I like to call my shots when I can. So for instance, I am on record as saying Gunnar Henderson will win an MVP award within five years, the Orioles will win the World Series this year and that neither Bill Belichick nor anyone on his coaching tree will ever win a playoff game now that Tom Brady is retired (okay, I admit it, this last one is a “hot take” included simply in the hope of generating “clicks,” although in my defense I do note that I am the only ERISA lawyer ever quoted by Peter King in MMQB). Today I want to call a different shot, which has to do with social inflation, the increasing risk to employers of being held liable on individual employee claims of varying types and the growing dollar value of such claims.

I have written and spoken in the past on the question of social inflation and the – at least anecdotally or impressionistically – astronomical increase in jury awards in the tort context. Others have argued for a number of underlying factors, but I believe one overrides them all, namely a broad shift in social norms around wealth and, in particular, the increasing prevalence of its ostentatious display. As I have written before, I have become convinced, from my work on the insurance and bad faith aftershocks of large jury awards, that jurors have begun rejecting traditional, more conservative measurements of economic and related injury that both kept awards down and were heavily relied on by defense lawyers, in response to the increasing wealth they see paraded all around them. Years ago, a friend who moved to Massachusetts from upstate New York commented – with some but not complete exaggeration – that every third car on the Mass Pike on his morning commute was a Porsche SUV. Members of future jury pools see that dynamic too, and many more displays of wealth just like it. Given that social environment, it is not surprising that traditional formulations of damages, pitched for generations by defense lawyers in closing arguments, that placed a high six figure or low seven figure number on damages in wrongful death or significant personal injury cases are not being accepted anymore by jurors.

A similar dynamic is beginning (and this is where I am calling my shot) to display itself in the context of individual, one-off type disputes in the employment context. Section 510 of ERISA bars retaliation or similar employment actions against employees who exercise their rights under ERISA. For years, such claims –speaking impressionistically with regard to the universe of such disputes – lacked legs. As both a lawyer for plan sponsors and administrators, as well as for executives and other employees, it was always clear to me that such claims were the red headed stepchildren of ERISA and related cases. Indeed, in the First Circuit’s leading decision on deferred compensation, the Court effectively downgraded one part of the dispute from a deferred comp argument to the separate realm of a Section 510 claim. Recent decisions, such as this one, suggest that this dynamic is well on its way to changing, and that recovery under Section 510 is a risk that plan sponsors and their lawyers now have to take seriously at all times.

Two similar jury verdicts relating to executives and professionals returned by Massachusetts juries in recent weeks suggest the same, both brought in by very good plaintiffs’ lawyers who happen to be friends of mine. In one, Chuck Rodman of Rodman Employment Law and his team obtained a multimillion dollar jury verdict on behalf of a doctor who was retaliated against for whistleblowing and in the other, Matt Fogelman of Fogelman Law obtained a multimillion dollar jury verdict for a university administrator who was discriminated and retaliated against.

I don’t think these are isolated incidents but instead reflect a shift, similar to the impact of social inflation on tort verdicts, in the way juries are coming to view the power dynamic between employers and employees. The media coverage of executives who think that employees, in a full employment environment, have become either “arrogant” or “lazy” or both, and similar stories are the social inflation in this context, and I believe are leading juries to no longer give employers the benefit of the doubt in these types of cases.

My point today isn’t just to call my shot in this regard or to either praise or criticize this development, but instead to point out that employers and plan sponsors need to be aware that this is happening and temper their approaches, both in and out of court, accordingly. Any lawyer who doesn’t take this risk seriously when counseling employers and plan sponsors isn’t paying attention. Likewise, any lawyer for executives or other employees with ERISA claims who doesn’t look closely at these possible avenues to recovery also isn’t paying close enough attention.

I started writing years ago on the litigation and insurance questions posed by climate change, focusing on two particular issues, namely: (1) the role of litigation in response to climate change issues; and (2) the response of insurers to increased risk exposure as a result of climate change. When I started writing on these topics, they were outliers (kind of like the every 100 year floods that now happen three times a year in many places) but two themes were already apparent. First, that the litigation theories to be pursued were an open question but the odds were that such suits would eventually find a footing. Second, that the insurance industry’s response to those same climate change risks was more fundamental as well as predictable in the long run (and I don’t mean predictable in a bad way, only in the sense of it being predictable to anyone who understands that insurance decisions are driven by underlying underwriting concerns and, at the end of the day, hard numbers).

The news today makes two things clear. The first is that the insurance industry pullback from the increased risks attributable to climate change is not going away and is accelerating, as discussed in this excellent summary. For those of us who have always thought that responses to climate change will become more serious only once the economic impacts become clear, this clearly appears to be a tipping point in that regard. I have often written that the insurance industry is often the canary in the coal mine with regard to many aspects of American economic life, and that is clearly the case here. The second is that the courtroom, as a forum for tackling these issues beyond simply disputes between regulators and industry, is having its day in, well, court, and we will be seeing the development in the near future of a robust body of law governing this type of suit.

It is one of my favorite words – spoliation. It just slides right off of a litigator’s tongue. I have been litigating, either as direct claims over destruction of evidence or as an evidentiary inference, the concepts of spoliation for decades. If memory serves, the first time I handled it was defending a direct claim against an insurer over the insurer’s destruction, through testing, of a significant piece of evidence it had taken hold of from its insured after an accident, thereby (allegedly) interfering with the injured party’s ability to prove his tort suit against the insured. Later, I would litigate it in various forms as an evidentiary issue, including whether spoliation inferences were warranted, in a variety of types of cases. In my view, spoliation of evidence claims have been taken more and more seriously over the years, at least in Massachusetts state and federal courts, with the trend moving from great skepticism on the part of judges to such arguments, to grudging acceptance, to taking the issue quite seriously. Personally, I think both the increasing acceptance by courts of spoliation arguments and their increasing prevalence are due to the same thing, namely technology – texting, emails, Facebook, tweeting (or Xing, if that’s the new word for it) and the like have made evidence both more ephemeral than ever and also more likely to vanish (whether accidentally or deliberately).

I think this story on the subject in Massachusetts Lawyers Weekly fits this history and development to a T. You see in it the seriousness of judicial response to the issue at this point, after more than a decade of substantial judicial evolution concerning the issue, as well as the essential role technology plays in the issue.

When I recommended in a recent pair of blog posts that insurers and plan sponsors should make it a universal practice to try excessive fee class actions to conclusion, I wasn’t being flippant. I have probably spent 25,000 hours over the past thirty years advising insurers on when to try cases to conclusion – or to instead settle, or to litigate a coverage or bad faith action, or the like – and another 25,000 hours litigating a broad range of ERISA disputes. So if there is anything to Malcolm Gladwell’s claim that it takes 10,000 hours to become an expert at something, I am more than sufficiently qualified to comment on whether an insurer should take an ERISA breach of fiduciary duty action to trial. As I explained in those posts (which you can find here and here), the dynamic underlying the rise in such suits, combined with the merits of many of the actions and the realities of how courts were handling them on dispositive motions, pointed towards favoring trials over settlements.

Lo and behold, it only took a few weeks for my views to be vindicated, when Yale University prevailed at trial last week on one of the most significant ERISA excessive fee class actions ever filed – a statement I do not believe is hyperbole when one considers the plaintiffs’ counsel, the bellwether nature of the action in relation to all of the other similar actions filed against prominent universities, the brand name of the defendant, the circuit and, yes as well, the publicity. It also should not be overlooked that this was not just a trial, but a jury trial, with the jury returning a verdict in favor of the plan sponsor rather than in favor of the university’s employees, despite the concerns voiced in some corners of the ERISA bar over having a jury, rather than a judge, decide the case.

I have a lot to say, both directly on the Yale jury verdict and on its relationship to my previously expressed views on the best way for plan sponsors and their insurers to respond to these types of claims, but the place to start is obviously with the decision itself. I won’t rehash it here but will instead refer you to reporting by others who have already done a terrific job with that undertaking, such as this piece by Bloomberg Law’s Jacklyn Wille (subscription may be required) and this extensive post by the Fid Guru blog’s Daniel Aronowitz. From my end, I am most interested in addressing certain ideas and topics that the jury verdict highlights, particularly as they relate to my prior recommendation that defendants and insurers should try these types of cases to conclusion.

First, there has been extensive discussion already in the media on the question of whether it mattered that there was a jury. Some corners of the ERISA defense bar had originally expressed a decided lack of enthusiasm over the Court’s decision to allow a jury to decide the action but I never shared that concern. The worry expressed by many observers was that a jury would by definition favor the plaintiffs but this concern was, to me, always overstated – and frankly, while I don’t know, I suspect it wasn’t a huge concern for the defense team in the Yale case itself, who I suspect, like most trial teams, considered the existence of a jury to be one of many variables (although an important one) to be accounted for in bringing the case to trial.

Most experienced trial lawyers have a nuanced view of the strengths and weaknesses of both juries and judges as decisionmakers at trial, and account for that in both their recommendations to their clients and in their trial strategy. Any decision to try a case, or for that matter to place a settlement value on a case, should account for those issues, but doing so has to involve much more than just factoring in the simple question of whether the case is being tried to the bench or instead to a jury. Years of close study of verdicts as part of my practice suggests to me that the Court’s decision to submit the Yale case to a jury was likely among the less significant factors affecting the outcome of the case – I suspect that it turned out to be much less important than the concrete facts of the case or the performance of particular witnesses, for instance.

This is all a long way of saying that you should not overstate the significance of the jury to the outcome of this case, or be misled by the role of the jury here into seeing the verdict as a one off rather than as evidence that trying these types of cases to judgment – as I have suggested in the past – is the right default approach for plan sponsors and their insurers. To me, this outcome – whether it had been after trial to the bench or instead to a jury – is one more fact showing that the best industry wide approach to these types of claims is to say “prove it” and force plaintiffs’ counsel to do so at trial, without regard to whether it will be tried to the bench or instead to a jury.

Second, I was struck by the extent to which the jury ruled in favor of the defendants on the basis of causation, having found – on their special questions – that the plaintiffs had proven a breach but not that the plaintiffs suffered any losses from that breach. Causation is an interesting issue in the context of jury trials, and many, many trial lawyers have walked into courtrooms with entire defenses built solely around causation issues, even to the extent of stipulating to liability so as to be able to focus the jury’s attention solely on the question of causation.

I recorded a podcast recently with Business Breaks’ Dante Healy and financial educator Doug Lutkus on causation as a defense in the context of excessive fee and similar breach of fiduciary duty claims, and discussed my view that plan sponsors should rely more heavily on causation defenses, in different guises, and less on arguments over whether a breach has actually occurred. There are a number of reasons for this, but one of them is that it moves the conversation – whether at summary judgment, at mediation or at trial- off of the question of whether the plan fiduciary could have done something better (i.e., committed a fiduciary breach) and onto the question of whether the plan fiduciary had done enough (i.e., whether the fiduciary’s conduct as a whole, including any fiduciary breaches, was good enough that no losses should be seen to have arisen from it). Certainly, the jury verdict in the Yale action drives home the value of focusing on this defense.

A third aspect that struck me about the jury verdict, and how it relates to my prior recommendation to try these types of cases if you are a defendant, was the relative complexity of the special questions form answered by the jury. Years ago, I adopted some of the tenets of behavioral economics and particularly choice architecture for constructing jury forms of this type, the idea being that you need to be aware of whether the design of the jury questions risks pointing the jury subtly in the direction of a particular resolution. The jury verdict form here certainly did the plaintiffs no favors in this regard, and also suggests to me that plaintiffs may well have put in too complicated a case involving too many claims. It reads almost as if plaintiffs put in the same case, and asked the jury to make the same determinations, as plaintiffs would have done had they been trying the case to the bench – and if I am right on that, then that may have been a significant error. It is a lot different to ask a judge and his or her clerks to spend months drafting complex statements of facts and rulings of law on multiple and highly complex claims than it is to ask a jury to effectively do the same work only through the tool of jury questions. Plaintiffs’ lawyers in excessive fee cases may want to think very hard about whether a jury is actually preferable to a bench trial in cases where they intend to put into evidence a multitude of different theories and claims; alternatively, if they still believe, after this verdict, that a jury is preferable, they may want to think about giving the jury a much simpler case than they would have tried to a judge.

All of this considered, where does this leave my prior recommendation that insurers and plan sponsors make it a practice to try these types of cases to verdict? Keep doing it, but now with more nuance. I explained before that the growth in the filing of these types of suits will not end as long as the class action bar continues to believe there is “gold in them thar hills” and that the easiest way for plan sponsors and their insurers to tamp down that belief is to universally force plaintiffs to try these types of cases to verdict. With the significant and widely publicized jury verdict in Yale now in the bank, there is no longer a need to try every action to verdict to send the message that a vigorous defense will be put up to any such filing – the Yale verdict has already done a lot of the work of communicating that recovering on these cases will not be easy.

Instead, the better approach for plan sponsors and insurers is to build on that win by cementing the idea that recovery on these cases is and will continue to be a hard road. This means evaluating all cases for settlement or trial solely on their merits, without regard to whether, given the very high costs of defending these types of claims, settlement would be cheaper than going to trial. If the merits of the case warrant settlement at a figure acceptable to the plaintiff class, then fine, proceed to settle. But if not, then try the case to conclusion, regardless of the costs and the risks. Do this every time, and before you know it, only the most meritorious cases, filed by the best plaintiffs’ shops, will be brought – likely eliminating at least half or more of the cases that would otherwise be filed and that, on current trends, are being filed.

And before my friends in the insurance industry object, I know this goes against many principles of the industry, particularly cost benefit analysis of particular claims. Why, after all, should an insurer pay to try a case that could be settled for much less than trying the case would cost – particularly when the settlement will remove the risk of having to pay off a large verdict if the trial goes south on the defense? Likewise, I am well aware that in many states, trying a case to conclusion when a reasonable settlement offer is on the table can raise a host of potential statutory or common law bad faith issues for insurers. I am deliberately leaving these issues for another day and perhaps, more importantly, for consideration by counsel for insurers on a case by case basis.

However, if you leave those issues aside and make the goal only to put an end to the ever increasing industry exposure to these types of claims, this approach is the right one – now more than ever with the backdrop of the decision in the Yale case.

People often ask – well, sometimes ask – why I am still on Twitter, and the answer is it’s for the dog videos. But every now and then you come across something smart that is worth thinking about, and for me that happened today, when I read an appellate lawyer’s tweet that:

FWIW, I have more and more come to the view that appellate judges should write to resolve the dispute between the parties in the crispest, most understandable, and least interesting way, and then stop.

There are times when this is right, and credit to Raffi Melkonian of Wright, Close & Barger for the observation. However, there are times when this is wrong, and I am not referring to politically charged issues but instead to decisions related to certain realms of legal practice where broadly applicable guidance would be important. Note that I don’t mean to suggest that Raffi is wrong, as I highly doubt that he meant that tweet to be a categorical imperative applicable to all types of cases.

However, his comment jumped out at me because it summed up one particular aspect of my thirty years of insurance coverage practice in Massachusetts, and especially one particular frustration in the earlier years of my career. For many years, under one particular make up of the appellate and state supreme court benches in Massachusetts, decisions related to insurance issues were consistently written exactly as Raffi suggested in his tweet: they were very fact specific and thus extremely hard to treat as categorical declarations of controlling law for other types of factual circumstances. However, that was a great frustration and a limitation on their value, because disputes over particular aspects of insurance policies or practices repeat themselves time and again, only under slightly different factual scenarios. The preference of the appellate bench at that time for issuing very fact specific, closely cabined decisions made it very difficult to say conclusively that the insurance coverage rule or the interpretation of a particular policy term enunciated in a particular decision applied equally to later disputes. It gave the decisions limited significance on a day to day basis, and left open for debate in future cases issues that probably could have been foreclosed by more broadly written appellate decisions. As a young lawyer practicing insurance law at the time, it was particularly frustrating because clients would want – and you would want to provide – clear prescriptive advice on how to proceed based on prior rulings, but the narrowness of the appellate decisions – even if issued on very similar policy language – often foreclosed that and instead forced you into the role of Harry Truman’s least favorite type of advisor, one who said on the one hand this, and on the other hand that.

Over the years, that has ceased to be the case in Massachusetts with regard to appellate decisions in this area of the law, and instead such decisions tend to strike a very good balance between only making those proclamations needed to decide the case at bar and making further pronouncements to the extent needed for insurers, policyholders and their lawyers to decide how to conduct themselves in the future. That change has, in my view, soundly improved the practice of law in this realm and the business relationship among insurers and their customers.

Legal tech and blogging expert Kevin O’Keefe, of LexBlog, has thrown himself and his company into generative AI. Kevin posted recently on the story of social media content creators being replaced by ChatGPT and asked about the eventual impact such technology will have on legal jobs. His post got me thinking about a favorite obsession of mine, which is how come law firms have multiplied dramatically in size over time at the exact same time that technology made practice more efficient.

As the finance people always like to caution (usually in the fine print), past performance does not guarantee future results, but the history of the incorporation of technology into the provision of legal services has not been one of advances in efficiency leading to job losses by attorneys, although I don’t think that has been the same for support staff. Somehow, it has led, instead, to increased efficiency on the micro level with regard to the amount and sophistication of the work done by a particular attorney but not to any sort of reduction on the macro level of the size, scope or cost of legal services.

Over the last couple of decades, lawyers have incorporated a tremendous amount of technology that should – and on a case by case, use by use basis, does – give rise to tremendous increases in efficiency. From computerized legal research, to word processing, to electronic management and searching of document productions, the practice of law is nothing like the human-centric practice it was even when I started in 1990. Back then, legal research often involved a lawyer literally sitting in a library, working his or her way through bound volumes in the search for cases to support a proposition; I can find those cases now on Westlaw, Lexis or other services in a few minutes.

The change that most stands out to me as a litigator is the tremendous reduction in labor needed to review, evaluate and utilize evidence, from deposition transcripts to emails to contracts to other types of written or electronic documents. When I began as a lawyer, firms hired dozens of entry level lawyers into their litigation departments primarily to read through boxes of documents or thousands of pages of deposition transcripts and locate within them the relevant evidence; for years now, electronic search functions, knowledge management and AI tools have been doing much of this work, and the numbers of lawyers hired to work on discovery by firms has declined considerably.

Yet despite all of this – which undeniably improved the efficiency of legal services on an assignment by assignment, case by case basis – law firms have exploded in size over the same period of time that this technological leap was occurring. In 1990, when I started and much of the work – particularly contract and similar drafting on the corporate side and discovery work on the litigation side – was still bespoke (done by hand time and again, case after case by lawyers), a large firm had 300 or so lawyers in it; today, that same firm likely has more than a thousand, despite each single lawyer now having the technological firepower to do work at a level that used to require multiple lawyers. How did technological advances, providing extensive growth in efficiency, simultaneously lead to ever larger law firms, to ever higher hourly rates and, as any in-house lawyer will tell you, ever larger legal bills?

I have a few theories, but the one I want to talk about today has to do with an old chestnut from the study of public administration, concerning highway construction. In that field, they tell the story of how creating more capacity leads to more demand, rather than to simply the satisfaction of existing demand, by using the example of building a new highway. When new highways are built to relieve congestion, they don’t have that effect, because the moment the congestion clears up after the new highway is built, more drivers show up to use it, again creating congestion. In other words, the increased supply of roadways simply leads to more drivers, and the re-creation of the same congestion that the new highway was built in the first place to avoid.

My theory is similar. The rise of technology in lawyering over the past thirty years (roughly the length of time I have been practicing) has dramatically increased the efficiency of lawyers and the provision of legal services. However, it has coincided with ever larger and more complicated cases, transactions and regulatory efforts, leading to the need to throw ever more legal resources at problems, despite the rise in efficiency. I am well aware of the old chestnut that correlation isn’t causation, and have written on it – however, I do think there is a causal relationship between the efficiency of modern lawyering and the complexity of the legal doctrines, rules, cases, transactions and evidentiary burdens that modern lawyers and clients confront. To me, the rise in the ability of law firms, financial entities, regulators and others to engage in ever more complex disputes, transactions, investigations and regulatory efforts has led – directly or indirectly – to the urge to engage in ever more complex disputes, transactions, investigations and regulatory efforts.

Take a frequent topic of this blog, excessive fee and breach of fiduciary duty class actions against sponsors of 401(k) plans. As I discussed here, part of this boom is driven by smaller plaintiff-side class action firms bringing such suits. Thirty years ago, this dynamic wouldn’t have existed, and class action cases were generally more straightforward, simply because no one, and particularly not smaller plaintiff-side law firms, had the tools and staffing to give rise to this dynamic, at least not to such an extent. Now, however, we do, and the legal system now has the capacity to continually create, drive and process a large number of these highly complicated and fact intensive cases. I don’t think the recently developed ability to litigate in this manner, and the fact that we now do so at ever increasing cost, are unrelated.

Well now . . . The news that State Farm is going to stop writing new homeowners business in California didn’t surprise me at all, but it did ring a powerful bell. All the way back in 2007 I was writing that climate change would be taken seriously and action would be taken once the economic impact of doing nothing showed up through the intermediary – perhaps it should be called the canary in the coal mine – of the insurance industry. I discussed it here, here and here, among other places. If anything, way back then, I was too sanguine on the issue. In my defense, I was a lot younger then.

Hamilton Nolan, in his article “Insurance Politics at the End of the World,” isn’t sanguine at all, but then things are much more serious- and the impact of climate change much more damaging – now. You will note that in this post on the subject in 2010, I mentioned how concerning it was to me that “I look[ed] out my window here in Boston at temperatures in the mid-forties and sunshine” in March. This past winter, I probably saw that weather in the beginning of February.

What I do like about Nolan’s article is that it drives home the point, which gave rise to my own posts on this subject a decade ago and longer, that the underwriting discipline of the insurance industry is what is at play here. This is not some sort of wishy washy ESG thing. Instead, the industry prices all risks – not just climate exposures – based on hard numbers and data, and that is why climate change losses are now getting priced into insuring against risks in ways that no longer allow rational economic actors – or even just everyday homeowners, whether rational or instead irrational – to ignore the impacts of climate change.

This is an interesting story on Mintz Levin trying to bring more lawyers back into the office by figuring out the best way to get people, starting with the partners, to find it valuable to be there, rather than by threatening associates’ compensation or mandating certain work hours, as other firms have done. My own experience managing people remotely (I am in the office most of the time, because it is better for my work, but not everyone who works with me is) is that top down dictates are pointless, but giving people a reason to be in the office – to see it as in their best interest for doing their work and being successful – is the best way to encourage a return to the office.

Frankly, in the short run, the “order lawyers (and others) back to the office” approach might work, but it won’t work in the long run. As this article points out, with the end of the bulge in the labor market created by the baby boom generation, we are moving quite clearly into an age of labor shortage. Law firms and other employers who want to hire and retain the best and the brightest are going to have to enact policies and take approaches – as Mintz is doing with regard to the question of remote versus office work – that encourage employees to act in ways that benefit the employer, rather than – as employers could easily do throughout the now bygone era of overpopulated labor markets – telling them what to do.

And what exactly does this have to do with the subjects of this blog? Well, the place to start is by improving employee benefit programs so that employees feel the requisite type of a stake in the employer, such as through matching 401(k) contributions, policing returns and fees in retirement plans so as to avoid imposing an unwarranted and hidden tax on employee retirement investments, establishing ESOPs, offering deferred compensation plans and an endless series of other approaches to improving the nature of ERISA governed employee benefits in this country. Heck, one might even consider offering pensions, like they did in the old days when people not only showed up for work at the office but stuck around at the job long enough to collect it.

I didn’t intend to write a second post (here’s the first) on the ever rising tide of excessive fee litigation, but the LinkedIn algorithm, responding to my posting of my first blog post on this issue, hand delivered me another great graphic, this one by Sompo International, on the same topic. What I like about this one is that it quickly presents a longer term view of the historical growth in excessive fee litigation, showing the growth in filings since 2010 and illustrating that filings became elevated around six years ago and, despite some variation, have remained so. It also doesn’t underplay the amount paid out in damages over the years on these types of claims, documenting it as in excess of one billion dollars. This number is kind of the lede, which should never be buried in these types of presentations, and this graphic definitely doesn’t do that.

When you see these numbers, you further understand the point I made in my last post – that the amount of potential recovery for plaintiffs and their lawyers is driving much of this growth and the most realistic way to bring down the numbers of filings and reduce, long term, the exposure to plan sponsors and their insurers is to consistently take these cases to trial.

This is a great and well-illustrated presentation by Chubb on the history of excessive fee litigation against sponsors of defined contribution retirement plans, on the pace of filings, on the types and sizes of plans that are being sued and on settlements of those claims. What you can see in the data is something that those of us writing on this topic years ago predicted – that the number of filings would only increase over time and that, perhaps most importantly, the size of plans targeted by plaintiffs’ lawyers would decrease, making being sued on a fee claim a potential risk for many employers who might have otherwise thought, a few years ago, that they were too small to be at risk. In a way, what has happened is sort of the opposite of the “too big to fail” mentality in financial industry regulation. For many years, plan sponsors without billion dollar plans assumed they were “too small to sue,” but as the Chubb presentation makes clear, that turned out to be wishful thinking.

The graphic presents the idea that litigation costs, defense costs, settlements and the like for these types of claims are simply going up, up and away, with no obvious end in sight, nor with any obvious rhyme or reason that would bring some certainty to this area of litigation or to predicting the potential exposures of plan sponsors. This is in many ways the point made by Dan Aronowitz in, among other blog posts, his piece on jury trials in excessive fee cases, when he points out the vagaries of rulings in this area of the law, and the lack of consistency in case outcomes.

To me, the underlying dynamic is that more and more plaintiffs’ firms have moved into this area as settlement values have gone up, and more and more cases, against smaller and smaller plans, have been filed as a result. In a way, from the perspective of an insurer, it’s a form of a death spiral, as more and more plaintiffs’ lawyers entering the area lead to more and more suits being filed, and more suits being filed leads to more and more defense costs being incurred, leading to more and more settlements being paid so as to avoid large defense bills, which in turn leads to yet more suits being filed as plaintiffs’ lawyers see those settlement numbers and decide to chase those types of settlements, thus bringing you right back to the first step in the cycle.

This is not, by the way, to suggest that all such claims are meritless, as thirty years of experience has taught me that, in fact, there are excessive expenses and fees buried in at least some plans, a point I made in my post about the inherent tax imposed on retirement savings in this country. However, years of litigation and corresponding improvements in practices by plan sponsors has substantially reduced this problem. Moreover, the fact that some claims have merit doesn’t mean that all do, or that some of them shouldn’t be filed at all and are effectively attempts to trigger settlements and legal fees to plaintiffs’ lawyers.

Is there a solution to this dynamic? Yes, there is, but it will cost insurers and plan sponsors defense dollars in the short term, and I am stealing it from the approach taken for many years by a major medical malpractice carrier in Massachusetts: don’t settle and instead try all cases to conclusion (assuming no resolution at the motion stage). Once it has been clearly established that plan sponsors and their insurers will try every one of these cases to a conclusion, you will quickly see the number of plaintiffs’ lawyers in this area shrink, the number of suits filed likewise shrink, the targeting of smaller plans end, and the merits of the claims that are brought dramatically increase. It will take awhile and, during that time period, require accepting a substantial increase in defense costs across the industry, but in the long run, it will reduce the number of suits, the amount of defense costs incurred and the amounts paid out in settlement, once the dynamic driving the increase in litigation in this area has been disrupted.