Many years ago, back when we were closer to the tipping point where 401(k) plans replaced pensions for the majority of employees, there was a great deal of discussion about whether employees could possibly be financially ready to retire at age 65 absent pensions. I argued at the time that the discussion was wrong and that the age 65 attribution for this analysis was archaic and distorted the conversation. I was correct about that, and the realities of the interaction between retirement funding and pushing retirement dates back a decade are now a mainstream topic, as this excellent article from the BBC, which in turn is responding to BlackRock CEO Larry Fink’s much discussed commentary on the subject, shows.

However, my past comments on this issue were criticized by some commentators as possibly being true for professional and managerial workers but as ignoring the fact that extending working life another decade or so for people with physically demanding jobs may be unrealistic. I have come over the years to think those critics were correct. While John Kerry may be able to say with a straight face these days that, with regard to his work, “80 is the new 60,” I highly doubt it is for the painter working out in the hall of my office building right now.

I mention this now only because, while the BBC article is an excellent discussion and demonstrates a renewed focus on this issue, it too assumes that most people work at desk or similar jobs that are not too physically demanding for someone to continue working at into their late sixties and early seventies. I would now suggest that critics of my views from a decade or more ago on this subject were correct when they argued that the solution to retirement readiness for people with physically demanding jobs cannot simply be the advice “work another ten years.”

I began writing on climate change as a litigation and insurance issue back in 2007 and have been writing on the role of insurance as a potential and actual driver of climate change policy since at least 2010. Since then, it has become clear that the single greatest corporate driver of changes intended to avoid the worst impacts of climate change will be the insurance industry. As I explained here and here (among other posts), the substantial economic impacts and financial losses that will result from climate change will pass through the insurance system first, making climate issues central to the future of the industry. Leading figures in the insurance industry have been planning for this for 15 years or longer.

This BBC article on the subject is as good as I have read in the past 20 years on the topic. It explains in detail the relationship among climate change, insurance underwriting and policies issued to insureds.

This is a great story in Plan Adviser on the past and future of ERISA litigation over 401(k) plans. It’s a fun and short read, neither of which is normally true of articles on this subject. That’s a little tongue in cheek, but that phenomenon is nobody’s fault: when I have written on the subject, I have an awful lot of trouble reining in the word count. At its core, the article presents the question of whether the long and highly contentious history of this area of litigation has actually benefited participants.

There are three points from it that I wanted to touch on. First, a defense lawyer argues in the article that while there have been many large settlements, they were simply made for business reasons and not because of potential liability. She argues that the underlying fiduciary actions have, and continue to be, proper and that, as a result, defense lawyers would have liked to try more of these cases to conclusion, but business concerns argued against that approach. I don’t know about that, myself. While I have long argued that plan sponsors and their insurers should be aggressive about taking these types of cases to trial, I have long felt like a voice in the wilderness on this point and have only noted others agreeing with my take since the recent high profile defense win in the trial involving the Yale retirement plans. I hope the tide, and appetite for trial of defendants in this area, is turning, but we will see.

Second, Paul Secunda, who once served as my expert in an ERISA dispute back when he was still in academia, makes what I think is the reasonable point, which is that fees have declined during the history of this type of litigation and attributes it to the potential and actual litigation exposures faced by plan sponsors and fiduciaries. I haven’t looked at the numbers on this, or looked critically at the data on it, in a long time, but that matches my sense of the matter. Even if Paul is right, though, as I think he is, there should be no shame in that for plan sponsors. The threat of litigation has always been a powerful force in getting people to look closely at established business practices that, through no fault of anyone and for no nefarious reason, have simply operated on autopilot but should be improved upon.

Third, the article ends with some excellent advice to sponsors in the “mid-to-small retirement plan market” that they worry less about the legal exposures and more about their processes and the outcomes for their participants. The problem with the advice is that, for many smaller plans, getting a strong outside TPA or other vendors who can help execute this advice can be very difficult. Larger service providers often aren’t a good fit for smaller plans, and many third party administrators who focus on that market are, in fact, only interested in making the sale, not in bulking up staffing and expertise to the level needed to fully serve that type of sponsor. I mention this only as a sort of supplement to the speaker’s advice to sponsors of smaller plans. It is good advice, but it can be hard for plans that size to obtain the outside expertise needed to execute it.

I have somehow managed to escape the trap many litigators find themselves in, of being almost exclusively a plaintiff’s lawyer or instead a defense lawyer. Over the past 35 years, I would guesstimate my practice has totaled out to about a two to one split, favoring defense work. Personally, I like both types of work, the variety in cases keeps the work interesting, and I think sitting at both tables gives you a more well-rounded set of skills. On that last point, when I was a young lawyer, an older trial lawyer pointed out to me that lawyers who prefer to counterpunch (metaphorically speaking, of course) are often better suited to, and more likely to prefer, defense work. I find that doing both types of cases has, over the decades, forced me to develop a whole range of styles in the ring (again, metaphorically speaking).

But one of the more interesting things the variety has done for me is leave me with an open mind about the role of juries, and kept me from imbibing the corporate and defense world’s tendency to either be skeptical about them or even outright afraid of them. I have found over the years that they get the outcome right about the same percentage of times as judges do in bench trials. I have written a number of times on my view that juries bring a great deal of strength to the courtroom process, such as here and here. Sometimes, I have to say, that view has provoked some good natured complaints from some of my professional brethren, but that’s all right – horses for courses and all that.

But given my views and my writing on this subject in the past I was very pleased to find, in this article in Massachusetts Lawyers Weekly, a comment from the dean of the defense bar, Bill Dailey, praising juries and the jury system. As he put it:

But over all these years, I’ve found that juries can be very objective, and if they feel that there has been no error made, while there’s maybe a great amount of sympathy surrounding the facts in the case, they’re able to make a fair decision,” Dailey says. “I admire jurors for doing that. That’s how the system has to work if it’s going to work.

I rest my case.

I didn’t want the week to end without passing along this story from Massachusetts Lawyers Weekly on the First Circuit’s decision in Lawrence General Hospital v. Continental Casualty Company. In the decision, the First Circuit reaffirmed the principle that Covid shutdowns did not trigger business interruption coverage in insurance policies, as most courts have held to date. The Court did, however, find coverage under a different portion of the relevant policy, which expressly provided “disease contamination coverage.”

The coverage, policy language and economic issues at play in the question of whether business interruption coverage in insurance policies was triggered by pandemic era shutdowns have been widely discussed, and clearly the insurance industry has won those arguments. This case isn’t to the contrary, but instead finds coverage only under a separate policy provision that directly covered orders shutting down operations in response to certain health related events.

What’s more interesting to me, however, and which I wanted to pass along, was the comment by a policyholder side attorney, Andrew Caplan, that the case “shows how important it is for coverage attorneys to carefully study a policy and make coverage arguments based on specific policy wording as opposed to general coverage case law interpreting standard policy wording.”

I think he is absolutely right, and it’s a point that many lawyers – especially generalists who aren’t coverage experts – miss when they litigate coverage disputes. Far too often, lawyers get bogged down in the broad pronouncements that populate judicial decisions in this area, about topics such as ambiguities in insurance policies or the interrelationship of later issued endorsements with the terms of the main form of the policy. Most often, these types of comments in judicial decisions shed more heat than light, and if you study the decision closely, you will find that the decision turned, not on those types of generalized pronouncements, but instead on very precise evaluation of specific words in the policy. The key to winning these types of cases, as Caplan points out, is to focus on the specific policy language at play, not on general rules applicable to insurance policies, and to argue accordingly – in many ways, as a lawyer would with any other type of a contract.

The First Circuit’s decision in Lawrence General Hospital perfectly illustrates this point, particularly with regard to the Court’s discussion of the disease contamination coverage. The Court structures its analysis around certain broad principles that govern the interpretation of insurance policies, but those standards do not drive the decision. Instead, it is the Court’s molecular level (pun intended) analyses of the language and facts, conducted within the framework provided by those broad principles, that the decision is based upon.

It’s very difficult to write with any nuance about discretionary review under ERISA plans, or what is more typically referred to as “arbitrary and capricious review.” I believe it is because it’s one of those areas of the law where, even more than most, where you stand depends on where you sit. In other words, if you are a plan administrator or sponsor, or a lawyer representing one, you think it describes a standard of review that should broadly insulate plan decisions from challenge, while if you are a plan participant, or a lawyer who represents plan participants, you think the entire doctrine is a wrong road that the Supreme Court set off down years ago without thinking and from which no one can now exit.

As someone who has represented everyone from plan administrators to plan fiduciaries to pension plan participants to executives entitled to compensation under top hat plans, and everyone in between, I can argue all sides of the question of the appropriate scope of the standard of review in ERISA cases, including what is the right way to apply arbitrary and capricious review. To me, the issue is not black or white, night or day, but all shades of gray (or grey, if one of the parties is English). Applying discretionary review in a given case is or should be, contrary to much argument, a fact and case specific inquiry, shifting with the facts, the plan language, the benefit to the plan sponsor of a particular decision and the interpretive approach taken by the plan administrator in a given case– indeed, with the very epistemology itself of the plan administrator’s approach.

The problem, though, is that in the real world, arbitrary and capricious review is often little more than a shibboleth that precludes, rather than encourages, careful thought over these issues. Too often, it is used simply as a stand in for the very different, and oft unarticulated, assertion that, unless the administrator was transparently and obviously wrong, the decision at issue should be upheld. This is not what arbitrary and capricious review, properly understood, is meant to be, nor what the phrase is meant to convey, which instead should be a nuanced and thoughtful analysis of plan language and facts to determine whether the administrator deserves the benefit of the doubt that is encapsuled within the phrase “arbitrary and capricious review.”

In any event, this is all a long way of introducing a new post by Daniel Aronowitz in the Fid Guru blog, in which he discusses the fact that “United Behavioral Health (UBH) has petitioned the Supreme Court for the right to deny doctor-recommended residential treatment of adolescent patients with serious mental health issues when interpreting what is ‘medically necessary’ under health plan documents.” The post concerns whether UBH was within its rights, under arbitrary and capricious review, to deny treatment, but treats the application of that standard to this dispute in the kind of subtle and detailed way that I suggested above should be the rule, not the exception.

The Supreme Court today hears argument in a case concerning many politicians’ and lawyers’ favorite pinata, the Chevron doctrine. It would likely be naïve to believe that the case won’t at least further restrain agency authority and discretion, although whether the case will be the vehicle for complete abrogation of the doctrine is beyond my tarot card reading powers. Robert Steyer addresses what this development likely means for the retirement industry and ERISA governed entities in an excellent article in Pensions & Investments, titled “Industry Eyes High Court on Chevron Deference.”

As I discussed in my comments in the article, my own view is that, for the most part, the retirement industry is best served – as are most of its participants – by the maintenance of a reasonable status quo from a regulatory perspective. For a whole host of reasons, big regulatory swings in either direction aren’t generally in the best interest of any member of the ecosystem, whether that is in the form of new initiatives or the presumptive eventual elimination, as a result of the demise of Chevron, of existing ones. To be fair, of course, there are circumstances in which regulatory initiative or change is valuable – for example, it is hard to have a new asset class offered in retirement plans if you don’t create a regulatory regime for doing so. But overall, consistency counts and an undercutting of agency power, if it were to lead to churn in the regulatory environment for retirement plans, isn’t likely in anyone’s best interest.

But time will tell. And unlike some of the other commentators quoted in the article, I would not be sanguine that, if the Supreme Court eliminates Chevron deference or even just significantly cuts back on agency authority, it won’t, at least over time, have the effect of altering the regulatory and investigatory environment in which ERISA lawyers and their clients operate.

This is a great story from over the holidays that I wanted to pass along, which touches on many issues in the current insurance environment. It’s a story of how insurance industry insiders in the Florida homeowners coverage market have been able to get rich by “cherry picking” policies to underwrite, while leaving the riskiest properties to be protected by taxpayers. It’s also a story about moral hazard and the extent to which proactive action in the face of the economic risks posed by climate change in areas vulnerable to sea rise and weather pattern changes is undercut by the assumption that the rest of the country, through the avenue of a federal bailment, will assume the losses from major climate change events in places like Florida.

That is all a lot to pack into one article, but the story is a good one and does a good job with it. Long time readers of this blog know that I am fond – among other writerly quirks – of two things. The first is the comment that someone once said Marx was wrong about a lot of things but he was right that everything is economics. For someone who, like me, writes extensively about insurance, climate change, and retirement assets and their regulation, this old saying (which did not originate with me) has become an everlasting gobstopper of a witticism. Here, we once again see its utility, as it is pure economics – and not a sober evaluation of proper insurance underwriting practices or the risks of climate change – that are driving the events covered by the article.

The other constant in my writing for years has been the idea that insurance is the canary in the coal mine on many fronts, something that is particularly true with regard to climate change. Long before recent high profile decisions by major insurers to reduce their exposure to significant property risks impacted by climate change, insurers, including Lloyds, had begun revising their underwriting approaches and risk appetite to account for climate change, which is a development I have been writing about for years. That development underlies the “cherry picking” and the moral hazard at the heart of the article I have linked to today, as those decisions by long standing carriers is what has created the environment for those events to occur.

Anyway, on those sobering notes, Happy New Year to you.

As usual, I had a terrific experience at DRI’s annual Insurance Coverage and Practice Symposium in midtown Manhattan, which was held last week. I had gone in many ways simply for two particular presentations, one on generative AI and the other on the impact of nuclear verdicts on insurance coverage and bad faith issues, although other presentations were informative and had value as well.

The AI presentation, ably presented by Lewis Wagner’s Meghan Ruesch and Melissa Fernandez of Travelers, was oriented towards the question of how AI would impact insurance, with discussion of new claims against insureds it may give rise to, how and whether such claims will be covered by standard industry policy language and how generative AI may be employed in, or otherwise affect, claims handling by insurers. On the first issue, the presenters emphasized the range of claims that can be expected to arise, running from the obvious – copyright infringement claims against insureds using generative AI apps or other tools to create media – to the less obvious, such as invasion of privacy by the creation of so-called deep fakes or through other AI driven activity. Your mileage may vary, but I think that any imaginative lawyer with a basic knowledge of how AI works can likely envision a nearly limitless range of potential claims against users of generative AI tools and distributors of AI crafted output.

What jumped out at me about this particular topic, however, wasn’t the range of potential claims but the extent to which the law itself – both statutory and common law – has a long ways to go before doctrines, evidentiary approaches, or the recognized elements of claims are in sync with the coming of claims based upon generative AI. We simply don’t know at this point what the elements of various causes of action should look like with regard to harms caused by generative AI, nor what new causes of action will have to be recognized to account for them. In effect, we are about to try to handle generative AI based claims with legal doctrines designed for, and resulting from, a much different age. It’s akin to the courts trying to handle claims arising from locomotives, cross-country railroads and automobiles, with a body of law still based on an agrarian society and the horse and buggy. The law eventually caught up, but it took a while. So too the law will eventually catch up here – but again, it will take time, and many judicial decisions, before the parameters of claims arising from the use of generative AI will be clear and widely agreed upon.

With regard to the presenters’ second issue, namely the extent to which such claims will be covered by standard policy language, of course the final answer to that question won’t be known until after the exact nature and elements of such claims have been at least substantially developed in future judicial decisions. However, the nature of insurance, obviously, is protection against the unknown, and thus both insureds and insurers will have to muddle through on the question of the scope of coverage even while the nature and elements of the claims themselves are still being developed.

For now, though, what caught my attention in this regard was the focus on the extent to which claims arising from generative AI may end up being shoehorned into the coverage granted by advertising injury insuring grants in policies. I believe it was all the way back in 1992 when I wrote an article for an insurance industry publication that I titled “The Expanding Scope of Advertising Injury Coverage,” addressing the extent to which, way back then, this coverage grant was being broadly read by courts to provide coverage beyond what the industry believed was its intended scope. The more things change, the more things stay the same I guess – back then, we didn’t even have iPhones but were discussing the propriety of a broad reading of the scope of this coverage, and today we are doing the same only with artificial intelligence, something that when I wrote the article in 1992 was the stuff of science fiction (shout out to Hal goes here).

At this point, one has to ask why the industry hasn’t revised the language of advertising injury coverage or removed it entirely from policies, rather than deal with the uncertainty of constant questions as to whether it provides coverage for the latest trend, this time of claims generated by generative AI. The only answer I can really come up with at this point is that, one, insureds expect such coverage to exist in their policies (or maybe their brokers do, as I have to think that only insureds with particularly sophisticated risk management departments give this particular coverage much thought at all when acquiring coverage), and, two, underwriters have long since figured out how to price this uncertainty into providing this coverage (of course, the underwriters who signed off on policies with sudden and accidental pollution exclusions in them a generation ago probably thought the same thing, and look how well that worked out for the industry).

As for the presenters’ third point – the extent to which the use of generative AI will affect claims handling – there can be little doubt that, at some point, a generative AI tool will be marketed that effectively does much of the basic factual work of claims handling and removes it from the province of adjusters themselves. I have to say, though, that in light of so-called hallucinations and the like, that day is not yet here. One of the presenters gave an example of having asked ChatGPT to summarize the My Pillow litigation, and it returned a summary with causes of action that were clearly and wildly inaccurate. Now imagine a claims adjuster handling a claim based on a similarly erroneous characterization of the underlying case against the insured generated by a generative AI product used by an insurer and you see the problem. Take for instance the adjuster’s job of deciding whether the company should provide a defense or not – the law in most jurisdictions requires that a determination of the duty to defend be based on the claims pled in the complaint, not on what ChatGPT might hallucinate those claims to have been.

But what about when there is eventually an effective, in the sense of being accurate, generative AI tool available to the industry, one that assumes much of the routine fact gathering and even potentially the evaluation of a claim? Bad faith lawyers will have a field day testing the analyses of such tools against the legal obligation of fair and reasonable claims handling imposed on insurers, and arguing over whether implicit biases, or overweighting of one factor or another in the software or underlying algorithm, or prejudice in the triggering prompt renders conduct by an insurer based on that tool unreasonable and in bad faith. The only saving grace I can think of right now in this regard is that this may be too subtle a task for many of the bad faith lawyers we see, who currently typically apply a much more formulaic approach to building out bad faith cases against insurers but give them time – they’re smart people and they will figure it out.

Bad faith claims, of course, are a common theme that make up part of almost every issue confronted by the insurance industry, and the discussion of bad faith in the context of generative AI flowed naturally into the discussion of nuclear verdicts by Wendy Stein Fulton of Kiernan Trebach and Sonia Valdes of Medmarc. I have written extensively about this issue in the past and handled the bad faith and intra-insurer disputes within a coverage tower that arose from a substantial nuclear verdict in Massachusetts, so I have my own particular interest in these issues and my views don’t necessarily align with those of other authors and speakers on the subject. That said, however, both speakers did a terrific job with the topic, demonstrating – statistically and convincingly – the rise in nuclear verdicts over the past decade. More interestingly, they recognized that most lawyers have never seen a nuclear verdict, or how one comes into existence. This is an important point because nuclear verdicts do not happen in a vacuum, nor are they the result of traditional approaches to calculating damages as most lawyers understand them (in the nuclear verdict in Massachusetts in which I handled the subsequent coverage and bad faith disputes, for instance, the approach to damages taken by the jury certainly did not correspond to the way I was taught as a young lawyer to calculate out the range of reasonably likely damages under the elements of Massachusetts’ wrongful death statute, nor with how most Massachusetts lawyers have done it since time immemorial). To account for that, the presenters gave a very detailed demonstration of exactly how the jury in a recent nuclear verdict calculated such a large number.

Their presentation was excellent, but I wanted to comment on one particular point where my thinking on nuclear verdicts departs from that of the presenters. No matter how many statistical data points are presented showing that nuclear verdicts are increasingly not outlier events, and no matter how many other factors are also present (I put a lot more stock on certain social inflation factors and the cultural impacts of ostentatious displays of wealth in this country as substantial contributing factors in this phenomenon than do most commentators), what I find in the cases in my own bad faith docket where either nuclear verdicts have occurred or the risk of one occurring has led to settlement is the existence of very unique, sui generis fact patterns that placed the insured (and thus the insurer) at great risk. This was true in particular of the example used in the speakers’ presentation to demonstrate the making, so to speak, of the sausage of a nuclear verdict – you wouldn’t find a repeat of that fact pattern in a court in this country in a thousand years.

My point in beating this particular drum, which is one I have been beating for years, is that understanding the unique confluence of factors that give rise to nuclear verdicts is crucial to accurate, thoughtful and proper claims handling during the time that a potentially explosive claim is pending, when the eventuality of a nuclear verdict can still be avoided. Trying to put Humpty Dumpty back together again after a jury has returned a nuclear verdict is a lot harder than evaluating and, if need be, settling a claim before that can happen. Avoiding a nuclear verdict, though, requires paying close attention to the details of the claim while it is progressing and being aware of whether it presents the type of scenario that might give rise, at trial, to a nuclear verdict. If you miss the warning signs, you also miss the opportunity to avoid the myriad problems for insurers that are triggered by a nuclear verdict, problems that only begin with paying off the judgment and spiral from there into bad faith and coverage problems.

This is a terrific article by Crowell and Moring’s Paul Haskel on the use of alternative fee arrangements, particularly contingency fee arrangements, by large law firms to supplement the revenue generated by traditional billable hour defense work. The author makes three points: first, that large firms have been doing this for years but it is now growing (and in my view, larger firms are now more open about it than they used to be); second, the tactic can significantly boost firm revenue in years where a case returns a recovery, but creates inconsistent revenue streams because in other years, no revenue is generated from the cases; and third, some firms are using litigation finance to smooth out the impact on revenue of that volatility.

Most of my work has always been based on the billable hour, and much of it has always been in the capacity of a defense lawyer. However, I have always been open to, and in many ways preferred, alternative fee arrangements, whenever they are feasible and the client is interested, including flat fee arrangements. I like the extent to which they align client and attorney interests, result in both having “skin in the game,” and allow me the freedom to closely investigate or study strategies or theories that might not pan out without concern that I am impacting the client’s finances by doing so since the flat fee or other alternative fee arrangement has already capped the client’s financial responsibilities.

Much like the scenario presented in Paul Haskel’s article, I have often used contingency arrangements when representing plaintiffs in ERISA litigation, and have found that, as Paul notes, they can significantly boost firm revenue in years where there is a recovery. As Paul also hints at, however, the key is being very good at evaluating and selecting the cases to bring, so that the odds of eventual recovery are sufficient to justify the time invested in the action and the carrying cost of that investment.

In ERISA actions, though, there is one additional variable that comes into play, which is the availability of a fee award to a prevailing plaintiff. If properly factored in by counsel at the outset, the possibility of such an award can allow for different ways of structuring alternative fee approaches to representing plaintiffs, beyond simply traditional contingency fee awards of the type addressed in the article.

A significant fee award can also reduce the impact on the plaintiff or plaintiffs of a contingency agreement. In at least one case I handled on contingency, the attorney fee award, combined with pre- and post-judgment interest, resulted in the plaintiffs recovering over one hundred cents on the dollar of their losses, even after paying counsel. Granted, that’s a “perfect storm” type scenario, but it can happen, although only thanks to the fee shifting provision of ERISA.