More on the Arthur Andersen Ruling
0 Comments
Permalink |
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.
What Happens When ERISA and the Law of Insurance Coverage Collide?
0 Comments
Permalink |
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.
A Couple of Other Perspectives on LaRue
0 Comments
Permalink |
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.
Insureds, Prior Knowledge and Insurance Coverage
0 Comments
Permalink |
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.
Suicide Exclusions Under ERISA Plans, and the Impact, If Any, of the Standard of Review
0 Comments
Permalink |
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.
All You Need to Know About Anti-Concurrent Cause Policy Language, Hurricane Katrina and Insurance Coverage Law
1 Comments
Permalink |
What is the sound of the internet clapping? Who knows. A healthy round of applause is due, though, for prominent insurance coverage blogger David Rossmiller, who has spent the last several months on his blog -aptly named the Insurance Coverage Law Blog - detailing and dissecting the insurance coverage disputes arising in the aftermath of Hurricane Katrina. Really, probably no one has covered that aspect of the disaster more thoroughly and consistently, in any media. Appleman on Insurance has now just published his 42 page treatise on the history and application of the anti-concurrent cause language in insurance policies, with a focus on its application to losses arising from Hurricane Katrina. David has now posted the article on his blog, right here.
David, incidentally, somehow manages to practice as a partner in a Portland firm, post to his blog every single work day (even on vacation), and still write scholarly articles like this one. Either he doesn’t sleep, or the three hour time difference between where he is - Oregon - and where I am -Boston - somehow gives him a 27 hour day.
Leased Employees, Insurance Coverage, and the Fun House Mirror
0 Comments
Permalink |
I have a high school education in physics, but I seem to remember that physics teaches that for every action, there is an equal and opposite reaction. One of the things I like about insurance coverage litigation and counseling is it is much the same; things happen in the real (i.e., non-insurance) world, and the world of insurance coverage reacts. In this way, insurance coverage law and the industry itself act as almost a fun house mirror of events in the real world, mirroring, but with some distortion, what is going on out there.
This article here, on the insurance coverage issues raised by the use of leased workers, is a perfect case in point. On the one hand, you have the real world, in which companies seek to reduce labor costs by leasing workers, while on the other hand, you have a legal regime starting to fix the spot at which liabilities related to leased workers should rest. As the writer points out, these events require companies to realign their insurance coverages, or otherwise risk absorbing unexpected, uninsured, potentially significant losses.
The author addresses “a recent decision by Judge F. Dennis Saylor IV of the United States District Court in Massachusetts [that] raised a red flag for employers seeking to reap [the] benefits” of reduced costs by the use of leased workers. In the case at issue, an injured leased employee was not barred by Massachusetts’ workers compensation statute from suing the company that was making use of his services, but, at the same time, that company did not itself have coverage under its general liability policy for claims brought by such leased workers. The claim, as a result, essentially fell into the gap between workers compensation insurance and the company’s liability coverages, leaving the company itself fully exposed to the risk of injury to the leased employee.
And returning to my point about how insurance coverage and insurance policies end up reflecting back what is going on in the real world, the author explains the cause of this phenomenon, noting that:
a CGL policy usually contains an “employer exclusion,” which excludes injuries to the employer’s employees sustained within the scope of their employment for their employer. The “employer exclusion” operates in a fairly straightforward manner when the injured employee was hired directly by the employer and is a traditional employee of the employer. The exclusion becomes more complicated when the injured worker is a person who was leased, furnished or provided to the employer by an employee leasing firm. Due to the popularity of this type of alternative staffing arrangement, the typical CGL policy includes provisions stating the exclusion applies to “leased workers.”
So, at the end of the day, as companies shifted to leased workers, their insurers shifted right along with them, preventing the risks of those workers from being passed onto them, unless, as the author of the article points out, the company is willing to pay additional premium dollars to obtain coverage of those leased employees.
Insurance Coverage for Pension Plan Fiduciaries
0 Comments
Permalink |
There is an interesting interrelationship between the two primary subjects of this blog, ERISA litigation and insurance coverage, and one that I had not really thought much about until Rick Shoff, who works with Mike Pratico over at CapTrust Financial Advisors, raised it in a conversation recently. As I have mentioned in the past, Mike and his colleagues at CapTrust serve as fiduciary advisors to retirement plans and their sponsors, and he and Rick commented to me about the issue of errors and omissions insurance and the necessary amount of coverage for fiduciary advisors.
Two points came out of our conversation that I thought I would pass along. First, what is the appropriate amount of coverage for a fiduciary advisor under its E&O insurance? What should the relationship be between the limits selected and the amount of assets in the plans that the advisor works with? Obviously, the limits can’t match the asset amounts, as any good advisor is likely advising on plans with assets far higher than the amount the advisor could purchase in E&O insurance, at least not without paying every penny the advisor earns over to the insurance company as premiums (and even then, I doubt limits that high could be obtained). It also would not be necessary, since an advisor’s potential exposure to a lawsuit undoubtedly would never equal the total amount of the assets in a particular plan, but instead would equal only some portion of it that was supposedly affected by an error by the advisor. My own take is that the proper policy limit is somewhere around the amount that would make a plaintiff in a hypothetical claim consider settlement within the policy limits, without trying to obtain an excess verdict that the advisor itself would have to pay.
The second issue that popped up is the range of actors out there who are involved in providing advice to retirement plans, participants and the like. It may well be that not all such companies and consultants, even if they have professional liability or general liability insurance coverage, are actually covered for claims arising out of their role in providing such advice. Many policies, unless they are specifically underwritten to cover a professional engaged in ERISA related activities, contain exclusions for ERISA related claims that would preclude coverage of claims involving ERISA governed plans. As a result, a plan sponsor cannot assume that all advisors to a plan actually have coverage for claims arising out of their activities, and the sponsor must instead actually examine their advisors’ insurance coverage to know whether or not this is the case.
Viruses, Asbestos and Exclusions
0 Comments
Permalink |
I am fascinated by this new exclusion that is being drafted and for which approval is being sought, which seeks to exclude claims arising from viruses - not the computer kind, but things like avian flu. I understand the intent, but for any of you who, like I, have been at the insurance coverage business long enough, it ought to ring a bell in your memory about the "asbestosis' exclusions that were at play in the asbestos coverage litigation boom. For those of you who aren't old enough to remember it, the central theme was whether exclusions written to exclude asbestosis were meant to - and did - exclude other asbestos caused diseases, or instead only excluded claims where the victims actually developed the particular disease of asbestosis. For those of you who would like more than just this thumbnail history of the issue, try this case, Carey Canada, Inc. v. Columbia Casualty Co., 291 U.S. App. D.C. 284 (D.C. Cir. 1991).
If we are at all lucky, this new virus exclusion will never come into play on a large enough scale for it to matter, but if it does, one can predict deja vu all over again, to quote Yogi Berra - you can foresee plenty of coverage disputes over whether a particular virus or bacteria or ailment falls within the description of virus included in the exclusion's language, and over which ones do not. Experience suggests to me that the limits of the written word, and the outside limits on the skill set of even the best drafter of policy language, makes it awfully hard to draw a clear line on viruses within, and viruses without, the exclusion.
Business Risk Exclusions
0 Comments
Permalink |
Before it falls off the edge of my desk in the crush of next week's business, I wanted to pass along an excellent post from David Rossmiller at the insurance coverage law blog on business risk exclusions. I think anyone who has either litigated or counseled parties on claims involving business risk exclusions will recognize the frustration he references: the case law on these exclusions is generally a mess, judges often don't understand the exclusions, and the analysis presented by courts in opinions applying these exclusions often does little more than further muddy the waters.
David, however, has found a case that doesn't do that, and I agree. Unfortunately, it is out of the Eastern District of Wisconsin, and the court's website does not include recent opinions issued by the court, so I can't give you an easy, and free, link to the decision. It is out on Westlaw, however, and David has the cite.
Professional Liability Coverage for Medical Billing Errors
0 Comments
Permalink |
There is an interesting story out of Massachusetts concerning a $1.9 million settlement entered into by a physician related to allegedly fraudulent medical billing; the article is at http://www.masslawyersweekly.com/ (subscription required for the full article). In fairness and to be accurate, note that the physician denies the charges and has stated that the real problem was confusion on the part of federal officials over how certain unique services should actually be coded. I have no idea who is right, but what interests me is whether there is coverage for it under the doctor's professional liability policy. Massachusetts has well developed case law, in both the state and federal courts, concerning the limits of professional liability coverage. The case law establishes that such coverage encompasses only claims that require the expertise of the covered professional, and not those that, although part of that professional's business operations, would be common to both the professional's practice and any other business. You can review an article I published on this issue here, Download file.
In this, Massachusetts law is consistent with that of most jurisdictions. Where Massachusetts case law departs somewhat from other jurisdictions is in the specificity of its case law; both the state and federal courts have written extensively on this issue, including cases to the effect that billing and similar "back room" operations are not part of professional services for purposes of professional liability coverage (or for that matter, for purposes of professional liability exclusions).
What is interesting about this settlement, however, is the question of whether that would be different in this instance. Pure overbilling, or intentional fraud (I do not know what was the actual cause of the alleged overbilling in this case, and the physician's position is that this was not the case in this matter) presumably would fall within the province of prior decisions precluding coverage under professional liability insuring agreements for such "back office" operations. But it would seem to me the case may be different if the overbilling allegations stemmed, as the physician asserts, from judgment calls over how to code the procedure for billing purposes, because in that instance the physician's professional judgment may have been involved. A case can be made under the jurisprudence of this circuit that professional liability coverage should extend to the billing problems if they actually stem from decisions on coding that required the provider's expertise and professional judgment.
Again, I do not know what actually occurred in this case. Interesting grist for the mill, however, concerning a particular, and oft litigated, insurance coverage issue.