I was pleased to read this article in Massachusetts Lawyers Weekly, as well as the recent Supreme Judicial Court decision it references. For several years, I have been arguing that in insurance coverage disputes involving sophisticated insureds, Massachusetts courts are moving away from their historic reliance on pro-insured maxims in deciding coverage disputes in favor of a more traditional contract law approach to deciding such disputes. For many lawyers who, like me, have been practicing insurance law in Massachusetts for decades, our experience for many years was that Massachusetts courts considering disputes between insureds and their insurers would frequently fall back on what I call “tie goes to the runner” maxims, such as the rule that ambiguous policy language must be interpreted in favor of the insured, to find in favor of insureds in such disputes. Over the past handful of years, though, it has been clear to me that state appellate decisions were cutting against that approach, in favor of rubrics that favored identifying and then enforcing the apparent contractual intent of the parties, at least when the insured was a sophisticated entity. Unfortunately over the years, there has not been an appellate decision that could serve as a ready and easy touchstone for making that argument, but that now seems to have changed.

As Massachusetts Lawyers Weekly points out in the article, with affirmation from a number of prominent coverage lawyers, a recent state supreme court decision decided a complex coverage action by determining and then enforcing the contracting intent of all the parties – both the insured and the insurer – to decide the scope of coverage, rather than invoking other maxims or rules to reach its decision. The Court declined to find coverage for a risk not addressed in the policy language itself, stating that “[g]iven the express allocation of risk and the sophisticated parties that contracted to allocate this risk, we decline to imply a common-law duty to fill in the gap in coverage.” The Court held that the parties – both the insured and the insurer – were sophisticated entities who negotiated the extent of the risk transfer between them and that there was no basis for the Court to make a reallocation of their decision by reading benefits into the policy that the parties did not expressly include within it. One leading coverage lawyer called the decision “a refreshing recognition of the sanctity of contract.”

To me, the decision is another marker on the journey of Massachusetts insurance coverage law from a regime in which extracontractual rules of policy interpretation (which inevitably favor insureds) control the outcome of disputes to one more in line with traditional rules of contractual interpretation, in which the guiding principle is to try to identify as precisely as possible what the contracting parties actually intended to accomplish by their written agreement.

I enjoyed this article from Middle Market Growth on the intersection of private equity investing and ESOPs. As the article points out, most people think of ESOPs as fully employee owned enterprises, but in fact there are partially employee owned companies where there is room for private equity investments elsewhere in the ownership structure and outside of the part of the company owned by the employees. The article speaks very favorably of these types of scenarios and notes that these types of transactions can greatly benefit the investment itself and the investment target, as well as the employees. I find this proposition wildly noncontroversial. As I have written elsewhere with regard to employee ownership, turning employees into stakeholders is beneficial to the particular company’s employees, to (as the article also points out) the company’s prospects and performance, and, in my view, to society as a whole.

However, one point not noted in the article is the need to ensure that these types of transactions treat the employees fairly and bring matching – and depending on the transaction identical – benefit to the employees as it does to the non-employee owners. I have litigated cases where that was not the case, and this is a quick route to expensive litigation involving the ESOP. For instance, in one of my cases, private equity bought the company through a structure in which both the employee stock holdings and the shares of the company’s other owners were acquired. Although the discrepancy, and the impropriety of it, was not obvious as it was buried within the nature of the transaction and obscured by the timing of different steps of the transaction, the buy out resulted in a higher purchase price being paid to the majority, non-employee owners than was paid to the employees for their share of ownership. This eventually led to litigation intended to rebalance the funds paid to purchase the company so as to eliminate the discrepancy.

It is important to pay attention to these types of details when private equity becomes involved in investing in an ESOP. Unlike a classic private company transaction, complete freedom of movement in designing the terms of a deal doesn’t exist with an ESOP, due to the obligations running to the ESOP itself and the employee owners.

One of the advantages of writing a blog on a particular subject for as long as I have – going on 17 years now – is that you become your own sort of institutional memory, in a way. When I saw this article in Forbes today, discussing barriers that the NFL’s disability system throws up in front of injured players, I immediately remembered writing about this same issue back in 2007, as you can see from this post.

I try to be an evidence-based skeptic and I admit that I cannot tell from the anecdotes used in the Forbes article whether the system is still as broken as it was when Mike Webster, the former Steelers’ great, struggled to obtain benefits decades ago. If it is though, or even if the improvements to the system since then have only been marginal, then it is well past time for a systemic fix.

There is an excellent article in Massachusetts Lawyers Weekly this week by Eric Berkman on a new District Court decision by Judge Woodlock in Massachusetts concerning mental health benefits and the nature of the review provided by an insurer. The decision, K.D. v. Harvard Pilgrim Healthcare, found that the insurer had an insufficient basis for denying out of network benefits to the insured because the insurer failed to directly address and refute the insured’s medical basis for seeking the out of network treatment. To me, the decision reflects a move toward a more searching analysis of the administrative record to determine whether a denial was proper, and away from allowing insurers to deny benefits based on general conclusions as to the overall body of evidence.

I am quoted in the article, explaining what I see as the lessons for both plaintiffs and defendants in the case:

Stephen Rosenberg, an ERISA attorney in Boston, said the decision provides important lessons for attorneys representing ERISA claimants and insurers alike.

For plaintiffs’ attorneys, the case highlights the need to master the evidentiary record and call attention to specific instances when a denial is made without the plan administrator specifically grappling with and rejecting evidence in the record that is contrary to the denial, he said.

And for defendants and their attorneys, Rosenberg said, the case demonstrates the risk of relying on broad arguments that the overall weight of the record supports the denial.

“Instead, [they should] be shifting their focus to proving that … the administrator directly grappled with and then reasonably rejected the arguments and supporting evidence focused on in the administrative process by the claimant and his or her medical providers,” he said.

I attended a large legal conference (DRI’s Insurance Coverage and Practice Symposium) in person last week for the first time since the pandemic, and not only learned a lot, but had a great time (shout out in particular to the kitchen staff at Capital Grill and props to the bartender at the Whitby Bar, among others). In olden days, I would sometimes live tweet from conferences, both to share what I learned in real time and also to lock into my memory what I was learning but I wasn’t inclined to do that at this conference, since if twitter isn’t good enough for Elton John, it’s probably not good enough for my random thoughts on legal issues either. So instead, I captured in real time the same thoughts I would otherwise have tweeted out during the conference, and turned them into this blog post. I haven’t tried this approach to sharing information from a multi-day conference before but let’s see if it works.

Top ten lists are a mainstay at these types of conferences, and Matt Foy of Gordon Rees gave a presentation on the top ten insurance law decisions of the past year. Several were of particular interest, and at the risk of giving short shrift to the depth of Matt’s discussion of the cases (remembering, of course, that in years past my comments on these cases would have each been no more than 140 characters, so the following comments have the depth of “All Quiet on the Western Front” in comparison to what I would have written in the past), I comment on them briefly here.

First, most who practice in this area likely already know that courts have generally rejected claims seeking coverage for Covid related losses by businesses. Matt reviewed some of the most important decisions to this effect to date, and pointed out five recent state Supreme Court rulings to that effect, including in my home state of Massachusetts. He also quantified the extent to which these disputes are running in favor of insurers, with over 80% of such claims against insurers being dismissed. Second, I took particular note of his discussion of new case law concerning whether privacy class actions are covered by policy language covering publication of material that violates a person’s right of privacy. Although it seems like just yesterday, the first article I published was approximately thirty years ago concerning “The Expanding Scope of Advertising Injury Coverage” and addressed similar attempts to expand coverage under these types of coverage grants. The more things change, I guess. . .

Third, Matt highlighted a decision concerning whether claims involving cyber viruses are precluded from coverage by war or hostile act exclusions, which was particularly interesting because these types of exclusions always and only seem to arise under particularly interesting fact patterns. And finally with regard to his list of cases, Matt noted that on limited case law to date, the statutory violation exclusion in policies has not been found to bar coverage of biometric litigation in which the insured is claimed to have violated statutes precluding distribution of biometric data. This one caught my eye because one of the many things I have learned in the past three decades is that the statutory violation exclusion seldom gets applied as broadly as its language would seem to suggest.

I also greatly enjoyed the presentation by Ford Stephens and Alex Henlin about jurisdictional and similar issues in prosecuting declaratory judgment actions in insurance coverage disputes. The biggest takeaway for me, as I shared with Morrison Mahoney’s Larry Slotnick, who had the luck (good or bad, you make the call) of sitting next to me and thus being subjected to my commentary, was the reminder that insurance coverage litigation is a practice area for civil procedure buffs, and that young lawyers should probably be told at the start of their careers that if they didn’t geek out about first year civ pro in law school, this probably isn’t the practice area for them.

I likewise took a lot away from the bad faith presentation on the last morning of the conference by Matt Lavisky of Tampa’s Butler Weihmuller Katz and Aaron Singer of The Hartford. Having spoken at a number of conferences over the years, I can say with confidence that it’s not the easiest thing in the world to entertain a large crowd of lawyers at 9 in the morning on the last day of a conference, but they pulled it off with ease (with a little help from an entertaining mock – at least I hope it was mock – version of a televised lawyer advertisement). I found their presentation a valuable reminder of the extent to which, regardless of jurisdiction, gamesmanship, intended to set up an insurer, is so often central to bad faith litigation, rather than the merits and value of the insured’s claim itself.

Finally, on a more serious note, Kathy Maus and Ilana Olman gave a very informative, if very sobering, presentation on the insurance and settlement issues arising out of the catastrophic Surfside Condominium collapse. I note that they emphasized the point that, because of various aspects of the case, the true cause of the collapse may never be determined. That said, though, their presentation took me back to the several years I spent as an A&E (architects and engineer, not arts and entertainment, which likely would have been a lot more fun) coverage lawyer, and the extent to which so many significant construction loss claims seemed to arise, at root, from a race to the bottom with regard to maximizing profit or reducing regulatory oversight; I certainly have no basis to know whether this was the case with regard to the Surfside collapse, but Kathy and Ilana’s presentation certainly reinforced why vigilance against that dynamic is always important in the construction context.

Albert Feuer, who writes frequently on the technical aspects of ERISA compliance, has published an interesting new article in Bloomberg Tax’s Tax Management Compensation Planning Journal on the latest proposed legislation to alter retirement savings. Albert points out that the changes would help in allowing employees to increase their retirement savings, but would fail to either address the complexity of the system or the extent to which it allows a small percentage of taxpayers to use retirement accounts to shelter massive amounts of wealth far beyond that needed to fund retirement. I am much more sanguine than is Albert about the inequity built into the system reflected in such sheltering, as it seems to me to be of a piece with innumerable aspects of the tax code that favor the already wealthy over those aspiring to someday reach that status. I do, however, share his concern about the complexity of the retirement system, which he believes proposed legislation will not only fail to reduce but will instead actually increase. If I had a dollar for every case I have handled where the underlying cause of the problem was simply the complexity of the system, which in turn gave rise to operational errors that had to be remedied, I could, well, retire.

More important in regards to the points Albert makes in his article, I think, is that the complexity reinforces and in many ways increases the inequities built into the system, by making it harder for smaller employers to provide retirement benefits and for employees, across the board and regardless of the size of their employer, to access and make use of them. For instance, time and again, I see cases where, through inadvertent oversight or simple ignorance, employees foul up the rollover timing or process, losing the ability to maintain their tax deferred retirement status, in circumstances where they simply want to be able to maintain the tax sheltered status of their retirement accounts. Why, in the name of encouraging good retirement outcomes, do we turn this process into a game of gotcha whereby employees can, through negligence or sheer ignorance, lose the tax deferral on their account balances because they fouled up the rollover process or timing, instead of just allowing employees a far greater degree of leeway in this regard than the rules currently do?

Similarly, it is probably only a slight exaggeration to say that there has never been a time where I haven’t had at least one dispute open on my desk involving a small employer trying to remedy operational errors in its retirement plan. It is simply too complex an area for small employers, who are not trying to do anything fancy but instead simply trying to provide industry standard defined contribution plans for their employees. Adding to the level of complexity, as Albert fears new legislation would do, would simply increase this barrier to adoption or operation of retirement plans by smaller employers.

Anyway, if I were to build on Albert’s article, or respond more directly to his thesis, I would suggest he worry less about the inequities and more on the complexity – which I think in and of itself plays a significant role in increasing the inequity in retirement preparedness that he is concerned about (after all, I have never seen someone with a so-called Mega IRA – meaning one vastly exceeding anyone’s retirement needs – who didn’t also have access to enough professional expertise to avoid the traps and risks in the operation of retirement accounts).

I had another conversation yesterday with a financial advisor about bitcoin and crypto in 401(k) plans, a subject on which I have written skeptically in the past. As I am wont to do, I again questioned whether the hunger to add crypto to defined contribution plans is in employees’ best interest, or whether instead someday, in hindsight, many will compare this aspect of crypto-lust to the now apparently forgotten era when employees, intoxicated from the spiraling increases in the price of their employers’ stock, overinvested in company stock in their retirement holdings and eventually lost their shirts. Regardless of what I may think, the train doesn’t seem to be slowing down in this regard, as this article from the Wall Street Journal yesterday seems to reflect.

Attorney fee awards under ERISA loom larger in the imagination of lawyers and, to the extent they note it at all, the public than they do in the real world. It’s likely due to the outsize coverage that the occasional very large fee award, usually entered as part of a class action settlement, receives in the media. In truth, though, while ERISA is one of the few areas of the law where a prevailing party has a right to a fee award, they aren’t actually granted all that often, simply because relatively few cases actually reach that stage of the proceedings. Most ERISA cases either end with a defense win (fees can technically be awarded to a prevailing defendant, but it seldom happens and when it does, only under very unusual circumstances) or settle without a fee proceeding ever occurring. As a result, there just aren’t nearly as many judicial decisions on fee determinations under ERISA, particularly in the non-class action context, as you would think, and there are particularly few in the First Circuit.

That said, and to some extent partly for that reason, I wanted to note this recent fee decision under ERISA out of the United States District Court for the District of Massachusetts, Holt v. Raytheon. I think it’s notable for a few reasons, which I wanted to mention in passing:

• The hourly fee awarded to plaintiff’s counsel is reasonably commensurate with the hourly rates of much of the ERISA defense and compliance bar. The legal skill needed to actually win a case for a participant shouldn’t be underestimated, and it is good to see the Court recognize that with a corresponding billable rate.

• The Court unequivocally recognizes remand to the plan administrator as sufficient relief to warrant a substantial fee award. Defendants often challenge substantial fee requests when the relief awarded was remand by arguing that the level of success didn’t warrant the amount of time invested or the amount of fees sought. Remand, however, in this context, is a difficult relief to obtain and often has nearly or the same value to a plan participant as does obtaining an outright award of benefits from the court. This is partly because remand, for various reasons, often leads to a settlement rather than to the continuation of the dispute.

• Defendants often argue to the court that the hours invested by plaintiffs’ counsel were excessive and the accompanying fees should be reduced accordingly. However, in my experience (which encompasses both representing defendants and plaintiffs, as well as both defending against and prosecuting fee requests), both defense counsel and courts often underestimate just how much time it takes to properly and effectively prosecute a claim on behalf of a plaintiff. The decision in Holt reflects a reasoned and conservative approach to reduction of the hours claimed by plaintiff’s counsel.

I am quoted in an excellent article in Pensions & Investments by Robert Steyer on the use of independent fiduciaries when providing employer stock in company retirement plans. As many of you probably know, the Supreme Court’s decision a few years back in Fifth Third Bancorp vs. Dudenhoeffer raised the pleading bar substantially for plaintiffs seeking to recover under ERISA from plan fiduciaries when the value of employer stock drops dramatically due to a downturn in corporate fortunes. Interestingly, when Dudenhoeffer was decided, it wasn’t immediately clear to what extent the decision was good or instead bad for the plaintiffs’ class action bar and, in a mirror image, bad or instead good for plan sponsors. Over time and as fleshed out in further litigation in the lower courts, it became clear that the decision, and the increased pleading standard it adopted for these types of cases, was overwhelmingly good for plan sponsors and simply terrible for plaintiffs.

A recent decision by the Seventh Circuit concerning employer stock held by participants in a Boeing retirement plan gives an excellent overview of the issue and its history. As I noted in the Pensions & Investments article, the decision “almost reads like a law review article” on the subject. The article focuses on one particular aspect of the decision, which is the weight given by the Seventh Circuit to the fact that Boeing delegated decision making authority with regard to that employer stock to an independent fiduciary, who was walled off from the internal dynamics of Boeing and from any potentially relevant inside information that could affect the market price of those stock holdings. The decision, consistent with other case law, makes clear that plan sponsors who use an independent fiduciary in this way effectively insulate themselves from these types of claims.

In my view, the biggest value to using an independent fiduciary in this context is that it dramatically increases the likelihood that a plan fiduciary, sued for the drop in value of employer stock held by employees in a benefit plan, can end the case at the motion to dismiss stage. As I discussed in the article:

The appeals court’s ruling plus the Supreme Court’s Dudenhoeffer decision build an even tougher defense against stock-drop lawsuits, improving the odds that a complaint will be dismissed, he said. “After you get past the dismissal stage, you can spend a fortune in discovery — or you settle,” said Mr. Rosenberg, referring to the data-gathering and data-sharing process that is necessary if a judge rejects a motion to dismiss.

In class action defense, particularly with excessive fee, stock drop or other types of suits against ERISA plan sponsors and fiduciaries, the key is to end the case at the motion to dismiss stage – otherwise, the cost of litigation, combined with the potentially sizable exposure if the plaintiffs prevail at either summary judgment or trial, almost always makes settlement the best option for defendants. As a result, for a defendant, anything that increases the likelihood of ending the case at the motion to dismiss stage is significant and, as the Seventh Circuit has made clear, using an independent fiduciary in a retirement plan dramatically increases that possibility.