One of my partners emailed me the other day with kind words about my blog, and I responded that there was plenty to write about these days when it comes to ERISA and insurance. Amusingly, this morning’s inbox ended up presenting the perfect exemplar. I was sitting down to write some follow up comments on the idea of crypto in 401(k) plans, which I wrote about last week, in light of this excellent article in the Guardian on the crypto crash and its impact on individual investors, when this article from Bloomberg Law (subscription may be required) popped into my inbox, discussing a new Eleventh Circuit decision holding that “[a] doctor’s widower can seek $350,000 in supplemental life insurance payments [because] ERISA authorizes claims for equitable relief based on alleged fiduciary breaches in the benefit plan enrollment process.” As the article explains, the Court held that the equitable relief remedies authorized by ERISA provide the proper avenue for the putative beneficiary of the life insurance to recover the life insurance benefits that would have been available, had the employee been properly enrolled, where errors in plan administration prevented actual enrollment. In other words, the Court held that equitable remedies allow recovery of the value of the lost life insurance benefits, even though the employee was never actually enrolled and thus never technically actually qualified for the benefit under the plan terms.

I have litigated this issue several times, and its been a slow evolution. Initially, courts tended to treat the fact that the employee was never enrolled, and thus entitlement to the absent life insurance benefits never existed, as an existential level barrier to recovery. Courts were open to hearing how the deceased employee’s beneficiary might nonetheless be entitled to recover, but they were initially skeptical of arguments in favor of recovery under these circumstances. Over time, however, including in cases I have prosecuted, district courts have come to accept the premise that, in light of the Supreme Court’s recognition in Amara of equitable remedies for fiduciary errors, the value of the absent life insurance benefits should be recoverable as equitable relief independent of the plan and the lack of coverage for that amount under the plan itself. The acceptance of this premise has now progressed to the Circuit Court of Appeal level, with the article depicting this ruling by the Eleventh Circuit as a decision of first impression at the appellate level.

The decision is here, and a Massachusetts Lawyers Weekly article discussing a district court decision to the same effect in favor of my client in one of my cases that anticipated this type of appellate ruling several months ago, is here.

Somehow, Shakespeare seems to have anticipated crypto; the ongoing kerfuffle over offering crypto in the investment menus of 401(k) plans is seeming more and more to be simply “sound and fury, signifying nothing.” For those of you who may have missed it, in the past several weeks, just to hit the highlights, Fidelity announced it would offer crypto investment options in 401(k) plans, the Department of Labor warned against offering crypto in 401(k) plan investment options, and investment platform provider ForUsAll sued the Department of Labor over that warning. All are about the same thing – the effort by vendors to plans to include Bitcoin in retirement plan options. There is a lot to be said about whether Bitcoin and the like belong in retirement plans and whether the option should even be offered to employees, as well as about the reasons for this sort of gold rush into this area by service providers to plans.

But none of it may even matter. If you read your Wall Street Journal weekend edition this past Saturday, you found article after article about the crypto crash, and one has to wonder at this point how many participants in 401(k) plans really even want such an investment option. Certainly, there are always going to be people who want to be able to make big, bold bets in their 401(k) plans, but just like most employees learned not to overweight their holdings towards their employer’s stock, so too is it likely that most will not want to incur the risk of this type of investment.

But to the extent it does still matter, I have one significant question for plan sponsors considering either offering such an option or even signing up with a vendor who pushes the option, which is have they thought about who bears the fiduciary risk of including crypto? As I often say about ERISA litigation, all is hunky-dory when the markets are going up, but once they start falling, the lawsuits against plan fiduciaries will pile up fast. I assume that the option to invest in Bitcoin and the like is generally going to be provided in a way that seeks to leave the risk on the participants of the investment choice, but decades of ERISA litigation leave me skeptical that this will hold up in court. So who will be liable for imprudent crypto investment options? Plan sponsors and named fiduciaries should study this question closely before agreeing to offer the option to participants.

This is a great article on the question of why smaller businesses do not offer retirement plans. I recommend reading it, and won’t simply restate its findings here, but instead want to add two thoughts.

First, there are many important issues in the world when it comes to retirement security for employees, but the lack of access to retirement plans in many smaller businesses is as important as any of them. Although there is room for debate over how exactly to interpret the data on small business employment, there is no question that vast numbers, and a very high percentage, of employees in the United States work for small companies. Simple logic tells you that, if small businesses either cannot or simply are not providing retirement plans, large numbers of employees then have no access to employer provided plans. That cannot help with retirement security in this country.

Second, the article omits one barrier to small companies providing retirement plans, which I have found time and again in my practice, namely, the difficulty for small businesses in accessing quality third party administrators and other resources. Every vendor wants to land a big employer as a client, but not all are prepared to or interested in servicing small shops with correspondingly small plans. This often leaves smaller companies to use weaker vendors, leading to increased mistakes and other problems with administration (leading then, in turn, to unexpected legal and compliance costs for small employers seeking to provide retirement plans). To be clear, I in no way mean to suggest that all, or even a majority, of vendors targeting the small employer market are deficient, and I admit that selection bias guarantees that I see a disproportionate share of poor quality vendors in my cases. However, there is also no question that this is, in fact, yet another barrier to providing retirement plans for the employees of small companies.

I am of two minds when it comes to ERISA decisions out of the Second Circuit. My first is to naturally jump to the conclusion that, in the immortal words of Willy Loman, attention must be paid, simply because of the Court.  Then I remember the long retired big law partner from my long ago days as a summer associate who would only allow me to cite to Second Circuit decisions, which he believed carried more heft than those of other courts, and I decide I don’t want to give decisions out of any particular circuit pride of place.

So what I do is balance those two responses, and allow them to cancel each other out; this ends up with ERISA decisions out of the Second Circuit being treated by me the same as those out of any other circuit, to be analyzed on their own merits and discussed only if their substance warrants. This case from last week out of the Second Circuit passes that bar, although possibly by not that much. McQuillin v Hartford Life holds that a disability insurer should be held to the strict letter of the Department of Labor’s claim handling regulations, and deemed to have forfeited its right to insist on completion of its own internal review prior to being sued if it failed to fully complete its review and issue a final decision within the time period set by the regulations. The insurer had instead issued, in effect, an interim decision within the necessary time period, and claimed for itself the right to proceed with further internal evaluation of the claim before the insured participant could sue for benefits. The Court held that the regulations allowed the insured to bring suit without waiting for the insurer to conclude that additional review.

The Court explained:

Under ERISA, a claimant may sue in federal court for benefits due to him under his disability plan. But first a claimant must exhaust his plan’s internal remedies. A plan’s remedies are deemed exhausted if the plan administrator does not “strictly adhere” to § 503-1’s requirements. McQuillin asserts that, because Hartford did not provide a “benefit determination on review” within the 45-day window required by § 503-1(i)(3)(i), his administrative remedies should be deemed exhausted. Although Hartford’s April 23 letter “overturned” the original decision and “forwarded” his claim to the claims department for further consideration, McQuillin maintains that the letter failed to render a “benefit determination.” Thus, because Hartford did not strictly adhere to the rule’s requirements, McQuillin’s remedies were deemed exhausted such that he was free to bring suit in district court. Hartford responds that its April letter was a timely benefit determination on review because such a determination need only resolve the issue appealed, not the entire benefits claim.

The dispositive question in this appeal is whether a valid benefit determination on review must determine whether a claimant is entitled to benefits. Based on the regulation’s plain language, structure, and purpose, we hold that it must. We further hold that, because Hartford did not extend the benefit determination period, McQuillin’s duty to exhaust had ceased by the 46th day, the day he filed his federal case.

It’s not exactly rocket science, to conclude that the Department of Labor regulations in this context mean exactly what they say and should be applied literally, and thus I almost passed on discussing this case despite its court of origin. In a way, though, the case makes me think of that justiciability doctrine of “capable of repetition, yet evading review,” under which issues are worth the court’s attention simply because they may happen many more times over. It seems certain that this type of problem in the handling of disability claims will recur many times over as insurers seek to process numerous claims – there is value to knowing what one leading court has said concerning how the Department of Labor’s claim regulations apply to the situation.

Section 510 of ERISA makes it illegal to take any job action for the purpose of interfering with an employment benefit that would otherwise have been due to the employee. The classic formulation of such a claim is terminating an employee right before a pension would have vested, simply to avoid owing the benefit; some observers believe that Section 510 was originally included in the statute specifically to address the concern that employers might respond to ERISA’s vesting requirements by terminating employees before vesting could occur. The statute’s language itself, of course, captures far more than just that circumstance, and in fact the provision is written broadly enough that it can be read to include within its scope some of the more creative theories that a plaintiff’s lawyer might come up with.

But here’s the thing – by definition, so long as a job offers benefits at all, you cannot have a termination that doesn’t negatively impact the employee’s ERISA protected benefits: everything from 401(k) contributions, to pension accrual, to employer provided health insurance, end or become limited by the fact of the termination. So the mere fact of the termination and the resulting deprivation of benefits can only be the beginning, but not the end, of the inquiry.

The statute, though, doesn’t address what more is needed for actionable retaliation to lie, and that is the interesting aspect of a recent decision, Joffe v. King & Spalding, by the Southern District of New York. In Joffe, a fired big law associate alleged that his employer retaliated against him in violation of ERISA by terminating him shortly before a 401(k) contribution otherwise would have vested. He lost, after the Court held that there wasn’t a scintilla of evidence indicating that the firm ever considered the vesting date of the contribution in deciding when to terminate his employment.

The Court in Joffe borrowed the classic employment discrimination burden shifting structure of McDonnell Douglas to decide whether the terminated employee was retaliated against in violation of ERISA because he was terminated before the contribution vested, when the employer could have simply terminated him a few weeks later and thereby allowed the contribution to vest. Under this test, as applied in the context of a Section 510 claim, the terminated employee must establish a prima facie case; if he does so, then “the burden shifts to [the employer] to articulate a legitimate reason for his termination unrelated to the interference with his ERISA rights;” and if the employer satisfies that burden, then it becomes the terminated employee’s burden to show that the reason depicted by the employer was pretextual.

So what happens in a case, like Joffe, where the employee is terminated right before vesting, thus causing forfeiture of the benefit, when there is no good reason that the employee couldn’t have just as easily been terminated a short time later, after the benefit had already vested? Does the employer have to be able to present a good reason for having terminated the employee when it did, or is the date of termination irrelevant so long as the employer didn’t subjectively pick the date of termination for the purpose of avoiding being stuck with funding the benefit?

The answer is driven by the burden shifting standard. As the Joffe court explained, “[c]lose temporal proximity between an employee’s discharge and the pension vesting date is sufficient to support an inference of intentional interference.” In other words, the employee meets his initial burden of proving his prima facie case simply by showing that the benefit was lost directly because of the date of termination selected by the employer and the employer could have simply selected a different, but not too distant, date of termination, which would have avoided the loss of the benefit. Under the burden shifting structure, that, however, is not enough to recover for retaliation, and the employee only recovers if the employer cannot then present a legitimate reason for the termination itself.  That’s the key point, in my view, of Joffe – the focus is on the reason for the termination, not on the reason for the timing of the termination.  As the Court put it,  “[t]o dispel the inference of discrimination arising from the [termination prior to vesting, the employer] is required to articulate — but not prove — a legitimate, nondiscriminatory reason for the discharge” itself, rather than for the timing of the discharge.

 

You may need a subscription to read it, but I greatly enjoyed this Bloomberg Law article today on cyber insurance. The title of the article sort of says it all, although the article delves into the topic in decent depth: “Cyber Insurance Policies Grow Pricey Amid Rising Hacks, Lawsuits.”

For those of you who might not have a way behind the paywall, the article’s primary points are that: (1) prices for cyber insurance are going up, up and away, and have been increasing for some time; (2) this is due at least in part to the increasing cost and frequency of such claims; and (3) coverage litigation over these exposures is increasing. This last point is interesting to me, in terms of its relationship to the prior two. Although I have no data to back it up, thirty years of experience has taught me that, whatever the line of insurance, coverage suits increase as coverage becomes harder and/or more expensive to obtain and claims severity increases. It’s sort of a “how much blood can you get from a stone” dynamic – as coverage becomes harder to access, insureds look to expand what they do have as much as possible. (If you wanted to write a law review article proving the point, you could do it simply by going back to the asbestos coverage suits and the litigation over the meaning of the asbestosis exclusion, tracing the pattern from there to environmental coverage litigation and the meaning of “sudden and accidental,” and then continuing on with the pattern until you run into the explosion of business interruption litigation arising out of the pandemic).

Beyond that, though, there was one practical point that jumped out at me from the article, and it did so because it relates to something I talk about with lawyers and business people all the time (in fact, I just discussed this right before the holiday with one of my partners with regard to the scope of directors and officers coverage for purposes of an upcoming transaction): namely, the need to study the policies in the market proactively, before purchasing and long before a claim is made, to get the right coverage at the right price. As the article points out, too many companies buy such coverage off the rack, when what they really need is a close study of the available coverages and a determination as to what best fits their risk profile. I thought Troutman Pepper partner Kamran Salour summed it up nicely in the article when he pointed out that “finding that ‘sweet spot’ [among premiums, deductible and scope of coverage] is critical for companies as they seek to maximize coverage and minimize expenses.” Couldn’t have said it better myself, even if I have been saying it, in one form or another since at least the time I launched this blog.

Lawyers who, like me, litigate ESOP cases often end up with a skewed view of ESOPs, if we aren’t careful. There is sort of a selection bias at play, in that we typically see the ESOPs where something has gone wrong, or is at least claimed to have gone wrong. I have had plenty of those types of cases, but I have also had the good fortune of representing some very well run and, for the employee owners, profitable and beneficial ESOPs. This article by Gene Marks in The Guardian on the benefits of ESOPs does a nice job of explaining exactly why, in my experience, a well run ESOP is a boon for all involved.

I recently visited Monticello, a place, being a history buff, I had always meant to tour; suffice it to say, it did not disappoint. Among other things, it was an interesting reminder of an oft-forgotten point, namely that for many years, the American “frontier,” for all intents and purposes, is what is now modern day Pittsburgh or Chicago. I both think of and mention this because it reminds me of what I now consider the “new” frontier in ERISA litigation, but one that shouldn’t actually be new – the imposition of potential liability for errors in plan administration, as opposed to simply for failing to pay benefits or underpaying benefits or not funding benefits that were all otherwise covered under a plan’s terms. For many years, benefits that were instead lost, or never qualified for, because of communication or management errors on the part of plan administrators and sponsors often had a “sorry, but you are out of luck” aspect to them: there wasn’t any effective way to consistently target those problems and prevail in litigation for participants who had suffered from them. Sure, there were occasional wins for participants, driven by clever thinking on how to prosecute such claims, for instance by attacking the problem through the tool of reformation, but for the most part, doctrinal barriers – such as a begrudging reading of the scope of remedies authorized under ERISA itself, and legal fictions assigning greater knowledge and understanding of a plan to participants than all involved know they actually hold, and numerous others too tedious to list – made recovery based on those types of errors unlikely.

Meanwhile, though, in my experience, it is and has always been the case that administrative and other plan management errors deprive more participants of more benefits more often than anything else, and as I mentioned in an earlier post, one of the great developments in ERISA litigation is the development of remedies and judicial approaches that allow for the remediation of those problems. I should note that when I refer to this as a “great development,” I mean this point objectively, in terms of it creating remedies for issues that, in the past, could not be remediated by the courts; for decades, courts would depict these types of claims as provoking the sympathy of the court, but as nonetheless constituting a loss for which there was no judicial remedy available. I have nothing to say today on whether this change in the ERISA regime is a great development for plan sponsors, or in terms of creating an environment that encourages employers to provide benefits, but only in terms of this development plugging a hole in the system whereby certain types of losses simply could not previously be remediated.

This (relatively) new frontier we are witnessing involves courts finally recognizing, and revising fiduciary duty case law as needed to do so, that much of the management and administration of a plan is, in fact, fiduciary conduct, and that losses caused by errors in that type of activity can therefore be remedied by means of the equitable relief authorized under ERISA. The Eighth Circuit decision I discussed in an earlier blogpost is an excellent example of this trend in the case law, and one of my colleagues has written an excellent client alert on this decision. Another, slightly earlier example can be found in this decision in one of my cases, which maps out the parameters of fiduciary responsibility for errors in the operation of a plan, independent of whether or not benefits themselves were due under the express terms of the plan under the circumstances at issue; that case is discussed in detail in this Lawyers Weekly article.

Those two cases aren’t the only recent ones to this effect, and it would be interesting – but far beyond the scope of a blog post – to compare these types of cases to the manner in which similar circumstances were typically analyzed by courts ten years ago, or even more specifically, before the Supreme Court’s decision in Amara opened the door to litigators and courts rethinking their approaches to obtaining relief for operational errors. We will leave that discussion for another day, but with the final note that it is in the shift from those older cases to these newer ones that you see the rise of a new frontier, not just in litigation, but in the rights and protections open to participants.

Here’s an interesting question – what is the territorial reach of claims against insurers alleging violations of Massachusetts’ insurance claims handling statute, Chapter 176D, and seeking recovery for such violations under Massachusetts’ consumer protection statute, Chapter 93A? Massachusetts’ well-regarded Business Litigation department gave the statutes a broad territorial reach, finding that they apply to an action brought by a New York resident, concerning his long term disability benefits; the Court held that Massachusetts law, not New York law, applied under the applicable choice of law test, and therefore the plaintiff could bring those Massachusetts statutory claims. But here’s the interesting part – the Court found that the key factor giving rise to application of Massachusetts, rather than New York, law was that the allegedly wrongful claims handling by the insurer occurred in Massachusetts. (For the uninitiated, claims under Chapters 93A and 176D are essentially assertions that an insurer acted wrongly in claims administration, such as settlement efforts or the decision to try the action). The logic of this case, though, would mean that Chapters 93A and 176D have extraterritorial reach anytime an insurer has a claim office in Massachusetts, and the dispute is over the handling of that claim, no matter where the plaintiff resides, or the insured loss was located, or the claims handling allegedly caused injury; the simple fact that the claim adjustment occurred in Massachusetts would be enough to make that claim subject to those Massachusetts statutes.

Seems to me that cannot really be the rule, and there must be some type of limiting principle, reflecting the idea that, at some point, the mere fact that the claims adjustment occurred in Massachusetts can be overcome for purposes of this analysis by far more extensive involvement in the claim of events in other states. So for instance, a chemical explosion at a property in California, giving rise to multiple claims and lawsuits situated in California courts, would be too extensively connected to California for Massachusetts’ claims handling statutes to properly apply, even if the claims were processed out of an office in Massachusetts. That kind of counterweight to the application of Massachusetts law, and its powerful statutory claims against insurers, was absent in the fact pattern before the Business Litigation department when it reached its ruling, but, it seems to me, is the limitation on the territorial reach of Chapters 93A and 176D that is absent from, but nonetheless implicit in, the decision itself.

You can find the decision itself here, and an excellent write up on it by Massachusetts Lawyers Weekly’s Pat Murphy here.

I have returned to blogging after stepping away for awhile from regular posting for a number of reasons ; foremost among them, however, is wanting to talk regularly about the continuing evolution in this area of the law toward a more even playing field for both employees and employers, and away from the many structural barriers that have long handicapped employees pursuing relief.  This very recent Eighth Circuit decision on group life claims is a perfect example of this phenomenon.  It wasn’t that long ago that various limitations on prosecuting denial of benefit and equitable relief claims under ERISA made these types of claims – where the administration of the group life program resulted in someone being unenrolled, contrary to their belief, in the coverage they thought they had purchased – nearly impossible to prosecute successfully. Now, however, as this decision reflects, the growing recognition by the courts that ERISA’s equitable relief remedies are flexible enough to address a multitude of scenarios makes these types of claims – where an administrative error involving both the employer and the group life carrier resulted in the life insurance coverage for a particular employee never coming into existence under a strict reading of the terms of the plan – not just viable but winnable for the beneficiary of the deceased employee.