had no bone behind her left eye.
Since then, other surgeries have been performed to try to stop an
erosion of the skull bone and repair holes in Melissa's skull. In
December 1990, a shunt was placed in her spine to help drain off
fluid and keep pressure down in her brain, which seems to be
stopping further bone erosion. In July 1991, the last surgery
prior to the trial was performed and more bone was grafted to fill
holes in hopes that this will finally solve the problem. All bills
for these surgeries were submitted to Central Reserve and all were
denied on the ground that the preexisting illness provision of the
plan had not been met.
Although Central Reserve had previously denied the December
1984 claim without explanation, it sent a letter to the Heads dated
March 28, 1988, denying benefits related to neurofibromatosis
because Melissa was not "treatment free" for at least a period of
twelve months in accordance with the preexisting illness provision
of the plan. Drs. Casazza, Guggenheim and Weber all testified that
no treatment had been rendered for the disease until late 1987 when
Melissa began to experience symptoms.
Mary Decker, owner of Medical Claims Services in Missoula,
testified to an extensive history of processing health claims for
different health insurance carriers. She testified that she had
reviewed all claims related to neurofibromatosis presented to her
by the Heads and, after reviewing the policy, calculated the total
owing for unpaid medical expenses, if the neurofibromatosis was
covered under the plan, at $172,765.13. Ms. Decker also testified
that she is familiar with preexisting condition clauses containing
terminology similar to that in Central Reserve's plan. She
determined that there was no twelve-month period during which
Melissa was "treatment freeM as this phrase is understood in the
insurance claims industry because Melissa had not gone without
medical care for twelve consecutive months. She based her opinion
on Dr. Casazza's referrals to Dr. Weber, Shodair and Shriner's
Hospital, which would not have occurred but for the
neurofibromatosis.
Ms. Decker testified that the industry interpretation of this
language would not find that Dr. Casazza's well-baby examinations
constituted the rendering of medical care to Melissa so as to
defeat the running of the twelve-month period and that the
insurance industry would find that only the two visits to Dr. Weber
would defeat the running of the twelve-month period. However, Dr.
James Pellagalli, on behalf of Central Reserve, testified that even
the visits to Dr. Casazza constituted medical care to defeat the
running of the twelve-month period. He further testified that the
same would be true if Melissa saw another physician for well-baby
checks and that physician also knew of or made an independent
diagnosis of neurofibromatosis.
Viking's group health insurance plan is considered an employee
welfare benefit and thus, any state claims relating to insurance
coverage are preempted by the Employee Retirement Income Security
Act of 1974 (ERISA), 29 U.S.C. 5 1001, et seq. (1988). Over
Central Reserve's objection, the case was tried to a jury,
commencing on September 23, 1991. After hearing most of the
evidence, the District Court granted third-party defendant Pauli's
motion for a directed verdict. At the close of the evidence, it
denied Central Reserve's motion for a directed verdict. The jury
returned a verdict in the Heads' favor against defendant Central
Reserve. The District Court subsequently granted the Heads8 post-
trial motion for attorney's fees.
I.
Did the District Court err in allowing the case to be tried by
a jury?
Central Reserve would have this Court reverse the jury verdict
and remand the case for a non-jury trial, which it maintains is in
accordance with ERISA. ERISA is silent with respect to jury
trials. Nonetheless, Central Reserve contends that the federal
circuit courts have consistently held that there is no right to a
jury trial in actions governed by ERISA. Central Reserve supports
this argument by citing cases which have alleged a wrongful denial
of pension benefits. See, e s , Pane
.. v. RCA Corp., (3rd Cir.
1989), 868 F.2d 631; Nevi11 v. Shell Oil Co., (9th Cir. 1987), 835
F.2d 209; In re Vorpahl (8th Cir. 1982), 695 F.2d 318; and Wardle
v. Central States, Southeast and Southwest Areas Pension Fund (7th
Cir. 1980), 627 F.2d 820, cert. denied, 449 U.S. 1112, 101 S.Ct.
922, 66 L.Ed.2d 841 (1981).
Prior to the 1975 enactment of ERISA, pension cases were
traditionally decided by trust law, which was considered to be
equitable in nature. ERISA provides for civil actions to recover
benefits as follows:
(a) Persons empowered to bring a civil action
A civil action may be brought--
10
(1) by a participant or beneficiary--
(A) for the relief provided for in
subsection (c) of this section, or
(B) to recover benefits due to him under
the terms of his plan, to enforce his rights
under the terms of the plan, or to clarify his
rights to future benefits under the terms of
the plan;
29 U.S.C. 5 1132 (a)(1) (1988).
The United States Supreme Court has not addressed the issue of
a jury trial under ERISA and not all federal circuits have analyzed
the jury trial issue in the same manner as Pane, which held broadly
that a 5 1132(a)(l)(B) cause of action for recovery of benefits is
equitable in nature. Pane, 868 F.2d at 636. Although the Supreme
Court has not ruled directly on this issue, it has looked to the
common law in place at the time ERISA was enacted to determine the
standard of review applicable for a denial of benefits. See
Firestone Tire and Rubber Co. v. Bruch (1989), 489 U.S. 101, 109
S.Ct. 948, 103 L.Ed.2d 80.
The legislative history of ERISA makes clear that the Act
should be construed consistent with the Labor-Management Relations
Act of 1947 (LMRA). Fuller v. INA Life Ins. Co. of N.Y. (Sup.
1988) 533 N.Y.S.2d 215, 217 (citing Pollock v. Castrovinci (S.D.
N.Y. 1979), 476 F.Supp. 606, aff'd 622 F.2d 575 (2d Cir. 1980)).
Under the LMRA, a suit for money damages under a collective
bargaining agreement regulated by the LMRA is entitled to a jury
trial. Fuller, 533 N.Y.S.2d at 217 (citing Allen v. United Mine
Workers of Am. (6th Cir. 1963, 319 F.2d 594).
The law is less clear for actions where the participant or
beneficiary of an ERISA plan seeks to recover medical benefits.
11
Steeples v. ~ i m e
Ins. Co. (N.D. Okla. 1991), 139 F.R.D. 688, 691.
ERISA actions to recover these benefits under 5 1132(a)(l)(B) may
be brought in either state or federal courts. 29 U.S.C. 5 1132(e)
(1988). There is a growing trend in the federal courts and the few
state courts that have addressed the issue, to allow a jury trial
based on the legal nature of the claim. See, e 4 , Rhodes v.
..
Piggly Wiggly Ala. Distrib. Co. (N.D. Ala. l99O), 741 F. Supp.
1542; Vicinanzo v. Brunschwig & Fils, Inc. (S.D. N.Y. l99O), 739 F.
Supp. 882; Gangitano v. NN Investors Life Ins. Co. (W.D. Fla.
lggo), 733 F. Supp. 342; Walker v. Sperry & Hutchinson Co. (Sup.
Ct. 1989), 544 N.Y.S.2d 958: and Springer v. Wal-Mart Associates'
Group Health Plan (N.D. Ala. 1989), 714 F.Supp. 1168, rev'd
other urounds, 908 F.2d 879 (11th Cir. 1990).
Although ERISA as a whole generally deals with trust and
fiduciary issues, the nature of a particular issue determines
whether a jury trial is appropriate. Stee~les,139 F.R.D. at 693.
The historical basis for suits to recover fringe benefits by
employees is steeped in contract law, which has not generally
provided for equitable remedies if legal remedies are available.
In Firestone, 489 U.S. at 112, 109 S.Ct. at 955, 103 L.Ed.2d at 94,
the United States Supreme Court noted that the absence of
discretion regarding the approval or denial of the benefits sought
made that case "like any other contract claim."
This Court has adopted the reasoning of the Eleventh Circuit
Court of Appeals from Lincoln v. Board of Regents of Univ. System
(11th Cir. 1983), 697 F.2d 928, 934, &. denied, 464 U.S. 826,
104 S.Ct. 97, 78 L.Ed.2d 102, wherein the court stated:
An action for reinstatement and back pay under Title VII
is by nature equitable and entails no rights under the
seventh amendment. An action for damages under Section
1981, however, is by nature legal and must be tried by a
jury on demand.
Breese v. Steel Mountain Enterprises (1986), 220 Mont. 454, 716
When ERISA is silent, as it is on the matter of jury trials,
it is appropriate in a case decided on state contract law
principles to adopt state law if to do so does not conflict with
the following three queries (known as the Kimball Foods test): (1)
whether the issue requires a nationally uniform body of law; (2)
whether application of state law would frustrate the federal
program's objectives; and (3) whether application of a federal rule
would disrupt commercial relationships predicated on state law.
Mardan Corp. v. C.G.C. Music, Ltd. (9th Cir. 1986), 804 F.2d 1454,
citing United States v. Kimball Foods (1979), 440 U.S. 715, 99
S.Ct. 1448, 59 L.Ed.2d 711. Applying state law in this instance
does not conflict with the Kimball factors. Significantly, there
is no uniform federal rule to apply.
Several federal courts have held that a plaintiff seeking
contract or other legal damages under ERISA is guaranteed a jury
trial under the Seventh Amendment to the United States
Constitution. The District Court here relied on Transamerica
Occidental Life Ins. Co. v. DiGregorio (9th Cir. l989), 811 F.2d
1249, in which the plaintiff's insurer brought a declaratory
judgment action to interpret a double indemnity clause in its
contract. The Transamerica court noted that the nature of the
underlying controversy, legal or equitable, determines whether a
party may properly obtain a jury trial. Transamerica, 811 F.2d at
1251-52.
In Transamerica, the Ninth Circuit upheld the lower court's
decision that the claim was legal in nature because it was based
upon a contract. Transamerica, 811 F.2d at 1252. The contract
involved a life insurance plan, a type of "employee welfare benefit
plan" treated like health insurance plans under ERISA. The Heads'
claim is also a contract action. It is not a suit against a plan
administrator or a fiduciary, but rather is a suit against an
insurer to recover benefits under a health insurance policy.
Contract law is traditionally considered to be legal rather
than equitable and thus entitles a plaintiff to a jury trial if
requested. The District Court here recognized this fundamental
distinction and permitted the trial to proceed with a jury. In the
Heads' complaint, they alleged a breach of contract and other state
law claims. The other state law claims were subsequently dismissed
as preempted by ERISA; thus, the case proceeded solely on the
contract claim. We agree with the District Court's determination
that contract law applies. We conclude that a jury trial was
appropriate when plaintiffs sued in state court based on a breach
of contract claim under ERISA to recover benefits under a group
health insurance plan when issues of fact are controverted.
We hold that the District Court did not err when it denied
Central Reserve's motion to dismiss the Heads' jury demand.
11.
Did the District Court err in denying Central Reserve's motion
for a directed verdict and in granting Pauli's motion for a
directed verdict?
After most of the evidence was presented at trial, the
District Court granted third-party defendant James R. Pauli's
motion for a directed verdict. The Heads did not object to Pauli's
motion. The District Court denied Central Reserve's motion for a
directed verdict after the remaining evidence was presented.
Central Reserve contends that the issue of Pauli's negligence
should have gone to the jury because either Pauli or Jim Head was
responsible for the errors on the insurance application. It has
maintained the same throughout this proceeding, despite the
testimony of its own agent, Ron Kunik, who testified as to his own
responsibilities in the application procedure. Kunik further
testified that Pauli followed Kunik's instructions.
The District Court found no evidence of negligence on the part
of Pauli. A motion for directed verdict is proper only in the
complete absence of any evidence to warrant submission to the jury.
Britton v. Farmers Ins. Group (1986), 221 Mont. 67, 88, 721 P.2d
303, 317. Contrary to Central Reserve's contention, our review of
the record has disclosed nothing to support Central Reserve's
claim. We conclude that the District Court correctly found no
evidence of negligence on the part of Pauli.
On the other hand, the Heads presented credible evidence
relating to the issues of Central Reserve's insurance coverage to
warrant submission to the j u r y . When the District Court considers
a motion for directed verdict, all inferences of fact must be
considered in the light most favorable to the opposing party.
Britton, 721 P.2d at 317. The District Court could reasonably have
determined that factual issues were controverted. The jury was
charged to determine whether Melissa had ever gone for a period of
twelve months without "medical care, diagnosis or advice" relating
to her neurofibromatosis. To resolve that question, the j u r y had
to ascertain what the words "medical careH meant under Central.
Reserve's health insurance plan. We conclude the factual issues
warranted submission to the jury.
We hold that the District Court correctly denied Central
Reserve's motion for a directed verdict. We further hold that the
District Court did not err by granting Paulifsmotion for the same.
Does sufficient credible evidence support the jury verdict?
Central Resene contends that there is no evidence that
Melissa Head ever went for a twelve-month period without Igmedical
care, diagnosis or adviceM relating to her neurofibromatosis and
that all the evidence establishes that she was never twelve months
without medical care.
Central Reserve's argument is based on its own interpretation
of the phrase %edical carertq
which is not defined in Central
Reserve's policy. The jury heard a great deal of testimony
relating to the definition of that policy term. Medical experts
testified that in the broadest sense, the care they provided to
Melissa would be considered medical care. However, Drs. Weber and
Casazza both testified that they were llfollowedll
~elissals
condition and did not render medical care and that they provided no
treatment for neurofibromatosis. Both further testified that they
made observations and did not give advice or diagnose symptoms.
Dr. Weber testified that Melissa could have gone without some of
the appointments with him in which he followed her condition,
specifically those duringthe twelve-month time period during which
the jury ultimately determined Melissa was without medical care.
H e further testified that he may not have recommended those visits
if he had foreseen there would be this problem with insurance
coverage.
In fact, Central Reserve did not use the term I1medicalcaren
in its correspondence to the Heads refusing to cover the medical
expenses--it merely used the words #'treatmentfree1*
without further
explanation. If the terms of an insurance policy are ambiguous,
obscure or open to different constructions, the construction most
favorable to the insured or other beneficiary must prevail,
particularly if an ambiguous provision in the policy attempts to
exclude the liability of an insurer. Atcheson v. Safeco Ins. Co.
(1974), 165 Mont. 239, 247, 527 P.2d 549, 553.
Central Reserve's literal interpretation of Ismedicalcare" in
this case attempts to exclude its liability and prevent Melissa
Head from meeting the requirements of the preexisting conditions
clause in its policy. In Brasher v. Prudential Ins. Co. of Am.
(W.D. Ark. 1991), 771 F. Supp. 280, 282-83, the court discussed a
requirement in a disability insurance policy coming within the
ambit of ERISA which prevented the plaintiff f r o m qualifying as
"totally disabledw under the policy. The plaintiff conceded that
a literal application of the policy language would preclude
recovery in his case but contended that such an interpretation
required him to be practically catatonic before being entitled to
benefits. He supported his public policy argument by citing Helms
v. Monsanto Co. (11th ~ i r . 1984), 7 2 8 F.2d 1416, 1420, rehlq
denied, 734 F.2d 1482 (19841, in which the court refused to adopt
a strict and literal interpretation of the policyasdefinition of
latotal disability" that would preclude all but the entirely
helpless from receiving benefits and in which the court adopted a
more realistic definition. Brasher, 771 F. Supp. at 282. See
also, Russell v. Prudential Ins. Co. of Am. (5th Cir. 1971), 437
F . 2 d 602; Madden v . ITT Long Term Disability Plan for Salaried
Employees (9th Cir. 1990), 914 F.2d 1279, 1285, cert. denied, -
U.S. I 111 S.Ct. 964, 112 L.Ed. 2d 1051 (citing Helms) ; and Torix
v. Ball Corp. (10th Cir. 1988), 862 F . 2 d 1428, 1431 (recovery may
not be denied on the basis of overly restrictive interpretations of
the plana language)
s .
The Brasher court noted that under the Helms construction, a
material question existed as to whether or not the plaintiff was
I1totallydisabled. That analysis is similar to the interpretation
of "medical carew as applied to Melissa Head.
Our review of a jury verdict is very narrow in scope. We will
not reverse the jury's findings if they are supported by
substantial credible evidence. Whiting v. State (1991), 248 Mont.
207, 213, 810 P.2d 1177, 1181. Substantial evidence is defined as
that evidence that a reasonable mind might accept as adequate to
support a conclusion. When conflicting evidence exists, the weight
and credibility given to it are within the province of the jury.
Whitinq, 810 P.2d at 1181. Evidence which is inherently weak and
conflicting may still be considered substantial. Further, when
determining if substantial evidence exists, this Court views the
evidence in the light most favorable to the prevailing party.
Whitinq, 810 P.2d at 1181.
We conclude that there is substantial evidence in the record
for the jury to reasonably interpret the policy to find that
Melissa received no medical care for neurofibromatosis for a
twelve-month period.
We hold that there is substantial credible evidence to support
the jury verdict.
IV.
Did the District Court err when it awarded attorney's fees to
the Heads?
The District Court granted the Heads' post-trial motion for
attorney's fees and costs and awarded an amount of 25% of the jury
verdict plus costs of $4,165.73 for a total of $47,357.01 in fees
and costs. Central Reserve contends that the Heads did not meet
the test for awarding fees. They contend, further, that if fees
and costs are allowed, the amount awarded here is excessive and
should be limited to a "lodestar1'determination.
An award of attorney's fees is discretionary in an ERISA
action by a participant or beneficiary to recover benefits. 29
U.S.C. 5 1132 (g)(1) (1988) . A determination to award attorney's
fees in an ERISA action should only be reversed for abuse of
discretion. Hummell v. S. E. Rykoff & Co. (9th Cir. l98O), 634
F.2d 446, 452. An abuse of discretion is found only when there is
a definite conviction that the court made a clear error of judgment
in its conclusion upon weighing relevant factors. Hummell, 634
F.2d at 452. This requires the trial court to state its reasons
for granting or denying fees. Hummell, 634 F.2d at 452-53. In
Hummell, the Ninth Circuit adopted the following guidelines to
apply in the exercise of discretion under S 1132(g)(l):
They should consider these factors among others: (1) the
degree of the opposing parties' culpability or bad faith; (2)
the ability of the opposing parties to satisfy an award of
fees; (3) whether an award of fees against the opposing
parties would deter others from acting under similar
circumstances; (4) whether the parties requesting fees sought
to benefit all participants and beneficiaries of an ERISA plan
or to resolve a significant legal question regarding ERISA;
and (5) the relative merits of the parties' positions.
Hummell, 634 F.2d at 453.
The courts have almost universally adopted the above five factors
for consideration in determining whether to award fees. Garred v.
Gen. Am. Life Ins. (W.D. Ark. 1991), 774 F. Supp 1190, 1201.
In Landro v. Glendenning Motorways, Inc. (8th Cir. 1980), 625
F.2d 1344, 1356, the court stated that It§ 1132(g), like the rest of
ERISA, is remedial legislation that should be construed liberally
in favor of those persons it was meant to benefit and protect" and
that a prevailing participant in a suit under 5 1132 to enforce
rights under his plan, itshould
ordinarily recover an attorney's fee
unless special circumstances would render such an award unjust."
The Landro court further stated that mere absence of bad faith on
the part of the losing defendant is not such a Ifspecial
circ~mstance.~Landro, 625 F.2d at 1356.
The District Court here noted the Landro rationale for
awarding fees to those persons who are to be protected and
benefitted by ERISA in its reasoning for awarding fees to the
Heads, stating :
... [Tlhe Heads appear totally unable to pay attorney fees
and if attorney fees are paid out of the jury's award, the
Heads will still have unpaid medical bills in a similar
amount. Given the Heads inability to pay and the apparent
ability of the insurance company to pay, an (sic) given the
fact that the Heads were required to go to court to obtain an
interpretation of a somewhat ambiguous provision, Heads should
recover their attorney fees and costs.
Balancing the factors traditionally used by Montana
Courts and also used by the Ninth Circuit, the Court is of the
opinion that the 25% contingency fee is very reasonable.
Considering the likelihood that no recovery would be had at
all, the difficulty and high stress nature of the case, the
inherent delay and the degree of skill and perseverance
required, as well as the result obtained, the Court finds that
both the $43,191.28 attorney fees and the $4,165.73 in
attorney costs would be allowable. (Citations omitted.)
The District Court cited Stimac v. State (1991), 248 Mont.
412, 812 P.2d 1246, in which we held that courts should consider
eight factors when assessing whether to award the full amount of
the contingent-fee agreement as a reasonable attorneyls fee under
§ 39-3-214(1), MCA. Those factors include: (1) the novelty and
difficulty of the issues; (2) the time and labor required to
properly perform the legal service; (3) the character and
importance of the litigation; (4) the result obtained; (5) the
experience, skill and reputation of the attorney; (6) the customary
fee for similar services; (7) the ability of the client to pay for
the services; and (8) the risk of no recovery. Stimac, 812 P.2d at
1249. The District Court's order specifically states that it
considered relevant factors from both Humell and ~ t i m a c making
in
the decision to allow fees. We conclude that the District Court
considered the proper factors in determining whether to award
attorney's fees and clearly stated the reasoning behind the
decision.
Central Reserve alternatively asserts that even if the
District Court properly determined that the Heads were entitled to
attorney's fees, it abused its discretion by awarding the Heads
attorney's fees in the amount of $43,357.01. This Court recently
addressed the proper determination of attorney's fees in an ERISA
action in Audit Services, Inc. v. Frontier-West, Inc., (1992), 252
Mont. 142, 827 P.2d 1242. In Audit Services, w e approved the
ulodestar/rnultiplierl~approach, which essentially contains two
parts: (I) the district court must determine a "lodestarw amount
by multiplying a reasonable hourly rate for the area by the number
of hours reasonably expended on the case; and (2) decrease or
increase the amount based on other factors from Kerr v.
Screen Extras Guild, Inc. (9th Cir . 1975) , 526 F. 2d 67, cert .
denied (1976), 425 U.S. 951, 96 S.Ct. 1726, 48 L.Ed.2d 195, Audit
Services, 827 P.2d at 1251.
We further stated that the qlresults obtained" factor is
particularly important and "where a party has obtained excellent
results, counsel should recover a full compensatory fee." Audit
Services, 827 P.2d at 1250. We noted that the district court
"necessarily has discretion in making the equitable judgment of
whether the fees requested are excessive." Audit Services, 827
P.2d at 1252.
Here, the District Court followed the "lode~tar/multiplier~~
approach. We will not overturn its decision absent an abuse of
discretion. Counsel for the Heads presented testimony subject to
cross-examination and submitted an affidavit as well, detailing his
time spent on the case. He presented testimony to establish that
208.10 hours was a reasonable amount of time for a case such as
this. He testified that he multiplied hours by $75 prior to
January 1, 1991 and $80 after that date for himself, by $70 per
hour for an associate and by $35 per hour for paralegals to arrive
at the total of $14,744.50. Another attorney in the Kalispell area
testified that the hourly rate, whether it be $75 or $80 per hour,
is very reasonable for that particular area and in fact is probably
on the low end for someone of similar experience in such a case.
Counsel for the Heads further testified that he agreed to
represent the Heads for a 25% contingency fee, less than his
standard contingent rate, while knowing from the beginning that the
case would generate many hours of work. He testified that he
accepted the case because he wanted a declaration that Melissa was
entitled to future medical benefits as well as past benefits and
because he was aware of the heavy debt owed by the Heads. He also
testified that he felt that the issues were such that the case
could as easily have been lost before the jury as won. The issues
in this case were by no means c l e a r l y in f a v o r 05 his clients and
he bore a substantial risk of no recovery for them, in which case
he too may have recovered nothing.
In Audit Services, we affirmed an award of an attorney's fee
greater than the lodestar amount. Audit Services, 827 P.2d 1252.
The initial lodestar amount is presumed to be a reasonable
attorney's fee. However, the court has discretion to increase or
decrease this amount as circumstances warrant. ~ u d i t
Services, 827
P.2d at 1250. *Although fee awards are left to the discretion of
the district court, ' [ i ] tremains important . . . for the district
court to provide a concise but clear explanation of its reasons for
the fee award1.I@ Audit Services, 827 P.2d at 1250-51, quoting
Hensley v. Eckerhart (1983), 461 U.S. 424, 103 S.Ct 1933, 76
L.Ed.2d 40.
The initial lodestar amount here for attorney's fees was
$14,744.50. The District Court increased the award to $43,357.01,
an amount equal to 25% of the judgment against Central Reserve for
medical expenses, the agreed upon contingency fee in this case. In
its decision to increase the lodestar amount here, the District
Court properly considered the Stimac factors, which are similar to
those used by the Ninth Circuit in awarding fees. See Moore v.
Jas. H. Matthews & Co. (9th Cir. 1982), 682 F.2d 830, 838-39. In
Moore, the Ninth Circuit remanded the case for a redetermination of
attorney's fees using a lodestar/multiplier approach. Moore, 682
F.2d at 839-41. We conclude that the District Court has provided
an adequate rationale to support its decision as to the amount of
attorney's fees to be awarded to the Heads and that it was not an
abuse of discretion to award attorney's fees in excess of the
original lodestar amount.
We hold that the District Court did not err in its award of
attorney's fees. Counsel for the Heads has stated that should this
appeal be affirmed, he will seek additional attorney's fees
connected with this appeal. We therefore remand this case to the
District Court for consideration of an additional award of
attorney's fees to compensate the Heads' counsel for his services
connected with this appeal.
Affirmed and remanded for consideration of additional
attorney's fees.
We concur: H
,'