More on the Arthur Andersen Ruling
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I like the legal issues raised by it; bigger media outlets like the big numbers involved. Either way, the story gets big play. Here’s the National Law Journal’s article on the Seventh Circuit’s ruling on the lack of coverage for Arthur Andersen’s pension obligations, a ruling I discussed in detail in this post here.
On Discovery Problems and Solutions
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Here’s an interesting law review article, passed along in detail by the Workplace Prof, on problems, and potential solutions, in managing discovery. Discovery, to beat what must now be a dead horse, has become infinitely more complicated and expensive - with far more consequences for mistakes - in any type of complex litigation with the adoption of the federal rules governing electronic discovery (and in fact with the rise of computerized data itself). Regular readers know that I have argued before in this space that the courts need to develop a jurisprudence that analyzes the need for and cost of electronic discovery - which can often involve massive amounts of computer generated and/or stored data - in much greater depth than the more superficial analysis of discovery disputes that has historically been the norm: in essence, courts should engage in a more searching inquiry into disputes over electronic discovery, given their costs and how much of such data is likely to be irrelevant in any given case, before granting extensive discovery into electronically stored data. At a minimum, there should be a degree of inquiry that, even if it won’t allow conclusive enough findings to decide to outright not allow such discovery, will still allow an intelligent, reasoned limitation on exactly what the scope of that discovery should be. I would argue that, in cases that warrant it, it would even be appropriate to hold a mini-trial type proceeding, maybe of two or three witnesses, and then to rule on to what extent such discovery is warranted. This approach would be a far cry from how courts have traditionally addressed discovery disputes, but, as the article suggests, it is past time for the courts to begin applying a more systemic and in-depth approach to controlling discovery.
This is particularly important in the areas covered by this blog, ERISA litigation and insurance coverage litigation, where computerized data, communications and information processing, is almost literally the coin of the realm. Electronic discovery is therefore truly a major cost-driver and risk factor in these areas of the law. The development, at the boots on the ground level of magistrate judges (to whom discovery disputes are often assigned), special discovery masters and trial judges, of the law of electronic discovery provides an opening for courts to really address these issues, in the manner suggested by the article and with fresh eyes, and its an opportunity that should be taken advantage of, one that calls for curiosity, innovation and reasoned experimentation. I will give you one example, to make my point. One of my partners was recently handling a massive, multi-party litigation, in which there were numerous interrelated legal and factual issues, some of which may be outcome determinative. Rather than engage in the traditional approach of years of discovery with only minimal court oversight, followed by summary judgment motions, the court instead ordered some discovery, followed by summary judgment motions on the key potentially outcome determinative legal issues, followed by, if any party believed further discovery was needed to resolve those issues, the filing of Rule 56(f) affidavits to justify such discovery; the court would then decide what further discovery would be allowed before it would rule on the legal issues. The end result was order out of what otherwise could have been chaos, and a case that stayed on track towards resolution. It’s a good example of a court proactively using existing procedural tools to narrow the issues, and decide on what issues further and potentially expensive discovery is actually needed. This appears to be exactly the type of use of existing procedural tools and focus on the timing of discovery that the article's author is advocating as the means to improve discovery.
What Happens When ERISA and the Law of Insurance Coverage Collide?
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Wow, I guess this is really Seventh Circuit week here, with, I guess, a particular focus on the jurisprudence of Judge Easterbrook, whose opinion in Baxter I discussed in my last post. This time, I turn to his decision from Wednesday in Federal Insurance Co. v. Arthur Andersen, which strikes right at the intersection of the two subject areas in the title of this blog, insurance and ERISA. The Arthur Andersen opinion concerns the extent of coverage, if any, for Arthur Andersen’s massive settlement of lawsuits related to its retirement liabilities upon its well publicized, post-Enron collapse, under a policy covering breaches of fiduciary duty. The court found that there was no coverage, for a number of reasons, the most salient of which being that, first, the losses in question were the actual pension amounts, which the policy does not cover (it instead covers only other losses related to a pension plan, separate from the actual amount of the pension benefits in question), and second, that although the claims in question related to pension plans, they were not actually for breaches of fiduciary duty related to such plans, which is all that the policy actually responds to. There are some interesting lessons for plan sponsors and plan administrators in these findings: first, that it is important to remember that, in buying fiduciary liability coverage, this is not the same thing as insuring the benefits owed to pensioners themselves, and, second, that the exact scope of the coverage is narrow and limited by its exact terms, which may not extend coverage to the specific allegations of any particular lawsuit arising from the pension plan. What’s the take away? A close look by an expert is needed when selecting insurance coverage for pension plans and the people who run them, if for no other reason than to have an accurate understanding of the extent to which potential problems with the plans may actually be covered.
Beyond these lessons in the case for people on the ERISA side of this blog’s title, the decision provides a fascinating run through a number of complicated insurance coverage topics for those of you who are interested in the insurance coverage half of this blog’s title. The judge - or perhaps his clerk, I don’t know the practices in that particular court - writes fluidly on the law of estoppel, waiver, the duty to defend, and the respective rights of the insurer and the insured when it comes to control of the defense and settlement of a covered lawsuit.
Legal Rights That Are Protected In Courts, May Well Be Lost In An Arbitration
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I haven’t commented in the past on this, because there was too much else going on directly on point with ERISA. However, as many of you may know, the Supreme Court issued an opinion a week or two back in essence concluding that parties may not contract between themselves to allow a court to review an arbitration award beyond the limited review provided for under the Federal Arbitration Act. As I have discussed on this blog more times than I care to remember, commercial arbitration suffers from a number of problems, and I have suggested in the past that commercial entities who want to arbitrate should take preemptive steps to solve those problems at the time they agree to arbitrate. Probably the biggest barrier to arbitration serving as a forum for complicated commercial disputes is that the Federal Arbitration Act effectively provides no substantive oversight of an arbitration ruling, making the arbitrator’s ruling the final decision, and only allows judicial review for the purpose of addressing any serious procedural errors during the course of an arbitration. Commercial entities have been well advised in the past to try to negotiate around this problem, to leave some type of judicial review in place that will provide oversight of an arbitration panel that is akin to what a federal appeals court provides to a trial court. The Supreme Court’s opinion effectively deprives parties who wish to arbitrate from agreeing to allow such a review by a federal court, making arbitration a forum that, quite simply, isn’t appropriate for a party that wants to maintain rights of appeal should the original decision maker - whether an arbitration panel, a trial judge or a jury - err significantly on either the particular law or the application of that law to the facts proven in the case.
Frankly, from a substantive real world approach, it’s the wrong decision. Arbitration can work for commercial entities, but not in a cookie cutter manner and only if they can negotiate around the problem of limited judicial review. The Supreme Court’s ruling precludes contractually remedying that problem. As a hypothetical question for a federal courts class, it might be the right answer; in the real world, it certainly isn’t. Indeed, I have commented in the past on empirical and anecdotal evidence that commercial entities are losing interest in resolving complicated business disputes by arbitration, and this ruling isn’t going to reverse, or even slow, that trend.
What’s the occasion for this soliloquy? This article right here, out of Texas Lawyer, which hits these notes right on the head (I like a good mixed metaphor on a Monday).
The Hard Headed Business Case for ERISA Preemption of State Health Insurance Mandates
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Why does ERISA preemption matter in the health insurance context, and why do many people think it should preclude state health insurance mandates, such as the Wal-Mart law already deemed preempted in Maryland and the San Francisco ordinance that is currently the subject of litigation over the question? Leaving aside the legal reasons why the acts are preempted, it is because employers, who provide most of the health benefits in the country, rely upon the stability and predictability generated by ERISA and the preemption doctrine. That, in any event, I think is a fair reading of this article here.
A Blog to Pass Along, and Some Thoughts About the Supreme Court's Interest in ERISA
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Lots going on, lots to talk about. Let’s start with this one, which, coincidentally, allows me to kill two birds with one stone. You may recall that some time back I mentioned that I had come across two interesting blogs that I wanted to pass along, one of which was The Float, covering primarily investment related issues and their intersection with ERISA. I mentioned I would pass along the other blog in a subsequent post, which, almost inevitably since I had promised to do so, I never did, as breaking news and a pending trial shunted it to the side. Well, that other blog is this one, Benefits Biz blog, by the benefits and executive compensation lawyers at Baker & Daniels, which I have found to be a consistently interesting read. Moreover, I return to it today to pass that link along because of a very interesting post they have concerning a case that the Supreme Court has now elected not to add to its docket, concerning the relationship of age discrimination laws and employer provided health insurance benefits. As many already know and as I have discussed in the past here on this blog, the Supreme Court has shown a continuing interest in all things ERISA, with three cases either already decided or added recently to its docket. The Supreme Court’s lack of interest in this particular case perhaps hints - I am reading tea leaves here now, in the august tradition of Kremlinologists and other students of secretive institutions - at the outer limits of the Court’s interest in the subject of ERISA. The cases accepted for review to date by the Court emphasize litigation issues and, in particular, the effect of the evolution of retirement benefits from pensions to 401(k) plans on the litigation environment. This is not a fair reading of the case passed on by the Court that the Baker & Daniels’ lawyers discuss in their post; we may be able to infer that if you want to attract the Court’s interest in an ERISA case right now, you better make it about litigation and defined contribution type plans.
A Potpourri of Interesting California Insurance Coverage Decisions
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Still on trial, but I did have time this afternoon to read this interesting piece, summarizing a number of interesting appellate decisions over the past year from California courts on a range of insurance coverage issues, running from post-claim underwriting of health insurance to the scope of coverage granted by directors and officers policies. The cases include one that provides an interesting analysis of the scope of the attorney-client privilege in the context of insurance, an issue I have talked about at some length in the past on this blog. You can find the article right here. For those of you interested in the subjects covered by this blog, it is probably a worthwhile read.
Gone Fishing - Not Really
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I am starting a trial today, so my posting will be sporadic and erratic at best. As I did the last time I was trying a case, I will try to at least find time to pass along new court decisions, publications, or events of significance while I am on trial, even if I don’t comment much on them in the posts; if they warrant it, I will return to the posts later to discuss the issues in more detail.
A Break from LaRue: Anticipating Insurance Coverage Disputes Over Climate Change Exposures
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Can’t do LaRue all the time, every post, although, frankly, the more one thinks about the Supreme Court’s three opinions, the more one can come up with to talk about. I will return to various issues raised by the opinion here and there, as time and interest allows. For now, though, I think I owe some posts that can be attributed to the insurance litigation side of this blog’s title to readers who are interested in that topic, and I have been thinking - when not obsessing over whether individuals can sue for mistakes in their 401(k) plans, that is - about all the legal seminars and publications that have been showing up in my in-box lately anticipating insurance coverage litigation over climate change issues. One of the interesting things about these is that they are showing up in droves now, long before suits seeking to recover for climate change losses have even been pursued. As I have said before on these electronic pages, insurance is the real leading edge indicator for a lot of issues, and one of them is climate change; the insurance industry will be one of the first to be heavily impacted by increased climate related losses, through its coverage of property and liability risks, and will, concomitantly, be one of the first to take concrete business steps in response to global warming. This early media drumbeat over insurance coverage issues related to climate change litigation reflects an eternal truth: that any possible new area of business liability, such as over climate change, will simultaneously spawn a cottage industry in representing businesses against insurers over those new liabilities. On a more substantive note, the particularly interesting thing to me about the seminars I am seeing is that these educational materials present the issue as essentially an extension into the climate change area of the legal developments generated during the last broadly contested, high stakes area of coverage disputes, namely environmental losses related to Superfund and other environmental liabilities. It’s a logical step, if one thinks about it: the environmental coverage disputes revolved primarily around the environmental impacts of the dumping of pollutants, and the new climate change issues will also concern environmental impacts, only in this instance ones that stem from the global warming impacts of certain business practices. The earlier environmental coverage rulings issued primarily in the late eighties and early nineties are thus a natural base on which to analyze the insurance coverage issues raised by climate change liabilities. In a way, it even fits the historical development of insurance coverage law. The environmental coverage litigation really expanded from, and built upon, the mass tort coverage disputes of asbestos, most concretely in the extension of trigger of coverage issues decided in that earlier context into the environmental pollution context; it only makes sense that the same historical evolution would continue into the next “hot” (pun intended) realm of insurance coverage litigation, in this instance by taking coverage decisions related to environmental polluting and rejiggering them to apply to climate change exposures.
A Couple of Other Perspectives on LaRue
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There’s a lot out there on the Supreme Court’s ruling in LaRue, and I thought I would pass along today a couple of articles and blog posts that approach the issues raised by the case from a slightly different perspective than simply the technical legal issues raised by the case. Employee benefits lawyer George Chimento discusses the LaRue decision in this client advisory here, with a focus on a particular question, namely, whether in light of the problems posed by LaRue type cases, it makes any sense to sponsor a 401(K) plan that allows participants to pick and choose among investments. He makes a compelling argument that it just may not make any sense to do this, given the liability risks, amply illustrated by the LaRue case, and the investment skills of the average participant. He sums that issue up in this paragraph from his article:
With all this additional liability, is it wise to sponsor self-directed plans, with the extra expenses associated with open-end mutual funds and daily investment switching? Are participants really better off self-managing their retirement assets, doing something they were not educated to do? Perhaps it's safer, and better for all parties, just to have an "old fashioned" managed fund, without participant direction, and to employ properly certified investment managers who can be delegated fiduciary liability under ERISA. A dividend of LaRue is that it may cause employers to step back and reconsider the current, expensive, and dangerous fad of self-direction.
And Kevin LaCroix, a lawyer/expert insurance intermediary, tackles LaRue in this interesting blog post on his well-regarded D&O Diary blog, in which he focuses on the issues for fiduciary liability insurance raised by the case. One interesting point he makes is that the availability of coverage may be affected by exactly that split between the Justice Roberts’ concurrence and the other two opinions, related to whether or not claims of this nature should actually be prosecuted only as denial of benefits claims, or instead as breach of fiduciary duty claims. Anyone interested in the insurance implications of LaRue should find it a useful and informative post.
Want to Learn More About the Tripartite Relationship?
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One of the widest read and linked to posts I have written recently was this one here providing the law of the so-called tripartite relationship in thumb nail fashion. Interest in this topic surprises me to a certain extent, because very much the point of the post was that, despite all the seminars and publications addressing the topic, I really think the rules governing the relationship among insureds, insurers and insurer appointed defense counsel boil down to a pretty simple set of working principles, which I discussed in that blog post.
However, it is clear that many people have a great deal of questions about the topic and want more education on the subject, and I can think of no better sources to answer such questions and provide education on it than the panelists on this upcoming seminar on the topic; among the panelists is Marc Mayerson, who writes the Insurance Scrawl blog on insurance coverage topics.
Money Talks, Even About the Massachusetts Health Care Reform Act
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A number of different things I want to talk about, including an interesting decision discussing the obligations of plan sponsors when it comes to selecting advisors and some interesting thoughts on QDROs. I will sprinkle those in later, but for now I thought I would pass along Steve Bailey of the Boston Globe’s column today on the issues raised by the Massachusetts Health Care Reform Act, which basically mirrors what I have said in prior posts, such as my last one, about the statute and issues with its implementation. A couple of interesting tidbits to point out though, from his column. First note his reference to the fact that the statute effectively left the business community off the hook (in truth, this is only true financially, and even then only partly so; they still bear some administrative headaches, and some currently modest financial exposures), which fits exactly with my explanation in the past as to why the statute has not faced a preemption challenge in court to date. Second note his reference to the idea that the political and legislative will to continue with the program is strong. All well and good, but the issue now is the plan’s escalating costs, which are going to have to be borne by taxpayers or else by the business community; one wonders about the commitment of those who will actually have to pay the bill for this program. Anyone going to ask them?
The Massachusetts Health Care Reform Act as Evidence of the Need for Preemption
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Stories like this make clear that advocates of state fair share plans who like to point to the Massachusetts Health Care Reform Act as a shining exemplar of what could be accomplished if only ERISA preemption would go away are barking up the wrong tree. Rather, the article, with its discussion of spiraling costs to the state and the state’s need for federal funding to remedy the resulting shortfalls demonstrates the opposite, namely that, as I have argued in other posts, there is real reason to doubt whether the problem of the uninsured is one that can be cured on a state by state basis. Indeed, the fact that the Commonwealth needs significant - but as yet unpromised - infusions of federal money to effectuate coverage of the uninsured suggests that this problem cannot be solved by states and instead can only be solved on a larger playing field, namely at the federal level with the type of resources that only the federal government can commit to the issue. And if the issue can only be solved on a national level, and not on a state by state level, then isn’t that an argument for preemption? I hate to be a cynic, and prefer the title of skeptic, but there are a lot of reasons that ERISA preemption both exists and is valuable, and it is not the bogeyman preventing health insurance in this country that many of its critics make it out to be. There are real, fundamental problems in trying to increase health insurance coverage in this country, ones that are not solved by these state acts, which, as I have discussed before, basically play at the margins without addressing the real problem - cost - that is handicapping both the ability of employers to continue to provide health insurance to their employees and the ability of Massachusetts to actually successfully pull off its health insurance experiment.
And Still Another View on Preemption and the Massachusetts Health Care Reform Act
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I’ve noted in the past that the problem with state health care reform acts mandating health insurance is that they don’t tackle the issue that is deterring employers from providing broader health insurance benefits, namely the ever increasing and rapidly escalating cost of health insurance. In response, Massachusetts lawyer David Harlow argues on his blog that incremental steps towards resolving this problem are moving forward on their own schedule, separate from state legislation mandating employer provided health benefits, and cost control will come in time. Personally, I am skeptical that governments can actually control these costs, or even significantly reduce their annual rate of increase, but I would be happy to be wrong.
Someone Else's Thoughts On Preemption and the Massachusetts Health Care Reform Act
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People with thin skins - or who can’t laugh at themselves - shouldn’t write blogs. I got a good chuckle out of this over my morning coffee this morning.
The Lessons of the Massachusetts Health Care Reform Act's $400 Million Shortfall
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There’s a lot to be said about the preemption issues raised by state health insurance mandates and the assumptions that underlie the beliefs of those who argue that ERISA preemption should not be allowed to prevent states from experimenting with acts intended to remedy the problem of the uninsured. Articles like this one here, however, suggest the naivety of some of those assumptions, such as the idea that states are likely to really manage the problem in a more effective way than employers, operating under ERISA preemption, have managed to do so to date. Moreover, the article, in its discussion of the huge and apparently unexpected, or at least unplanned for, increase in the cost of insuring the uninsured under the Massachusetts Health Care Reform Act, really drives home a point I have made in other posts, that the problem with these statutes is that they do nothing to address the real problem affecting employer provision of health benefits, namely the extraordinary cost of providing those benefits; as the article reflects, Massachusetts’ much lauded experiment doesn’t target that at all, but simply shifts the pockets that will have to fund those extraordinary and ever increasing costs. And finally, if you look closely at some of the numbers discussed in the article, you come to understand the answer I have given to people who have wanted to know why no one has yet challenged the Massachusetts act as preempted; as I have told people, it’s not because the act isn’t preempted, it is instead because the financial costs to employers have yet to warrant such a challenge. The article explains that the state is anticipating some 400 million dollars in additional costs to provide health insurance under the statute to the uninsured, costs to be assumed by the taxpayers rather than by businesses through any obligation under the mandate to provide insurance; in this way, the Massachusetts statute is much more a mechanism - Trojan horse, some might say - to transfer the costs of the uninsured onto the tax rolls, rather than, by employer mandates, onto the business community. I think it is a safe bet that, had the act been drafted to transfer more of the health insurance costs onto the business community rather than onto the state taxpayers, you would have quickly seen a preemption challenge mounted. And finally in this regard, note the article’s reference to the amount of money that employers have paid to date for not providing the health insurance required by the statute, which is the underwhelming amount of 5 million dollars. I suspect Wal-Mart spent not too much less in legal fees to get the Maryland Fair Share Act overturned, and those aren’t numbers, spread across an entire business community, that are likely to provoke any economically rational business person to want to fund litigation over the act. Start to see those numbers creep up substantially, however, and you can safely plan for a preemption challenge.
Niche Insurance and Government Investigations
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I had two different, perhaps more substantive things in line to talk about today, but I think I am going to push them back to later in the week, to instead pass along a highly entertaining article (at least to people who really like the ins and outs and oddities of the insurance industry) that showed up on my doorstep in yesterday’s New York Times. I have talked before about a number of themes in insurance coverage, including niche coverages and the difficulty for individuals of funding their own defense against complicated lawsuits; both of these themes came together right here, in this recent post about directors and officers coverage and in particular concerning a niche product targeted solely at protecting former directors and officers.
This story here out of the New York Times is perhaps one of the more remarkable tales of niche insurance coverage, and tells the tale of a specialty insurance agency that exists solely to sell insurance to CIA, FBI and similar government employees that covers them against lawsuits and government investigations arising from their work. I have to admit, I have always wondered about this a little bit, as congressional investigations and government prosecutions of a variety of federal law enforcement and similar employees have piled up over the years, a curiosity that may have begun all the way back when I used to see Robert McFarlane, implicated in the Iran Contra affair, in the hallways of the office building where I had one of my first post-collegiate jobs. The article explains that the policy covers tens of thousands of government employees, is relatively inexpensive and provides “up to $200,000 in legal fees for administrative matters like investigations by Congress or an inspector general, or cases involving demotion or dismissal [plus] [a]n additional $100,000 is available for legal fees in criminal investigations, and the policy pays up to $1 million in damages in a civil suit.”
An insurance/business note that you should not overlook in the article is that the product really drives home the impact of risk sharing across a broad insured population. The coverage, which provides a fair amount of dollars of protection (although, as the article points out, probably nowhere near enough to cover the legal costs generated in the highest profile cases), costs each insured only a few hundred dollars, a pretty big gap between premium and the potential payout. However, when you note that the policy is purchased by tens of thousands of employees but only a tiny handful ever end up needing the specialized coverage it provides, you can see how the numbers work out to allow the insurer to provide such coverage at such a low and manageable cost for the insureds.
Insurance Coverage, Tuberculosis, and that Guy on the Plane
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You see, everything at the end of the day is about insurance. Risk sharing that allows smaller businesses to move forward with operations, plaintiffs’ decisions over who has enough insurance to warrant suing, even the economic dislocations of climate change - everything comes back to the insurance industry. Here’s a great example, and an amusing one. Remember the lawyer who flew across the Atlantic after being diagnosed with tuberculosis? And who naturally was thereafter sued by other passengers who became quite worried about what they might have picked up from the guy? (Your faithful correspondent here moves three rows away on a commuter train if someone even sniffles, so I certainly have sympathies for those other passengers.) Well, he notified his homeowner’s insurer of those cases and the insurer is paying to defend him, but it has now launched the real battle, namely litigation over whether or not there is coverage for these claims against him; if there isn’t, he’s stuck paying any judgments or settlements. You can find the whole story here. A couple of interesting side points. First, there is no doubt the insurer is, as the article suggests, taking the right tack here; the proper approach is to defend and simultaneously ask a court to declare whether there is any coverage. This is particularly so in this instance because of the second side point, which is that, on first glance, those coverage defenses of the homeowner’s insurer noted in the article aren’t the best; without even knowing the facts beyond what I’ve read in the media in the past or reading the complaint, I can spot the potential holes in their arguments from here. When coverage is particularly debatable, it makes no sense for an insurer to simply deny coverage and leave the insured on its own, because of the potential exposures - a long story, best saved for another day - that can attach to the insurer if it is wrong in deciding that there is no coverage; rather, the best tactical play in that situation is to defend the insured, and to not deny coverage unless and until a court agrees there is no coverage. The downsides to the insurer in that situation are nothing more than the costs of litigating the coverage question and possibly, depending on the jurisdiction, having to pay the insured’s costs in the coverage litigation if the court decides there is coverage; that’s a heck of a lot cheaper than the potential liabilities, including bad faith judgments, that can attach to an insurer that simply denies coverage on its own, and is later found to have been wrong.
On Directors and Officers Insurance
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Earlier in the week, I promised to pass along over the course of the week some interesting articles on insurance coverage issues that I had been reading, and here we are, the end of the week already, and I haven’t done so, having been waylaid along the way by breaking news like the Ninth Circuit’s stay of the ruling that San Francisco’s health insurance ordinance was preempted. So in this post, I will pass along two more of the articles, both having to do with directors and officers insurance, a topic that I have mentioned in the past often raises problems for practitioners and clients, particularly in terms of understanding the scope of the coverage it grants and the nature of its exclusions. The first is this outstanding article here, laying out a road map for in-house counsel at publicly traded corporations over how to protect themselves from the various liability traps that have appeared for such corporate lawyers by navigating them through the ins and outs of the insurance coverage that may be available to them in that role. The article explains that many corporate counsel faced with problems from backdating inquiries and similar exposures will not in fact be protected by the directors and officers insurance purchased by their employers, and instead need to have their companies purchase a stand alone policy directed at covering the unique risks faced by in-house counsel to protect them against all of the investigations and lawsuits written up on the front pages of the business pages.
The second is this terrific interview here, in the Metropolitan Corporate Counsel, that really breaks down the structure of directors and officers insurance and the variables at play in obtaining it. One of the things I liked best about the article is that it reinforces the same point I often make when discussing directors and officers coverage and protection for people serving in that role, as I did here in this post, which is that directors and officers need to protect themselves by creating two separate lines of protection: first, they need to be guaranteed indemnification under the company’s by-laws against claims filed against them in their role as directors and officers, and then second they need to be protected as well by directors and officers insurance purchased by the company. In that way, the indemnification agreement can protect them against claims that might fall into exclusions or other gaps in the directors and officers coverage, thus keeping them free from personal exposure, and the insurance can protect them should the company go belly up or otherwise fall down on its obligation to indemnify them.
And this last point leads me to another topic that has crossed my path recently, namely the need to make sure that former directors and officers of public companies can rest their heads comfortably at night, without tossing and turning worrying about the possibility that their prior service as corporate officers might come back to haunt them, in the form of being named as a defendant in suits based on events that took place while they served on a board. Given the headlines in the papers and the increased risks of such service, one can understand how former board members may be concerned about personal liability after leaving a board. One answer to their concern is policies targeted directly at the risks and exposures of retired or former directors and officers, written for the express purpose of insuring them against claims instituted after they stop serving in that role. In much the same way that, as noted above, directors and officers insurance for current board members provides an additional level of shielding from potential personal liability, this product does the same thing for board members after they stop serving; one company providing the product, and more information on this type of insurance product, is here.
The Ninth Circuit on the San Francisco Health Insurance Mandate Ordinance
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Workplace Prof has the story here of a three judge panel out of the Ninth Circuit staying the district court ruling that the San Francisco ordinance mandating the provision of health insurance by employers was preempted, and provides a link to the ruling. I second the surprise he describes in his post over the conclusion that the ordinance could legally be found to not be preempted, but in light of the media coverage of the appeal over the last week or so that I have been seeing indicating that the particular three judge panel hearing the action for a stay appeared critical of the lower court ruling, the fact that the stay itself was imposed doesn’t stun me.
The panel’s ruling consists primarily of drawing distinctions among the facts of leading Supreme Court preemption decisions and the details of the San Francisco ordinance, rather than of any sweeping view of preemption that would place mandates and fair share acts outside the scope of preemption, something which would set up a direct conflict with the Fourth Circuit’s ruling in Fielder, which found the Maryland Fair Share Act to be preempted. The distinctions that the panel relies upon are in many ways in the eye of the beholder, and it would be just as easy to argue the opposite, that the similarities of the San Francisco ordinance to the facts of the leading preemption cases mean that the ordinance should be understood to be preempted. The ruling also reflects, although obviously the panel is controlled by Ninth Circuit law in areas not yet passed on by the Supreme Court, a heavy reliance on Ninth Circuit decisions that do not necessarily reflect where this issue will end up if and when the Supreme Court finally weighs in on the preemptive effect of ERISA on state health care mandates and fair share acts, something which one can bet will happen sooner rather than later if the eventual ruling out of the Ninth Circuit on the San Francisco ordinance sets up a direct conflict with the Fourth Circuit’s ruling in Fielder.
The Three Rules of the Tripartite Relationship
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We’ve been a little ERISA heavy here for awhile now, somewhat to the detriment of the insurance litigation half of the blog’s title, simply because of the range of interesting events that have taken place under the ERISA rubric lately. While all that was going on, though, a particularly good collection of articles on different insurance coverage topics have crossed my (electronic) desktop, and I want to pass them along as well; I will try to scatter them in with other posts over the next week or so, until I exhaust them.
One I wanted to pass along is this article here, by two prominent policyholder attorneys, on the tripartite relationship, which concerns the potentially conflicting loyalties of defense counsel appointed by an insurer to defend an insured against a lawsuit that may or may not be covered. This problem stems from the fact that insurers are often obligated to provide insureds with a defense against cases that may turn out, upon further development of the facts of the case, to not actually be covered, in which event the insurer will not have to cover any judgment or settlement, and might even be entitled to recoup from the insured the amount paid to defend the case in certain circumstances and jurisdictions.
Although there is much written and said about the tripartite relationship, the whole topic comes close to falling into the much sound and fury signifying nothing realm, although not completely because there is some substance to the issue, only not as much as lawyers like to make it out to be. The whole issue can really be boiled down to three handy rules of thumb. First, the defense counsel appointed by the insurer must focus only on defending the case as though the insured were his or her only client, and cannot muddle about between the insurer and the insured over any coverage issues that remain outstanding. Second, the insurer needs to retain separate lawyers, in the role of so-called coverage counsel, to take the factual information developed by defense counsel in defending the case and evaluate how it affects coverage. And third, an insured must remember that the defense counsel is solely going to defend the case, without regard to coverage disputes and is not looking out for the insured’s interests with regard to whether any recovery in the case will actually be covered; the insured has to instead hire independent coverage counsel of its own to take steps to parlay the evidence developed by the defense counsel into a commitment of coverage by the insurer.
ERISA Preempts Another One: Striking Down the San Francisco Ordinance
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Well, I have talked before about dog bites man stories, and here’s another one. The United States District Court for the District of Northern California has now ruled that San Francisco’s ordinance requiring certain health care expenditures by employers was preempted by ERISA. The Workplace Prof sums up the ruling here, although he is wrong that there is any disjunct between the court’s recognition that ERISA protects plan participants and the court’s finding that the ordinance is preempted; ERISA does impose certain statutorily created protections for plan participants, as the court recognized in finding the ordinance preempted, but simultaneously imposes certain corresponding protections for those who sponsor plans, such as employers, including that the federal statute alone is to govern their obligations, which is the whole point of the statute’s express and broad preemption provision.
Anyway, the ruling is here, and don’t say I didn’t warn you, as I did here, that this statute was doomed to be preempted. These first generation attempts to impose health insurance mandates on the business communities, such as this San Francisco ordinance, and the New York local ordinance discussed here, and the Maryland statute struck down by the Fourth Circuit, simply universally run afoul of the preemption provisions of ERISA. Maybe states will do better when they move onto some sort of health insurance 2.0 approach that accomplishes the same goals in a framework that does not impose administrative and fee obligations on employers - which are the consistent failings of all of the statutes and ordinances to date that have been struck down or eventually will be on grounds of ERISA preemption - but I will believe that when I see it.
One thing of particular note that caught my attention in the court’s ruling in this case, by the way, was its discussion of how the statute ran afoul of ERISA preemption in light of the Fourth Circuit’s ruling in Fielder, which struck down Maryland’s Fair Share act as preempted. As I have discussed before, I believe that the Maryland legislature enacted in that instance about as bad a statute for purposes of trying to avoid ERISA preemption as any advocate of state fair share and health insurance acts could have envisioned, and thereby created a leading ruling that could not help but lead to the preemption of many subsequent state and local health insurance ordinances. This case out of the Northern District of California is a perfect example proving my thesis; while the San Francisco ordinance would likely have been struck down as preempted on its own accord in any event, having the Fielder ruling in play made doing so easy for the court.
You know, much of the progressive legal developments of the last forty years, from civil rights to the environment, was driven by pressing test cases that were carefully selected to move the ball forward; allowing the Maryland statute to have become the bellwether on this topic was, for those clamoring for state regulation of employer provided health insurance, the exact opposite of those historical examples.
Age Discrimination, or a Rational Response to Economic Factors?
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Take a few days off, and news just keeps on piling up. In the next few posts, I am going to try to pass along some of the more interesting events, articles, court decisions and stories that crossed my desk over the past several days, starting with this one, a story out of the New York Times today that does an admirable job of explaining a new regulation out of the EEOC allowing employers to provide different health benefits to retirees under 65 than to retirees over that age. The idea behind the regulation is that employers ought to be able to move retirees eligible for Medicare into that program and off of their books, and at the same time, be encouraged to maintain benefits for younger retirees -who are not eligible for Medicare - by knowing that they don’t have to pay for medical benefits to the same extent for the class of older retirees. This is still more of the playing at the margins of the health insurance crisis that we also see, as I discussed here for instance, with state fair share acts; the real problem is the cost to employers of providing health insurance benefits, and steps like this regulation are directed only at making a bad situation a little better, without addressing the fundamental economic problem that creates the need for these half-steps, namely the extraordinary cost to employers of providing health insurance to employees and retirees.
California, Fair Share Acts and Preemption: Have We Learned Anything At All?
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I’ve got a few things lined up this week to talk about, running from long term disability benefits litigation to avoiding ERISA litigation to subprime mortgages, but first I am going to veer off of my planned course to pass along and comment on a pair of interesting posts that showed up in my in-box today. They are both on the subject of California’s interest in trying to enact a fair share type statute imposing employer mandates and requiring the provision of health insurance, and you can find them here and here. I have talked before about the fact that California, like other state and local governments who tread this path, are likely walking right smack into the buzz saw of ERISA preemption, and much like the legislature of Maryland did in enacting its fair share act that was struck down by the courts, appear to be simply sticking their heads in the sand when it comes to this issue. That’s really the point of the two posts, which ask why the state government in California is moving in this direction without anyone even addressing this issue or trying to resolve it preemptively, before enacting a law that parallels laws that have been struck down from coast to coast (see this post here and here, for instance) as preempted. I asked the question before about the Maryland statute, the so-called Wal-Mart act, as to how the Maryland legislature could have gone down this road without having considered the ERISA preemption problem in advance, and these posts suggest that California is doing the same. Perhaps I need to create a category over on the left side of this blog titled “those who ignore the past are condemned to repeat it,” for the sole purpose of covering the seemingly endless examples in the area of health insurance of one state after another repeating the earlier mistakes of other state governments.
One of the posts on California’s efforts in this regard, namely this one here, suggests that some elements of the state government effort believe that the state can craft a statute that will not run afoul of ERISA or be preempted by ERISA. I am pretty skeptical that this is anything more than whistling past the graveyard. The closest I can come to an example of a state fair share type act that has not yet been found preempted is the Massachusetts health care reform act, and in my view, the only reason that hasn’t been declared preempted yet is that its burdens on employers are sufficiently limited at this point that no one has been motivated to challenge it in court. If anyone thinks that the entire business community (who, in the clever words of the New Yorker, have been unofficially deputized to carry the costs of health insurance in this country) would take a pass on this as well and allow a bellwether state like California to enact such a statute without it being challenged, I’ve got a bridge in Brooklyn that I’d like to sell you.
State Mandates and Health Insurance Pricing
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Well now, this morning I came across this interesting post here, on the State Policy Blog, comparing health insurance pricing in one semi-unregulated state insurance market (Colorado) and in a state, Massachusetts, with a state mandate requiring health insurance. As you can see from the post, the numbers show pricing is significantly higher in Massachusetts, which obviously now has a health care reform act in place that effectively requires employers and individuals to purchase health insurance, than it is in the unregulated portion of the Colorado market. The author’s intent is to demonstrate that state mandates and state regulation drive up pricing, but I am not convinced that the simple comparison of pricing demonstrates this at all. Initially, I can’t vouch for the actual data, or for the author’s characterization of the Colorado market in comparison to the Massachusetts market. But even if you take the numbers at face value, they threaten to prove nothing more than the truth of the old saying that there are three kinds of lies - lies, darn' lies and statistics. This is because, as discussed in prior posts such as this one, Massachusetts has very high costs of actual medical care compared to other regions of the country, for reasons that may very well be unique to Massachusetts and possibly as well to the few other areas of the country that, like Massachusetts, have a particularly high concentration of major teaching hospitals. Its been years since I have been to Colorado, but I don’t think, to my recollection and on my general reading, that it’s health care and health insurance market fits that description. As a result, comparing Colorado health insurance pricing to Massachusetts’ health insurance pricing is simply comparing apples to oranges - or maybe, given the states we are talking about, to cranberries - and tells you nothing about the effect on pricing of state mandates such as the one recently enacted in Massachusetts. That said though, it’s an interesting question how state mandates impact pricing compared to markets without state mandates in place, and I would love to see a carefully constructed economic study on the subject. Anyone seen any? If so, I’d love to see it.
Is It Just Plain Rational for Insurers to Pull Back from Coastal Markets?
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Anyone interested in the topics of this blog is probably familiar with the media coverage of homeowners insurers raising rates and/or simply withdrawing from writing homeowners insurance in coastal regions, including not just in the traditional hurricane regions of the south but up through New England as well. Many stories are replete with sturm und drang about the issue, ranging from political criticism of insurers to questioning of the companies’ motives. Studies like this one here, however, suggest that it is instead entirely rational for insurers, who should have a long term perspective in mind, to substantially reduce their exposure to coastal risks. The long term potential loss exposure in those markets is clearly growing exponentially, and it would be fundamentally irrational for insurers not to recognize and respond to it.
I have written before about the idea of insurance and insurers as leading indicators, and that is what you are seeing in this scenario as well. If insurers are unwilling to expose themselves to the increasing risk posed by coastal development in the era of global warming, then it may be that they are on to something, and the political sturm und drang should be directed at ameliorating the risks they are forecasting and trying to avoid, rather than at them for doing so.
Dickie Scruggs
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The media is ablaze with discussion of this whole Dickie Scruggs indictment/bribery circus. I don’t expect I am going to have much to say about it - ever -on this blog; not to put on airs, but although insurance is in the title of this blog, I try to focus the subject matter on substantive insurance issues, and I don’t think this qualifies. But like most people, I can’t take my eyes off a good car wreck either, and like many lawyers, I am fascinated by the story. Bribe a judge? And not only that, but to get him to send something to arbitration? Excuse me? But really, the only thing I wanted to say was that for those of you who are interested in this very interesting event, far and away the best, most thorough, most nuanced and most objective coverage anywhere is by David Rossmiller on his blog, Insurance Coverage Law. You can tell from his coverage that David was a professional journalist before becoming a lawyer before becoming a blogger. This story is right in his wheelhouse - it’s a breaking journalistic story (much more than it is a legal story), that calls for an in-depth knowledge of something David has been following closely on his blog for a long time, the Hurricane Katrina insurance coverage litigation.
High Health Care Costs and the Impact on Fair Share Acts
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Okay, I mentioned on Friday that I had come across some other interesting blogs and sites over the last few weeks that I wanted to pass along, and that I would do so over the next few days. I jumped off track on doing that right off the bat with this morning’s post on insurance and prior knowledge issues, but now I will return to one of those other blogs I wanted to pass along.
I have talked a lot about the Massachusetts Health Care Reform Act, and one of the things I discussed recently was Professor David Hyman’s article in which he pointed out that the "Massachusetts Health Care Reform Act has problems [unique to it] that stem from the particularly high cost of health care in Massachusetts relative to the rest of the country.” On this point, John Aloysius Cogan Jr., the Executive Assistant for Policy and Program Review for the Rhode Island Office of the Health Insurance Commissioner, recently had a terrific post on his Regulating Health Insurance blog that breaks down the component costs of health insurance and analyzes what elements are driving the high cost of health insurance. Echoing Professor Hyman’s point that it is the high cost of the health care itself that is problematic, John carefully documents that the high cost of health insurance is in fact driven by the cost of medical care itself and not, as is frequently argued and assumed by critics, by insurer profits. It’s an interesting analysis that fits well in any consideration of the merits and problems of state health insurance reform acts. Of course, the willingness of the public and the political class to accept John’s assertion that the driving factors in high health premiums are the costs of medical care itself isn’t helped by stories like this one here.
Insureds, Prior Knowledge and Insurance Coverage
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One of the more ambiguous and gray areas in insurance coverage law is the question of when an insured is or should be aware that a claim is on its way. The law recognizes that this can certainly occur at some point before the insured actually is handed suit papers by a process server, but the law is certainly not crystal clear as to when that is. This is a question of particular importance for insureds because various contractual policy terms in a policy and various common law principles read into the insurance relationship can all preclude coverage if that date is deemed to be before the effective date of the insurance in force when the insured actually is served with the suit papers. For instance, many policies contain terms precluding coverage if the insured knew or should have known of the potential claim before a policy took effect and, for that matter as well, failure to disclose an expected claim in applying for a policy can result in the policy being voided for misrepresentation in many jurisdictions.
Of interest on this topic is this article here at Law.com concerning whether attorneys, covered under professional liability policies, are on notice in this manner whenever an unhappy client complains about a case or, if not whenever the client complains, how much complaining is necessary for the insured to be aware that a claim is likely and to lose coverage as a result if and when that client does file suit. A new declaratory judgment action filed in New Jersey seeks to answer that particular question. Of particular interest to me, however, is the fact context in which the complaining arose. It concerned a client unhappy with the terms of a settlement negotiated by the insured attorney. It’s a cliche of mediation, uttered by every mediator trying to push two unhappy parties to reach agreement on a resolution, that “a good settlement is one where both sides are unhappy.” Well, if that’s the case, then does the complaining after the fact mean that the lawyers involved are always thereafter on notice of a potential claim that they have to report to their malpractice insurers? It would be kind of silly to have a legal rule holding that the usual griping that often accompanies settlement has to be reported to the lawyers’ insurers to protect their rights to coverage in those one out of a million times that the complaining eventually morphs into a malpractice suit. Admittedly, this is something of a deliberately far fetched example, but it does point out the practical considerations that have to be factored into the question of how far in advance of the filing of suit the insured’s obligations can attach. Too far in advance, and the legal rule creates an unworkable, burdensome scenario for all involved, including insurers who would have to process multiple and unnecessary notices concerning many events that will never lead to suit; not far enough in advance and insurers lose the protections those policy terms and common law doctrines were intended to provide.
Pay or Play Acts: There's No Free Lunch
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I have written before that the underlying structural problem with fair share and similar acts, like the Massachusetts Health Care Reform Act, that seek to mandate the provision of health insurance by employers is twofold: first, they play at the margins of a problem that is fundamentally about the base economics of health care costs and, second, they are walking advertisements for the law of unexpected consequences. Two stories that showed up on my (electronic) doorstep yesterday illustrate this beautifully. In the first, Healthcare Reform: The Economics of Pay or Play Employer Mandates, two Cornell University economists explain that, as expected, mandating the provision of health insurance will reduce employment levels among the exact population of lower waged - and presumably lower benefitted - workers that the statutes are intended to help by mandating that health insurance be added to their employment compensation. The authors further argue, however, that the statutes are “blunt instruments” for targeting the problem of the uninsured, as they have negative impacts on employees who already have health insurance through other sources, including by reducing employment levels of such employees. The point, in many ways, of this and other criticism of these statutes is that they look good on the surface, and certainly score political points in some instances for those who have championed them, but in practice they are nowhere near a panacea for the growing problem of the uninsured, a problem I have explained in past posts is one of fundamental economics related to the extraordinary costs that providing health insurance imposes on employers. And that leads directly to the second story of interest, from yesterday’s New York Times, explaining how Wal-Mart, the direct target of some of the pay or play mandates, such as the one enacted in Maryland, having defeated in court statutory attempts to force it to increase its health insurance spending, is beefing up the level of health benefits provided to its employees on its own as being good business and sound economics. The problem with health insurance and the issue of the uninsured is about fundamental economics, and these pay or play mandates, because they can’t repeal whatever laws exist in the dismal science, can’t strike at the root causes of the issue.
Bad Faith, Sureties, Insurance Coverage, and Punitive Damages: Who Gets the Check When the Misconduct Ends?
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Here’s a neat little story out of the Massachusetts Lawyers Weekly today on a Massachusetts Appeals Court decision holding that the surety on a construction contract does not cover, under the construction bond it issued, punitive damages awarded for the bad faith conduct of a principal of the construction company covered under the bond. Although turning on the specific language of the bond and what losses it extended to, the ruling parallels the common issue arising under insurance policies of all types as to whether a policy’s coverage extends to punitive damage awards and, in fact, whether public policy even allows parties to insure punitive damages awards, an issue I discussed awhile back in some detail in this post here. The primary issue in those cases is twofold: first, whether the policy language extends coverage to punitive damage awards and then, second, whether allowing a party to insure against such an award provides the wrong marketplace incentives with regard to corporate conduct and should not be allowed as a result.
Those same two issues were in play in this surety bond case, with the Appeals Court first concluding that the language of the bond does not extend to the punitive damages award itself, and second, that expanding the language to cover such awards would risk undermining the entire surety bond system in the state. The court’s conclusion on this issue is summed up in this paragraph from the opinion:
By its terms, then, the bond did not cover punitive damages, payment of which is payment for punishment, not for "labor, materials and equipment" [which is what the bond stated it covered]. See Gasior v. Massachusetts Gen. Hosp., 446 Mass. 645, 653 (2006) ("purpose of punitive damages has been described as punishment and deterrence rather than compensation of an injured party"); Kapp v. Arbella Mut. Ins. Co., 426 Mass. 683, 686 (1998). To conclude that the bond encompassed punitive damages would be to rewrite the agreement Travelers made with Peabody and to risk diluting through punitive awards to a few subcontractors and materialmen the "security to [all] subcontractors and materialmen on public works," LaBonte v. White Constr. Co., 363 Mass. 41, 45 (1973), that the bond is designed to afford. See New Hampshire Ins. Co. v. Gruhn, 99 Nev. 771, 773 (1983).
I can’t say I disagree with the court on either aspect of its reasoning. Standard rules of contract interpretation, properly applied, cannot support a finding that the relevant language of the bond extended coverage to punitive damage awards, and the policy reasons for not extending coverage in general to such awards is frequently compelling in insurance coverage cases, just as it was in this case.
The case itself is C & I Steel v. Travelers Casualty and Surety, and you can find the opinion itself here.
Suicide Exclusions Under ERISA Plans, and the Impact, If Any, of the Standard of Review
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There’s an interesting, if brief, ERISA case out of the United States District Court for the District of Massachusetts decided last week that enforced a suicide exclusion in an employer provided supplemental life insurance program. The court found that the evidence in the administrative record supported the administrator’s determination that the employee had committed suicide within two years of electing the coverage, and that the benefits were therefore not available because the plan excluded death by suicide in the first two years of coverage. The case itself is not very noteworthy, other than to the parties themselves of course, except for one thing that jumped out at me. Many critics of the current legal regime under ERISA complain that the arbitrary and capricious standard of review that applies to cases, such as this one, where the administrator retains discretion to interpret and apply the plan, terribly distorts the outcome of cases in ways unfair to claimants. I have argued before that I am not convinced that, in the vast overwhelming majority of cases, this is true at all. Rather, most of the time, the same administrative record that would justify upholding a denial under the arbitrary and capricious standard on the theory that the administrator’s decision is reasonable given the evidence in the record, also contains enough evidence to prove the administrator correct under a de novo standard of review, where the court makes its own independent determination of the claimant’s entitlement to benefits. This case illustrates that point yet again: while the court upheld the ruling while applying the arbitrary and capricious standard, the evidence detailed in the opinion should have led to the exact same result even if the issue were considered de novo or the case treated as simply a breach of contract case under standard common law governing contracts. Indeed, in my other hat as an insurance coverage litigator, it seems clear to me that the result here, on the evidence detailed in the opinion, would have been the same even if this policy was not controlled by ERISA and was instead simply a private contract of insurance between the deceased and the insurance company; the policy language and the facts would have led to a finding of no coverage even if litigated as an insurance coverage, rather than an ERISA, case. The case is Keiffer v. Shaw Group, and you can find it here.
Robert Kingsley, Insurance Industry Oracle
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In the first and so far last of our series of interviews with people of interest in the insurance and ERISA communities (I will do more at some point, but the interview post turns out to be the most difficult and time consuming to do well, which is probably why most people leave them to professional journalists turned bloggers like Peter Lattman at the WSJLaw blog, who do them really, really well), veteran insurance executive Robert Kingsley discussed the pace of consolidation in the insurance industry. Asked whether he saw that trend continuing, Robert noted that “there is little doubt the pace of consolidation will accelerate” and explained that in an industry, such as insurance, flush with capital, consolidation was inevitable. Robert had more to say on the subject, and you can find it here.
I am reminded of Robert’s comments by this story here in Massachusetts, that Spain’s largest insurer has now offered to pay $2.2 billion for comparatively small Massachusetts insurer Commerce, with the intention of using it as a platform to grow its business in the American market. Commerce was previously known primarily as a Massachusetts company focused on automobile insurance.
One of the interesting aspects about the news coverage of the Commerce acquisition is that the Spanish insurer, Mapfre, already operates in some 40 countries, but has a relatively small footprint in the United States and intends to use the purchase as a primary vehicle to expand its operations here. As Robert pointed out in the interview he did for this blog, insurers are making growth promises to investors that cannot be met by organic growth, which is driving the need to grow through acquisitions; that drive to grow appears to have played a large role in this purchase as well.
I Can't Believe Its Not Butter: How Many Deductibles Apply to Claims Involving a Butter Like Substance
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Here’s a tasty little tidbit for you insurance coverage junkies out there. Law.com has this interesting article on a ruling as to the number of deductibles that apply to suits alleging lung injuries from the flavoring used in manufacturing microwave popcorn. As the article explains, a New York state appeals court has found that the “supplier of the buttery substance used in microwave popcorn must pay a minimum $50,000 deductible for every worker at a Missouri plant who successfully asserts a claim that the flavoring caused lung problems or other respiratory ailments.” The issue before the court was whether certain policy language in the manufacturer’s insurance policies, which stated that the policies’ deductibles applied per occurrence, meant that one deductible applied to all such claims or instead one deductible applied to each such claim. As the article lays out the court’s reasoning, the court found that the structure of the policy language led naturally to the latter interpretation. Determining the number of claims or occurrences, including for purposes of determining how many deductibles apply, is a common problem in insurance coverage law, one that is oft litigated. The article’s presentation of the court’s reasoning suggests that the court approached this issue in an entirely appropriate manner, as it focused on the actual policy language used to reach its determination.
One View on What's Wrong With the Massachusetts Health Care Reform Act
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In yesterday’s post on Darren Abernethy’s paper on Fair Share statutes, I ended up riffing on the question of whether the Maryland legislature, by putting before the courts a particularly bad version of such a statute, had distorted the development of the law of ERISA preemption in a manner that would only hurt the cause of those who favor state health insurance mandates. I wondered whether the case law would develop differently if more balanced statutes, like the Massachusetts Health Care Reform Act, were analyzed by courts without the landscape of ERISA preemption having already been filled in by the decision holding the Maryland act to be preempted.
Critics of the Massachusetts act would likely argue that the Massachusetts version is so rife with problems that it is just as well if the legal environment, now that the Fourth Circuit has found the Maryland version of these types of laws to be preempted, is not too welcoming to such acts. That seems like a fair conclusion after reading law professor David Hyman’s piece on the “good, the bad and the ugly” in the Massachusetts statute, in which he pretty much takes the statute to task for being a poorly designed piece of state law. The Workplace Prof passed the article along, and you can find it here.
To the extent that the author’s analysis of the statute is right - that as economics and policy it just doesn’t work - it seems to support two points I have raised before on this blog concerning the Massachusetts act. First, that the questionable elements of the various acts enacted by the states suggest that federal preemption is a good thing, as a bulwark against what may be ill-conceived ideas by state governments when it comes to the topic of health insurance reform. And second, that the problem with these types of acts is that they play at the margins, and neither can nor do address the real cause of the problem of the uninsured, namely the incredible - and ever increasing - costs to employers of subsidizing health insurance in this country. This second point is one that appears to animate Professor Hyman’s piece, as he reflects on the fact that the Massachusetts statute has problems that stem from the particularly high cost of health care in Massachusetts relative to the rest of the country, as well as on the fact that the statute’s mandates are distorted by the high rate of health care inflation.
Preemption of Fair Share Acts: Did the Maryland Legislature Manage to Set The Whole Issue Back a Thousand Years?
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Here is Darren Abernethy’s law review note on preemption of state fair share acts that mandate that employers provide certain levels of health insurance. His note, which I have discussed before, is very well done, and Darren has generously allowed me to share it here in full. As readers may recall from earlier posts, Darren discusses the fact that the Maryland Fair Share Act, which as he points out in his note targeted Wal-Mart, was found by the Fourth Circuit to be preempted, and Darren proposes ways to create statutes of this type that might avoid preemption. It’s a terrific note, and in particular his history of the preemption jurisprudence is an excellent tutorial on that particular issue, and I myself will be quick to cite it on that point when briefing the issue in the future.
One particular aspect of Darren’s note struck a chord with me, and provoked a somewhat chilling thought. In discussing ways to craft these types of legislation that might avoid the preemption problem, he recommends - in essence - that such legislation be broad based, which is the opposite, in many ways, of the Maryland Fair Share Act, which I have argued before can be seen almost as a punitive statute aimed at only one employer. We all know the old saying that bad facts make bad law (or is it hard cases make bad law?), and the question that arises is whether that is a fair understanding of the Fourth Circuit’s Fielder decision that found Maryland’s Fair Share Act to be preempted. The Maryland statute clearly aimed at only one employer and was drafted to avoid implicating favored large Maryland employers such as Johns Hopkins Hospital, and that aspect of the statute can be seen in the district court and Fourth Circuit rulings as at least influencing, and possibly animating, the holdings by those courts that the statute was preempted. Might things have come out differently in the district court and the Fourth Circuit absent that factor? The statute might still have been found to be preempted, but it seems to me that those courts may at the least have been more open - even if still finding the act to be preempted - to nudging the law of preemption along in a way more favorable to these types of statutes had the courts been presented with a better and fairer looking attempt to mandate health insurance benefits. In essence, would the development of this area of the law be a little different if the leading court of appeals analysis of such a statute were, for example, of Massachusetts’ somewhat problematic but nonetheless broader health care reform act, than it will be given that the Fielder decision striking down the Maryland act now holds place of pride in that area of the law? Did the Maryland legislature, by putting one of the worst possible versions of such a statute before the courts, prevent the law from moving in a direction that might have helped such statutes avoid preemption?
Electronic Discovery and the Calculus of Arbitration
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I have written before about electronic discovery and the amendments to the federal rules governing that discovery, and my theme has often been that the courts need to develop a jurisprudence concerning electronic discovery that carefully weighs the expense of the discovery versus the need for it before granting extensive (and expensive) electronic discovery. In this article here, DLA Piper partner Browning Marean points out that the expense of electronic discovery can often be so burdensome that it forces settlement without regard to the merits of a case; as he puts it in a very clever turn of phrase, “the possibility of extortion by discovery is too real a prospect.” I have said it before and I will say it again: we are at the opening phases of the development of the law of evidence and discovery in this area, and the courts need to establish a body of precedent governing this type of discovery that prevents electronic discovery from having this effect.
At the same time, I have discussed as well on this blog the consensus that arbitration is a poor forum for most complex cases and is often not an improvement - in terms of costs, efficiency or outcome - over litigation. The electronic discovery amendments to the federal rules may be in the process of changing that. Unburdened by the federal rules themselves or the developing case law concerning electronic discovery, an arbitration panel is free to fashion much narrower electronic discovery and to impose much stricter controls over it than courts are currently tending to impose,
all on the thesis that a large part of an arbitration panel’s job is to effectuate arbitration’s promise of cost effective dispute resolution. As a result, as electronic discovery costs go up in federal court, the comparative cost advantage of arbitration - which has been disappearing over the years - increases, possibly changing the calculus for litigants over whether or not to agree to arbitration.